Boston Scientific Corp (BSX) 2003 Q4 法說會逐字稿

Welcome to the quarterly and year-end earnings results conference call. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded.

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

Please go ahead.

The purpose of this morning's conference call, of course, is to focus on the final audited results for 2003, with emphasis on the fourth quarter of 2003.

We did issue preliminary results several weeks ago.

And there's not a lot of new news, but we will provide an overview of the quarter and the year.

On the call this morning, we have Jim Tobin, our Chief Executive Officer; we have Paul La Violette, head of our Cardiovascular Group; and Steve Moreci, head of our Endosurgery Group.

Today, they will not be making separate presentations, but will be available for any questions you might have, in light of the analyst conference that we will be holding on February 23rd of this month in New York at the Waldorf.

And we will be spending quite a bit of time focusing on the various businesses, the TAXUS status and the pipeline.

And we would also, at that time, be providing some with outlook of 2004, 2005 and also, our expectations for 2006.

Before we begin, I will be making, and others will be making, forward-looking statements.

So I will ask Paul Donovan, our Head of Corporate Communications, to read the Safe Harbor.

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 adversely affected by, among other things, risks associated with new product development and introduction, clinical trials, regulatory approval, competitive offerings, intellectual property, litigation, operational improvement, the Company's overall business strategy and other factors described in the Company's filings with the Securities and Exchange Commission.

Thank you, Paul.

Let me read just briefly from the release, for those of you who may not have caught up with it yet this morning.

The substance of the release on the fourth quarter reads as follows -- net sales for the fourth quarter of 2003 were $939 million as compared to 814 million for the fourth quarter of 2002, an increase of 15 percent.

Excluding the favorable impact of 57 million of foreign currency fluctuations, net sales were 882 million.

Net income for the quarter, excluding net special charges, was 141 million or 17 cents per share diluted as compared to $130 million excluding net special charges or 15 cents per share for the fourth quarter of '02.

Reported net income for the quarter, including net special charges of $4 million, was 137 million or 16 cents per share as compared to reported net income of 105 million or 12 cents per share in the fourth quarter of 2002.

The earnings per share figures reported today reflect the Company's 2-for-1 common stock split that became effective November of 2003.

Regarding the year 2003, net sales for the year ended December 31, 2003 were 3,476,000,000 as compared to 2,919,000,000 in 2002, an increase of 19 percent.

Excluding the favorable impact of 162 million of foreign currency fluctuations, net sales were $3,314,000,000.

Net income for the year, excluding net special charges, increased 26 percent to 521 million or 62 cents per share as compared to 413 million excluding net special charges or 50 cents per share for the year ended December 31, 2002.

Reported net income for the year including net special charges of 49 million was 471 million or 56 cents per share as compared to reported net income of 373 million or 45 cents per share for the prior period.

Let me provide some overview comments regarding the fourth quarter and then, some brief comments about the year.

Then we will open it up for questions.

With regards to how our various businesses did, again, strong double-digit growth throughout the businesses on an as reported basis, and pretty good growth on a constant currency basis.

Cardiovascular, our worldwide business in the quarter, was up 15 percent on an as-reported basis; 7 percent on a constant currency basis.

Electrophysiology, 15 percent as reported, 11 percent constant currency.

Growth in neurovascular, a very good quarter, up 35 percent in neurovascular, and a constant currency growth rate of 23 percent.

So we saw nice growth in the group.

The overall group for the quarter grew 16 percent, as reported, 9 percent worldwide constant currency.

Moving to our endosurgery group, our oncology business was up 16 percent on an as reported basis, 10 percent constant currency.

Our GI endoscopy business was up 12 percent or 5 percent constant currency.

Urology was up 13 percent or 11 percent constant currency.

Overall, our endosurgery group saw double-digit growth as reported of 13 percent, and 7 percent on a constant currency basis.

Again, overall for the quarter, 939 million topline compared to 814, up 15 percent as reported.

Just for kind of an interesting data point, if you were to take out of our fourth-quarter numbers the U.S.

Japan coronary stents, where we don't have the benefit of taxes, our overall sales for the quarter would have been $900 million versus 715, 26 percent growth on an as-reported basis, 18 percent constant currency.

So you can see the power of taxes in the coronary stent numbers.

Let me move onto the geographical breakdown.

Our domestic business in the quarter was actually flat to down, modestly down 4 percent, 482 million to 500 million in the prior year.

So decline of 4 percent, primarily the softness in the bear metal stent market, as the market converts to a drug-eluting stent platform.

When you look at international, very strong results.

Our international business was up 46 percent as reported, 28 percent constant currency.

I will give you a breakdown of the countries -- Europe was up 58 percent as reported, 36 percent constant currency; so strong strong growth in Europe.

Japan, without the benefit of new stent platforms, up 10 percent constant -- I'm sorry, 10 percent as-reported, and down 2 percent on a constant-currency basis.

Intercontinental was another source of strength for the quarter, up 100 percent on an as-reported basis, and up 77 percent on a constant-currency basis.

So stellar growth in Europe and in the Intercontinental markets -- for the overall growth rate of 46 percent for international on an as-reported basis.

To give you just a couple data points of how strong our coronary franchise is, cardiovascular franchise is, is in other categories of technologies -- it wasn't that long ago that there were guesses and expectations of very low sales growth in balloons.

And we are seeing continued strong momentum in the balloon marketplace as a result of the conversion and penetration of drug eluting stent technology.

Our balloon business in the fourth quarter worldwide was up 24 percent.

In the Intercontinental countries, it was up 43 percent.

In Europe, our balloon business was up 28 percent.

And in the United States, pre-TAXUS launch and approval, up 34 percent.

So 34 percent growth in the U.S. for the quarter, was just outstanding.

Moving onto guidewires, another important part of the product offering, overall for the quarter, up 16 percent.

In Intercontinental countries, it was up 70 percent.

In the European group, it was up 15 percent.

In the United States, it was up 15 percent.

So an indication of -- that our cath lab presence and our growth in the cath lab continues to be very, very robust.

And lastly, IVIS continues to show momentum around the world, up 54 percent for the quarter -- yes 54 percent for the quarter; up 31 percent in Japan, up 73 percent in Europe and up 120 percent in the United States.

So IVIS is becoming a bigger part of the cath lab worldwide.

And we have we have a very proprietary position in that market.

Moving onto the -- a couple of details for your detailed analysis -- let me read these numbers to you and then you can back into the international by division.

These are just dollar amounts of sales in the