Boston Scientific Corp (BSX) 2003 Q3 法說會逐字稿

Ladies and Gentlemen, thank you for standing by.

Good afternoon and welcome to the Boston Scientific Corporation's third quarter earnings results.

At this point, all of your phone Lines are muted or in a listen only mode, however, later in the earnings release there will be opportunities for questions an those instructions will be given at that time.

Just as a note, if you should require any assistance during today's conference, you may reach an AT&T operator by pressing "*"then "0" on your phone keypad.

As a reminder, today's call is being recorded for replay purposes and that.

Information will be announced at the conclusion of our results well that.

Being said, here is our opening remarks is Boston Scientific Corporation's Senior Vice President and Chief Financial Officer Mr. Larry Best.

Please go ahead, sir.

Thank you and good afternoon.

The purpose of today's call is to review the results for the third quarter.

On the call today I have with me Paul LaViolette, Head of our Cardiovascular Group.

Steve Moreci Head of our Endo Surgery Group and Jim Tobin is with us.

We will have a review of the financial.

I will go through some of the highlights in the quarter.

I'll turn it over to Paul LaViolette for his commentary on the quarter with regards to the cardiovascular group.

Steve Moreci will follow up on the endo surgery group and of course our Chief Executive Officer James Tobin with us.

We will have a review of the financial I will go through some of the highlights in the quarter.

I will turn it over to Paul LaViolette for his commentary on the quarter with regard to Cardiovascular group.

Steve Moreci will that follow up on the Endo surgery Group and perhaps James couple of comments before we turn it over to questions and answers.

Before we begin, because we will obviously have some forward-looking statements commentary, let me ask Paul Donovan our Head of Corporate Communications to read the safe harbor clause.

Paul?

Thank you, Larry.

This conference 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 h adversely affected by among other things risks associated with new product development and introduction clinical trials prohibitory approvals competitive offerings intellectual property, litigations the Company's relationship with third parties.

The company's overall business strategy and other factors described in the company's filing with SEC.

Thanks, Larry.

Thanks, Paul.

Let me, for those of you who may not have got up with the release that went out an hour ago.

Let me read briefly the content and then we'll get into some highlight commentary.

Net sales for the third quarter increased 21% to $876 million as compared to $722 million for the third quarter of '02.

Excluding the favorable impact of $27 million of foreign currency fluctuations net sales for the quarter were$ 845 million an increase of18%.

Net income for the quarter excluding net special charges increased 38% to $137 million or 32 cents per share diluted as compared to $99 million or 24 cents per share excluding net special credits for the third quarter of '02.

Reported net income for the quarter including net special charge of $13 million after tax was $124 million or 29 cents per share as compared to reported net income of $161 million or 39 cents per share for the third quarter of '02.

The third quarter of '02 included special after tax credits of $62 million and some of you might remember that was related to an intellectual property dispute with Medtronic.

The net special charges for the quarter included purchase and processed research and development costs of $8 million after tax or two cents per share related to acquisitions as well as $5 million after tax or 1 cent per share in payments made related to product liability settlements.

The share amounts do not reflect the previously announced two for one stock split which is scheduled to take effect on November 5th.

Let me turn to some highlights in the quarter in terms of top line and then review the income statement briefly and give you some guidance on outlook for Q4.

First half, it was a record quarter in terms of sales.

Again, we were very pleased to see the breadth of growth and depth of growth, both our cardiovascular group and our endo surgery group grew double digits on a constant currency basis and obviously double digits on an as reported basis.

Also, both our domestic business and our international business grew solid double digits in the quarter.

So we're seeing growth throughout Boston Scientific, each team is performing quite well.

To give you more specifics our cardiovascular business in the quarter on a as reported basis grew 25%, and on a constant currency basis 21%.

So very strong growth in cardiovascular world wide and Paul will get into more specifics but obviously was driven by the continued successful launch of our taxes including stent technology.

On elective physiology our EP business with flattish as we go through a product mix and transition.

Was up 4% on an as reported basis.

When you look at neurovascular really a breakout quarter for neurovascular group.

Neurovascular grew 38% in the quarter on an as reported basis grew 31% on an constant currency basis.

That's driven by the successful launch of our matrix coil and our new intercranial stent, the neuro form stent.

Paul will touch on that in a few moments.

So overall our cardiovascular group 25% in the quarter as reported and a very strong 20 % on a constant currency basis.

Moving on to our endo surgery group, oncology or oncology business grew 13% as reported 12% constant currency.

Our GI endoscopy business grew 13%, 10% on a constant currency basis.

And I -- did we lose anyone?

Hello?

I'm here, sir.

I -- the light on the conference call went out.

No, we hear you just fine.

Please continue.

OK, great.

Let me go on back to review endo surgery.

Oncology was up 13% constant currency.

I'm sorry, 12 % constant currency, 13% as reported.

GI endoscopy was also up 13%, 10% constant currency, for such a largest component of the endo surgery group nice solid group Urology grew 15% as reported, 12% constant currency.

The overall endo surgery group worldwide grew 14% as reported and a 11%constant currency.

So you can see both our cardiovascular group and our endo surgery group had very solid growth in the top line during the quarter.

And overall growth was 21% worldwide and 18 % constant currency.

Let me move over to the specifics on the geographical breakdown.

Our domestic business grew 12 % in the quarter.

And our international group saw very strong growth, again, fueled by the success of our Texas product.

Europe was up 50% in the quarter and 32% on a constant currency basis.

Japan still awaiting the express stent hopefully later this year and our Taxus later in 2005 was up 8%, 6% constant currency.

So even with a declining coronary stent product line in Japan, we saw nice growth.

Inter Continental was the highlight in the quarter, grew 72% and on a constant currency basis, grew 60%.

Overall our international business grew 36 % as reported and 26 % on a constant currency basis.

So, again, 12 % domestic, 36 % international, and that combined for a 21% top line as reported growth rate.

Now for those of you for modeling purposes let me just run through the domestic raw numbers and then you can get to your international numbers by division.

Cardiovascular number in the quarter was $284 million, electro physiology was $18 million. neurovascular was $19 million.

Overall cardiovascular group in the quarter in the U.S. was $321 million.

Moving on to the endosurgery group, oncology in the U.S. $27 million, endoscopy in the U.S. $87 million, urology in the U.S $ 46 million.

For an overall endosurgery group number of $160 million for a combined totally of $481 million total sales in the U.S. in the quarter.

Let me turn to our income statement for a moment.

Net sales as reported grew 21 %.

We saw a nice improvement in the gross margin.

Our gross margin line grew almost 24 % so we had some good leverage there.

Our SG&A grew 18 1/2% on a 21% top line, so we saw a little leverage there.

R&D however was up 29, rounded off 30%.

Operating expenses as a whole grew 22% in line with top line growth.

But because of the margin improvement, we contributed operating income growth of close to 29%.

So 21% top line growth and a 29% operating income growth rate.

Then we get to our below the line, below income before income taxes.

And we had a very nice movement in our effective tax rate.

We continued to see our product mix internationally both well for our tax strategy with more and more production in tax advantaged countries.

We also continued to close out audits around the world with tax authorities.

As a result, in the third quarter, we are able to bring our effective tax rate down to 25% for the quarter and we actually are forecasting for the year an effective tax rate of 25%.

As we look out in '04 and '05 right now, we're projecting that our effective tax rate will be 25%.

As a result in the third quarter, the effective tax rate in coming down from 27% to 25%, had a one cent per share impact, then the cumulative adjust otherwise adjusting the first half in the third quarter from 27% effective tax rate to 25% effective tax rate allowed us another penny on the bottom line.

So the EPS, if you reconcile it, two cents per share was driven by a lowering of our effective tax rate.

That would give you a 30 cent per share on an apples to apples with the first half effective tax rate at 27 percent.

So that's how we got to 32 cents per share.

Increasing improvement in the effective tax rate.

And as I mentioned, we believe that the 25% rate will apply to '04 and '05.

So that's a brief overview of the sales results by division and geography and the P&L.

We did see on the P&L, a point-and-a-half increase in gross margin and that really drove up the operating income line to be leveraged.

To review, where we are nine months a year-to-date, if you recall, we had a meeting with analysts in Wall Street in January of this year.

Our guidance for 2003 through the nine months was that revenue would come in or sales would come in at $2 billion, 489 million, with an 89 cents per share, today what we're reporting year-to-date nine months is improvement on both fronts, $2 billion, 537 million top line and a 90 cents per share.

So we're pleased to report that that our projections and guidance in January turned out to be relatively accurate.

And so we're very excited about that.

As we look into our crystal ball on the fourth quarter, the outlook is not too dissimilar to what we forecasted and guided the street to in our mid quarter -- or mid year conference call in July.

And our outlook for Q4 hasn't changed much.

Right now, we're guiding our guidance is 860 million top line to a range of 900 million.

So 860 to a 900 million top line sales number for the fourth quarter and an EPS of 28 to 32 cents per share.

Keep in mind that at the beginning of the year, in January, we felt we had a shot at getting approval for taxes in the U.S. in December and getting launched in December with about $25 million in the -- at the sales line.

We no longer are forecasting that.

We had a 920 top line sales number for the fourth quarter.

We are now ranging it between 860 and 900.

And obviously most of the range is driven by what happens to bear metal stents in the United States and what happens to our continued success with Taxus in Europe and inter Continental countries.

So again our guidance range for the fourth quarter 860 to 900 top line, 28 cents to 32 cents a share on the EPS line.

Also want to remind you that we plan to have a look at '04 and a look at '05 in February of '04, we will be meeting on the 23rd in New York to go over '04 and '05 in a more complete fashion.

With that, let me turn it over to Paul La Violette to focus on the cardiovascular group and results for the third quarter.

Paul?

Thank you, Larry.

I'll spend a few minutes on overall highlights in both numbers and commentary and then I'll include throughout that some Taxus details.

Our overall U.S. cardiovascular business, which includes interventional cardiology, peripheral intervention and vascular surgery, as Larry mentioned was up 11%, 34% outside the United States for an average world wide rate of 25%.

So those numbers were driven obviously by strength specifically in our interventional cardiology business with stents here and drug eluting stents internationally and I would say really a strong quarter in all regards.

Our U.S. interventional cardiology business, stent along cardiology business up 17%, internationally up 39% for an overall performance of 32% outside the United States.

When you add in the electrophysiology and neurovascular businesses, world wide cardiovascular up 25% and that's driven by 30% international growth.

Now international, where we have launched Taxus in all major markets excluding Japan performed exceptionally well.

Europe in the aggregate, as Larry mentioned, was up 50% although the cardiology business in Europe was up 64%.

In inter Continental in the aggregate up 72% although the cardiology business in inter Continental were up 90% year over year.

The one reason where we have not launched Taxus but also not launched the express, the Japan business still dependent upon the nearest stent was down 4% in cardiology.

That averages out to a 39% overall cardiology growth for international but in those markets where we have launched Taxus which is all of international excluding Japan, our cardiology business grew 74%.

International Taxus sales in a little bit more detail look as follows.

First of all, we have previously described that our plan, our policy was not to report revenues for international Taxus sales until we launched in the United States.

But as Johnson and Johnson has reported their number, we decided we would provide you that detail as well.

Our international sales of Taxus in the third quarter were $64.1 million, making Boston Scientific the market leader in drug eluting stents outside the United States for the quarter based on actual reported sales.

Taxus sales in the third quarter exceeded Taxus sales in the second quarter by 100% and now represents 75% of stent revenues in our Europe and inter continental regions.

By the standard methods that we have used and we've used these repeatedly in our analyst meetings for both penetration and market share, our European penetration exited Q3 at 15% for all drug eluting stents up 2% over the second quarter.

And our share was 65%.

Now, as we look at the next few months given that France has now reimbursed the sacrificer(ph) stent we expect the penetration in Europe will increase and our share will decrease as we do not participate in France, although we do expect that we will receive reimbursement in France in the fourth quarter.

On the inter continental side, penetration in all markets grew to 32% in the third quarter and we believe our share in the n these markets exited Q3 at about 70%.

So very strong Taxus performance and very strong momentum.

If you expand you're perspective it total international stent sales including bare metal stents, drug eluting stents and our Japan business, we reached the $90 million level in Q3 up 171% versus the prior year and importantly up 49% sequentially.

So very strong momentum in our sent business and as Larry indicated previously, Japan turned in $4.8 million of near stent sales, those sales are down 54% versus prior year representing about a 7% market share in Japan.

And obviously that's near based an we are on track to launch the express stent in Japan in the first quarter.

Excluding Japan, our international stent sales totaled $85.6 million, up 273%year over year.

So we're very pleased with our Taxus performance in all markets we're very pleased with our leadership position in the international drug eluting stent market overa all

Our U.S. business remains very healthy in light of the ongoing drug eluting stent con version.

Main tined a 26% share in the quarter with revenues of $45 million that's 31% over last year, but about 24% below Q2 as bare metal stent market declines to the drug elite law suiting stent conversion.

ASPs were essentially flat down just a few percentage points an maintaining at about the thousand dollar level.

Our balloon business was very robust.

Up 33%year over year in the United States and 19% world wide obviously well ahead of procedural rates.

Our vascular access franchises were very strong growing ahead of world wide procedures at about 8% including 10% growth rates for guide wire, guide catheters and accessories.

Our cutting balloons were $33 million, flat internationally, down in the U.S. based on price pressure due to the drug eluting stent conversion rate.

Our IVIS business was extremely strong up 24% world wide aided in part by galaxy console sales because IVIS is now a preferred methodology for some pharmaceutical studies because the sensitivity of IVIS as a primarily end point is being recognized so we're selling equipment into account that doing drug studies.

The filter wire, as you mow, we launched that about a quarter ago, it's had a very strong quarter, we assume market leadership and protection revenues, we trained about 400 physicians in the third quarter and that was on filter wire EX.

We've also filed our 5-10 K we expect to launch that round about the end of the year.

Our peripheral vascular business was very stud did he up world wide led by stent growth of 9%odds and world wide basis.

So, overall U.S. cardiology business was very strong. 31% stent growth, 33% balloon growth, access products outpacing the market growth.

New technology contributions that involve protection and robust franchises in IVIS and cutting balloon and other areas.

And of course, all of that with drug eluting stents still to come.

So let me give you a few minutes of updates regarding drug eluting stent preparation for the United States.

First of all, everyone is aware, we have a panel meeting for November 20th in our preparation for that is intense, ongoing and as we expect.

We have filed our comprehensive briefing document with the FDA, we're preparing and reviewing presentation that incorporate clinical and preclinical updates as well as our technology reviews and we consider ourselves to be in pretty good shape for that.

So we're looking forward to November 20th.

On the clinical front, Taxus for 12 month data.

We have now monitored all the patients for that follow-up time frame and will present that at the American heart association in November.

Taxus 5 is now enrolled to 11, about a 1080 patients just shy of 1100.

We have completed all sub set enrollment there with the exception 6 long legions.

Taxus 6, we've essentially completed our nine month follow-up on all patients and will present that data at PCR in May.

Now, let me give you some supply updates.

You may have heard some shipping delays internationally, we have had actually had some very limited back orders.

And we are on an allocation for one size of Taxus.

We are fully un constrain on all other sizes and we expect to be fully unconstrained once again on everything, all sizes, all configurations in a week or see.

So we've had a very minor disruption.

What we consider to be a one-time event.

We're actually in a position to complete our international inventory build-out based on our strategy to build inventory buffers for international and then to convert all of our plant capacity in both gale and Minneapolis to 100% t support U.S. launch we expect to be in a position to do that within the next several weeks.

We also expect to be in a position to launch with full launch quantities and our 100% replenishment rate for our market share expectations by the middle of January.

So the ramp for operations is going exceptionally well.

We have been very pleased with in some ways surprised by the strength of our market share internationally and that, I think, complements a very strong U.S. business.

So in summary, for the third quarter, excellent momentum, excellent stability in our businesses, we've got leadership in drug eluting stents outside the United States, I think everyone is aware taxes for data was extremely well received by the market and we're on plan for our U.S. launch expectation and with that, I'll turn over to Ssteve Marcie.

There's very much, Paul.

Surgery achieved a mile stone by posting a quarter of a billion dollars worth of revenue.

Ela phasing (ph)growth rate On a constant currency basis.

As you know, ENDSO surgery is comprised of three business units.

They are GI and pulmonary endoscopy, neurologist and gynecology and oncology.

Although over the next few minute I'll review some of the key Q3 highlights for each business and then close with a brief comment on Q4.

First endoscopy.

A strong rebound in U.S. sales led by strength in the franchise, the U.S. introduction of a major new product in turks and double digit international growth helped drive sales up 10 percent world wide.

Endoscopies largest franchise bill year benefit from several new products recent introduced into the proprietary RX line.

These new products combined with improved product quality and a refocused sales effort helped build the momentum across the entire endoscopy business.

Endoscopy's largest new market opportunity gerd became reality with introduction and terks or endoscopic injectable treatment for gerd symptoms.

As expected, in tark sales ramped slowly due to FDA mandated precession time requirements and a lack of reimbursement.

However, enthusiasm for the tark technology remains high.

Based upon important peer review data published in September and 24 month data presented last week at the American college of gastroenterology.

The 24 month data showed no statistical difference in outcomes when compared to the 12 month data.

Published peer review data along with a concerted effort to promote intearic therapy to private payers and hospitals is the key to gaining appropriate reimbursement.

The endoscopy team has in order to have build a success for intearics over the long-term.

Second business I want to discuss with it is urology and gynecology.

A strong quarter for stone management and several new product introductions in both franchises led the urology and gynecology business to a solid 12% growth world wide.

In urology, sales and increased 11% on a strength of two new kidney stone line extensions and the biggest quarter to date for laser fibers.

Sales for our laser fiber product were up over 50%.

In addition, sales of guide wire and major component of the stone management product line has strong quarter growing 15%.

Given a market growth rate of 5%, cleared to seat urology franchise posted one of its strongest quarters.

In gynecology, the story continues to be HTA our technology for the treatment excessive uterine bleeding.

Sales of HTA were up 21% over Q2.

The success of HTA helping to build our relationship with the gynacologists and that helps set the stage for two new female incontinence products, advantage and durasphere EXP.

Advantage you are our transvaginal treatment for incontinence has received excellent physician reviews and is now up for launch.

Durasphere EXP a bulk agent just received FDA approval and is now being introduced.

Both products replace aging, slower growing technologies an or expected to help accelerate our gynecologist growth in Q4.

The third business is oncology.

Three of oncology's four major franchise, veinous access, tumerblation (ph) and triple embolization an achieved double-digit growth rates over prior.

In Veinous access incorporate a unique pressure activated safety valve or passive continue to do well.

Passive grand picks and ports were up 35% in the quarter.

We expect this growth to continue as more physicians recognize the unique clinical and cost reduction benefits of passive technology.

In tumor oblation, the oncology team is was successful in expanding its customer base and disposable probe sales.

Probe sales in U.S. increased 54% in Q3.

This success is a result of our comprehensive physician training programs that are providing to be beneficial for both our surgical as well as our radiology customers.

Our Profo embolization (ph) business was up 34% in the U.S. on the strength of sales of contour micro spheres, our contour particles and the renegade high glow Micro Catheter used to deliver embolics.

We were pleased to receive FDA approval to market our contour particles in the use of urine fiberoid embolization or UFE, a procedure that is growing in the excess of 25% per year.

This approval allows the oncology team the opportunity to begin UFE market development activities.

The real push, however, will come when our contour SE micro spheres, the preferred technology for use in this procedure, receives approval for UFE indication in Q1.

So in summary, Q3 was a key quarter for endo-surgery because of several new product introductions Interex, the new RX products in endoscopy, two new line extensions in urology advantage endoscopy EXP in the Gynecology business and several new passive products in addition to the UFE approval for contour particles in oncology.

All these products are in the early stages of introduction and should begin to gain momentum in Q4 setting up the businesses for very strong 2004.

With that, I'll turn it back over to Larry.

OK.

Jim, just a couple of comments.

I would summarize the quarter this way, I think a lot of what could have gn wrong didn't and were pretty much everything that could have gone right did.

Taxus obviously was the main engine, but there were many positive new product driven engines here.

We had a currency tail wind and then the tax benefit is sort of the icing on the cake at the end of the thing.

Net, net though it was a good quarter, but the real story is the next 100 days or so as we move further down the track on U.S. taxes.

So wish us luck in the panel meeting.

Thanks, Jim.

Thanks, Paul.

Thanks, Steve.

Let me turn it over for any questions you may have.

And we'll try to field them.

Very good and thank you, sir.

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Representing CIBC World Markets the first line we go do is John Calcagnini.

Please go ahead sir.

Hello, good afternoon and good quarter.

I wanted to just Paul, maybe talk a little bit about the issue you were referring to earlier that we talked about in our note today, which is give us a details of understanding of what happened with Taxus manufacturing in Galway(ph)?

As specific as you can and how that was resolved.

Because our sense was that at first it was thought to perhaps be an issue.

But then you resolved it?

Yes, John, it was an issue in the sense that we have first of all, we have two elements here that have to converge, one is the manufacturing process and one is the analytical testing and if both of those run well and in fact if both of these even run with variability are, we're generally in pretty good shape.

If we run one to the high end of the spec we can run out of spec.

We've learned how to do that.

And we've learned how to correct that.

So I think it's to our eyes a good learning experience minor disruption, something that we've got extremely well under control.

It happens to effect a couple of sizes because of the queuing of the lots that were coming through, the analytical labs at the time.

So we're going from being a little light in a really two sizes to right now, having essentially a flood of that inventory coming through and we're really going to go to an extremely deep inventory position literally as we speak over the next ten days.

And we're going to put a ton of inventory on the shelves in our international distribution center for the purpose of carrying those markets and again as I've said allowing the full force of both manufacturing facilities to be totally focused on building U.S. inventory.

So we feel very good about it.

It's the kind of thing that has not really cost us any consternation, we learned little something.

We're moving on.

Paul, can you talk specifically, what was being tested that didn't meet spec?

Can you explain that?

We have all those details, but it's really not relevant.

No and we'll have more learning curves and more learning curves and more learning curves.

This is, we're trying to bring up to scale a product that has huge potential.

You're going to, we've only been at it for less than a year.

OK.

Larry, let me ask you one quick and then I'll jump offer.

Bare metal stents are U.S. sales in the fourth quarter, you know, we understand Medtronic has obviously launched the driver.

There's been some, some have been saying they're selling for under a thousand dollar, maybe, Paul, you can comment in that's the case in the U.S.

And what do you think U.S. coronary stent sales will be in the fourth quarter?

Well, first of all, driver is available, it's been in the market for a week and we have seen it at what I would consider to be a conventional bare metal stent prices.

They have taken a very different tack than guidance which continues to maintain I'd say at a minimum of 40 percent premium over stainless steel prices with division.

And the fourth quarter stent number, Larry, I don't know if we've guided on.

I mean that's the number that's soft.

We don't know.

That's why the range is 860 to 900.

Primarily because we don't have a good handle on what we're going to be able to do on bare metal.

How big or how much will the bare metal stent market shrink.

You know, things that we just can't answer.

I mean that's why, you know, we started off with expecting 810 to 840 I think it was in the third quarter and the bare metal stent market in the U.S. held up a lot better than most people expected and also obviously our Taxus result is much better than we expected.

So we had both of those going our way.

What will happen in the fourth quarter we expect our Taxus to continue to do quite well but if the bare metal market shrinks so be it.

So we don't have any specific guidance at this point other than I can tell you that's the biggest part of the range for the guidance on Q4.

Next question, please.

Very good.

Next we go Mike Weinstein with JP Morgan.

Please go ahead.

Thank you, gentlemen.

Good evening.

If we could start for may be four weeks and talk a little bit about the panel and Paul, maybe, just give us the company's anticipated response to what will probably be some of the I guess focus questions of the panel which will be one discuss the comments relative to the amount of Packataxle(ph) remains on the Taxus stent beyond the first several weeks.

Mike, we're not going to use this conference call to, you know, do a mock FDA panel.

That's not what we want to do.

We're continuing to prepare for the panel.

We're continuing to bring data forth in preparation of the panel questions and we're not going to use this call this afternoon to go over our preparation for the panel.

Next question?

Well, you went through some of those items at the meeting at TCT.

Are you just getting more sensitive as you're getting closer.

Well, I would say we have fantastic answer and data for every question we can anticipate and certainly that includes all the questions that have previous previously been in the marketplace.

I think it's fair to say had a we actually feel like we've identified most of the questions and have extremely good answer for all of them.

And however, you never take a panel meeting lightly.

But everything is on course, it's just I don't want to spend this afternoon on our blow by blow with the FDA panel.

But all those answers are also in the briefing document that we filed.

Understood.

Larry, then can I just ask you to update us on some of the legal issues that everybody is certain to ask about.

You know what all the items are?

I ask in light of that, I ask Paul Salmon (ph) our general council to be prepared to give us an update so let me turn Paul on.

Paul may be --could you go over the ones that I mow of that are most frequently asked is JJ, Boston Scientific cross litigation and cross request for preliminary injunctions on each other's drug eluting stents.

So maybe you can update us on that.

Sure.

We are continuing to await the decision of the court on the preliminary injunction request, briefing was completed in mid September.

We do not have any indication from the court as to when a decision will issue.

So we are standing by for that.

The next question that's often asked is status on Mednol litigation, Netherlands, Germany, U.S.

Netherlands, we had a hearing last week.

And the court has indicated it will issue a decision on December 10th in the past sometimes those dates have slipped as the court has given telephone extensions.

But December 10th or some time after we expect to hear from the Dutch court.

Germany, the hearing on the appeal of the decision there is scheduled for September of next year.

And the EPR position hearing which had been scheduled for this fall has now been postponed to next March due to our intervention in the proceeding.

And thank you very much, Mr. Weinstein.

Next representing Piper Jaffrey we go to the line of Tom Gunderson.

Please go ahead.

Hello, good afternoon.

Larry, I know we can probably figure it out without but could you break out the FX by Inter Continental, Europe and Japan.

Let's go to the next question and I'll try to do that.

I have it right here.

By golly, have I it right on my note pad here.

Europe 18 million, Japan 2 million, IC 7 million and there's some fractions there but basically Europe 18, Japan 2 and IC 7.

And obviously all favorable.

OK.

And then follow-up on the legal questions, Paul, can you give us a what happens if there is an injunction against you on former (inaudible) what are the just help us with the legal education here?

What are the next steps after that?

Is there an appeal?

We don't expect that to happen.

Hypothetically.

Hypothetically.

We would ask the district court to stay the injunction while we appeal.

And we have at that stage a right to an appeal.

Which we would pursue.

OK.

Thank you.

And thank you very much sir.

Next in queue is Dan Lemaitre with Merrill Lynch.

Please go ahead.

Good afternoon, everybody, just a couple of quick follow-ups.

Paul, thanks for being more explicit on the Taxus sale.

I am just wondering, that J&J did report a separate number for Europe of 33 million.

I know you gave 64 out as the international number.

Would you say knowing that their number was 33 that you are comfortably ahead of that number because with 65% share you would have to have something like 60 to match your share number and I'm assuming that was a run rate number versus an actual number.

So do you want to sort out better what happened in Europe and can you say that in fact you were above the 33 million.

First of all, they define Europe differently than we do.

They include -- they include countries as far away as Turkey in their definition of Europe.

Now we can redefine Europe in a lot of ways, but I think it's safe to say we're ahead of them some Europe.

That's why we, what we've tried to do is we know neither of us are in Japan.

We know that all the other countries are outside the United States.

So the 60 versus 64 you are numbers that I think are apples to apples.

OK.

That's fair.

Then just one question on the process here.

Has the FDA inspection started, been scheduled and is it necessary precursor for the November 20th meeting?

It's not a precursor for the November 20th meeting.

It hasn't started.

And it will be schedule able any time after the end of this month.

In other words, we're planning to invite them in at the end of this month.

So the invitation will be out there.

That will be up to their scheduling.

We would like to think that you know, before Thanksgiving that we get these things done, but it's really not our call.

OK.

Great.

Thank you.

and next we go to the line of Glenn Navarrow with Banc of America securities.

Please go ahead.

Hello.

Just a follow-up on the litigation.

In the Netherlands, let's say you wind up losing that case to medinal and you receive an injunction, would that be for the Netherlands only?

Will there be any cross border implication?

And maybe give us a sense of what sales are in the Netherlands?

I would imagine relative to the overall Corporation the Netherlands sales would be immaterial.

Thanks.

The -- we do not expect that even if we lose the case in the Netherlands, that it will have cross border effect.

And the conduct of the judges at the hearing reinforced that view.

In terms of -In terms of the Netherlands, I'll try to get that to you.

You know, Paul's got it.

First of all, there are 12 stop labs in the Netherlands.

And we do a reasonable business there, but we don't even report the Netherlands separately, we include it as part of our mid size country group so that gives you a sense of how material it, it's pretty small.

OK. great, guys, Paul one more follow up, can you give us a little bit more explanation as to the strong balloon sales?

Is It because physicians now with safer are being extra careful with inflations and pre-dilatating and post dilatating?

Yes, so they're pulling more balloons off the shelf and I do believe it's safe to say they're predominantly pulling our balloons off the shelf based on our historical technology advantage in balloons.

OK.

Thanks very much.

And next we go to the line of Larry Keusch with Goldman Sachs.

Please go ahead.

Yes.

Hello.

Two questions.

Paul, just following on the pre and post dilatation trends with EF, I'm thinking the second quarter you spoke about pre being up about 16% and post being up 35%, I'm wondering if you have any sort of numbers for that in this quarter.

I don't, Larry.

We can get that, but I dent have it by balloon type.

But, again, I get the point being is that that it remains real strong.

It does.

OK.

And then just two last ones then.

I guess in the past, Paul, you sort of have broken out or sort of lumped Europe and IC together to kind of give an exiting share which I guess was about 53%.

In the second quarter.

I'm wondering if you have that now?

Obviously it's above 60-plus.

We think it's international combined based on all the same metrics that we've used, we peg at July 65, August 67, September 69.

OK.

And then just for Steve quickly, BEI, are you still on track for kind of 14, 15 million in sales in '03?

We are a little bit shy of that right now.

Probably come in more like 12 or 13.

And thank you very much, Mr. Kuesch and next we go to the line of Rick wise with Bear Stearns.

Please go ahead.

Good afternoon, everybody.

A couple of things.

First of all, on the U.S. pricing, J&J has articulated that they think that in the fourth quarter, stent prices are going to average 2600.

Does that sound right to you and what are you all assuming as you look ahead to next year at this point.

We don't know anymore about it than they do.

We're monitoring it, you know, by account and we know essentially every account.

And we're going to continue to monitor it up until the minute we get approval.

OK.

And Paul, I mean obviously there was the sequential decline in U.S. bare metal stent sales.

What was the impact?

Was that all drug eluting stent.

To what degree was to drug eluting stent and competing systems like the vision or driver in there, obviously?

We don't think we lost share at all to competing stents.

We believe we held bare metal stent share essentially flat throughout the quarter at 26%.

Quite frankly, we had anticipated losing a point or two to new activity and we may have lost a point or two but we gained a point or two.

So I would categorize that all of the sequential erosion in bare metal stent revenues was associated to drug eluting stent conversion.

Last, Paul, you've been pretty consistent about being optimistic that the panel would post a panel hopeful on the 20th that the FDA would act quickly and you've talked about a January approval.

Just curious, again, why that confidence that they'll move so quickly as opposed to drag it out?

Well, we don't know what the FDA will do.

We certainly don't think they're going to drag anything out.

We think it's dependent upon the quality of our submission and the quality of our panel review and we feel very comfortable about that quality.

Everything else is up in the air.

But we have two things to do, we have to sustain a very effectively the panel review and we have to pass with flying colors our plan audits and we're prepared to do both of those.

And thank you very much, Mr. Wise.

Next we go to the line of Bob Hopkins with Lehman brothers, please go ahead.

Thanks very much.

Good afternoon.

Just two quick questions.

First, Paul, in giving that you've had another quarter of experience here, could you give us your latest thoughts on where you think U.S. eluting stent penetration can be in '04?

As well as where you think European penetration can be in '04?

And I have one follow-up.

We think, DES penetration today as you've heard from Johnson and Johnson is around 50%.

I'm surprised it hasn't moved a little bit further ahead little bit further ahead and I'm hearing more and more that penetration may be curtailed by a little bit by the difficulty of using the product itself.

There's a struggle associated with some complex angioblast and I think physicians are choosing to not struggle with the Seifer and velocity performance.

I think there is a lot of pent up penetration.

We're hearing a lot of anticipation about our product and I think penetration will continue to move ahead, supply is no longer really a constraint other than in some of the most remote labs.

Almost everybody has the product that they need.

I think people are going to start to get used to using Seifer a little bit more often, it will probably continue to move up toward the 60% number by the end of the year.

I their it will pop forward once Taxus is available based on supply, based on deliverability and overall ease of use.

My sense in Europe is that it will continue to move ahead toward the 20% number for the end of this year.

I think France will move ahead quite dramatically.

Germany, we've seen go up a couple of points, probably closer to 6% now.

So I think considering that those two markets comprise 52% of all stent units in Europe, I think France being reimbursed will accelerate Europe and overall momentum will bring Europe to, you know, 25, close to 30% by the end of next year.

OK, and the one follow-up I have is just wondering if you would be willing to set any expectations for us for the one year clinical follow update for Taxus for at the American heart.

Will there be any major differences in the numbers between 9 and 12 months or should expectation sort of remain that they stay the same?

Well, we have not seen that data.

And of course, we can only go by what we've seen in the other studies where the data was rock solid.

OK.

I'm sorry.

I thought Larry said at the beginning those data were not available.

No, the data will be presented at AHA.

I mean available to you versus the rest of us?

No, the same process that we used for Taxus 4, we're applying to Taxus 6 and 5.

OK.

Thanks.

Next question.

Thank you very much Mr. Hopkins.

Sanford Bernstein's Bruce Nudell has your next question.

Please go ahead.

Hi Larry, One very simple question, the tax rate is 25% for the year.

Was that my understanding?

Or is it 25% next quarter?

No, it's 25 percent.

The best way to answer that is we have in the third quarter, we brought the effective tax rate down to from 27 to 25 and that difference represented one penny per share.

And then, since we are also bringing it down from 27 to 25 for the year, we went and adjusted for the first two quarters to bring 27 to 25.

And that's how we bought the 2 cents.

The 25 effective tax rate, 25% will apply in Q4 for the entire year '03 and we expect it to be our effective tax rate in '04 and '05 as far as we can see at this time.

OK.

Just one other follow-up on any updates on bear lib ber ta and drug eluting liberty in Europe.

What are the time lines for those?

Bear liber-- ta, we expect to have CE market approval on in this quarter and coincidentally we have nearly completed enrollment in the U.S. IDE.

And Europe Taxus lib ber ta, we are still refining our final CE mark strategy so we don't have any updates for that.

Thank you.

Thank you, Mr. Nudell.

Next in queue is Dhulsini de Zoysa with Fulcrum Global Partners.

Please go ahead.

Good evening, gentlemen.

Paul, I realize that ahead of the FDA approval, it may be unseemly to ask this question but there continues to be perception that Taxus is your first and only drug eluting stent.

Now, we know lib ber ta is coming, would you please refresh your memory on what work you're doing with other stents, polymers and other pharmaceutical agents and what your product offering in '06 may look like since apparent apparently it's '06, the '06 competitive landscape that seems to be getting a lot of attention these days?

Yes, let me try to answer that.

This is Larry.

We're working on other compounds with other companies.

We have confidentiality agreements in place.

And we're not at liberty to talk about other compounds and other drugs that we have under development.

It's safe to say that we've had drugs for some time and other compounds under development as well as other polymers.

It's also safe to say that with the Taxus 4 data being as stellar as it is, one has to ask who needs anything other than Taxol?

So you know the question is what are we going to bring to the market in it 2006 is one that we continue to work on.

The good news is we have a lot to pick from in terms of pipeline strategies and we'll updateing you on those once a week make those decisions.

But I think that it's fair to say that Taxus for and the success we've had with pack Taxol in the Taxus program, it's frankly hard nor us to figure out how to beat it.

And so we will continue to keep the customer needs in mind and develop toward those.

OK.

That's fair enough.

And then, would you care to characterize your expectations for the U.S. launch timing?

I know that's difficult ahead of the panel, but is early Q1 still reasonable or should we be thinking more like mid or second half of the quarter?

I think the only question we can answer -- I mean everyone who has interfaced with the FDA on Taxus so far has felt that the FDA has been extremely cooperative and supportive.

Now what does that mean in terms of approval timing?

That is entirely up to the FDA.

We will be ready in Q1.

And but also Paul also outlined our preparedness and the dates.

We have basically, we're ready to go from a sales force perspective, trained, ready with account plans and everything else.

As of December, we're ready with roughly 100,000 units on the shelf and another 90 to 100,000 units blowing each month from the middle of January on.

And we would expect to execute a launch once we pull that trigger in a full launch all accounts, all customers in a matter of two months.

So we're going to be fully ready to go, inventory won't be a constraint and I fully concur with what Larry has said, we'll just have to wait and see how regulatory approval comes through.

That's very helpful.

Thank you very much.

Thank you, ma'am.

Next we go to the line of Bruce Jacobs with Deutsche Banc.

Please go ahead.

Thanks.

Paul, your comment earlier I think it was on international market share, did you say that your unit share in the quarter was around the mid to upper 60s?

Did I hear that right.

Yes

So I guess what I'm trying to understand is if that is true that would imBlie that you sold about twice as many units as J&J, yet the revenue numbers are pretty close.

I'm just wondering z that imBlie there's a very big price different shall than perhaps I thought in the quarter?

I don't think so.

I think what it imBlies is there are other factors that we haven't been able to model.

We certainly tried to bridge the numbers.

We've certainly tried to build our numbers from the bottom up.

And I think will is a difference perhaps of the market share based on the number of stents actually placed in arteries versus an actual gross sales number.

So we've now shown you our numbers and we're outselling our competition.

And we are also building a market model in Europe and in intercontinental from the bottom up.

We could be off a couple of percentage points on penetration and that could swing share numbers.

I certainly don't see enough price difference for that to be a material delta.

So we still are going to need a couple of quarters, I think, to really finalize the share, but we're pretty confident, both with our share position in Europe and our share position in intercontinental.

We don't think we're off on penetration by much and we're pleased to have outsold our competition.

OK.

Just one I guess question from the past.

Did anything happen with the express fix that you had submitted a while back to the FDA?

Any update there?

No, in fact, we've actually based on the conversion rate with drug eluting stents, based on the timing of the express upgrade, and based on our extremely low complaint rate, we have decided not to pursue the change.

OK.

Thank you.

Thank you very much, sir.

Next we go to the line of Eli Kammerman with Cathay Financial.

Yes.

Thank you.

Good evening.

First question is are there any tangible factors that you can point to and put your finger on that make you think that the post panel review period for Taxus will be shorter than the post panel review period was for Seifer?

Yes, I think our gut along that line is number one, we think that we're, we've been a little bit better prepared on data side.

We have some idea of the number of Amendments filed by J&J and we have our Amendments to our filing are a fraction of that.

And the FDA has consistently been pleased with the depth and completeness of our responses to them.

I think that they are perception is that they were not comfortable and are not comfortable with a panel recommendation and then an approval five and six months out.

I don't think that's their model.

And it's because of when you take all of these data points, we have a gut feel and it's only a gut feel that the FDA has a desire and I think our performance warrants perhaps not a five month delay between panel recommendation and approval.

OK.

Thank you.

Follow-up question is.

Has there been some change in the original time table for the lib ber ta bare metal stent?

Originally I thought the PMA for that would be filed in the current quarter?

Well, the only sort of reality is that it's difficult to enroll patients into a study that requires bare metal stent utilization, so you're basically looking at the realities today of a drug eluting stent wave that makes bare metal stent enrollment bit more challenging and I think it's that going to be true for every company with every bare metal stent.

So it's taken a little bit longer to enroll patients in a bare metal stent trial.

That's really the bottom line.

So then what would be your best estimate for the PMA filing date pour that product?

We'll finish enrollment in probably the middle of this quarter and then we'll just have the follow-up period from that and a fairly simple filing from that point forward, so probably the end of Q2.

OK.

Thanks very much.

Thank you Mr. Kammerman.

Next representing Morgan Stanley we go to the line of Glenn Reicin.

Good evening, folks.

Just a couple of house keeping questions.

Larry?

Yes.

OK.

Can you give us just the last year comparables on the divisional sales domestically, you had some restatement, I just want to make sure we're talking apples to apples here and can you talk a little bit about the components of the vascular business IE peripheral CIA med and the vascular surgery business?

Yes.

Let me see what I have here.

Let me give you the domestic --let me give the world wide --within the cardiovascular group, I think what you're asking is the breakout of the three categories.

Interventional cardiology worldwide was 399.

Peripheral interventions was 126 and vascular surgery was 19.

Growth rates?

Growth rates.

Interventional cardiology, 27%.

Peripheral 7%.

Vascular surgery flat.

OK.

And then -

I'm sorry?

Then we're just looking at the domestic breakdown on these various businesses.

Yes.

For last year?

Yes.

Because you restated some of the numbers.

OK.

Those three groups you want?

You could do that as well as the other major groups that you talk about.

Well, you want domestic or world wide?

We have the word wide from the press release.

So you want domestic.

Yes.

Domestic. '02 or I'm sorry, yes, Q3 '02 interventional cardiology 162.

Prifral interventions 80.

Vascular surgery 13.

Overall cardiovascular 255.

And that's versus the 284 in '03.

Electrophysiology 17.

Neuro vascular 12.

Overall cardiovascular group 284.

Oncology 24.

Endoscopy 82.

Urology 41.

Overall Endoscopy group '02 Q3 147.

OK, I'm going just to ask two quick follow-ups.

The U.S. numbers for this year in the three sub groups.

Before you ask that question, I think what you need also is the three breakdowns of cardiovascular group, domestic '03, Q3.

Correct.

So that's interventional cardiology again Q3 '03 190 pre feral interventions 83.

Vascular surgery 11.

Great.

And then, two other real quick questions here.

Acquisitions in the quarter, where are they?

How much were they?

Contribution in the quarter was about three-and-a-half million.

To spread out throughout?

Let me have the detail of that -- that's made up of primarily the smart -- that was actually an acquisition a year-and-a-half ago, but it's a new product coming out of that acquisition.

Smart, the neuro form stent, added 2.6 million and intearic medal, medical we just launched that about 500,000.

Great.

All right.

Last question.

The royalty numbers looks pretty high.

Talk a little bit about that line and how we should be modeling?

You know, the biggest royalty that we were going to pay going forward and is obviously the Andrew tech royalty.

And the Andrew tech Is based on our ASB minus our delivery system.

Relative to our -- and our average stent pricing is factored into it.

I think in the quarter, it represented about a 7 percent --7 percent royalty rate.

The way the contract works it goes from five to ten and then back.

So that's going to be, I mean, that will, all other royalties will pale by comparison to the royalty that they we'll be paying Andrew tech.

Sure.

Thank you very much.

Thank you, Mr. Reicin.

Next question go to the line of Joanne Wench with Harris Necessary Bit (ph).

Thank you very much.

Two questions. where are you in regards to hiring sales people in anticipation of the FDA approval, should we look for a larger sort of SG&A bowl us in the fourth quarter?

And the second question is could you please walk us through in regards to Taxus in Japan in 2005?

Is that a first half, second half event and what steps do you need to take there with the ministry of health?

The U.S. sales force has gone through a small hiring increase.

Those people are all on board right now.

So we actually are fully staffed and in fact our new hires are in sales training as we speak.

The increment is small relative to the larger SG&A spends, so it will not be as dramatic increase for the fourth quarter.

Japan, as we've said previously, depends upon two elements, one is the use of Taxus for data, which has been collected and translated as you can imagine, and then the supplementation of that data with Asian data that we are currently collecting.

We expect to be in a position to file in the middle of next year and we're looking at a first half '05 approval, but you know, there's a fair amount to go before we see that take place.

But that's our current plan.

Thank you.

OK.

I think with that, we'll complete our call this evening.

We've run over an hour at this point.

Very good.

Thank you, sir.

I would like to thank everyone for their interest and we'll continue to keep you up-to-date.

Thank you very much and good evening.

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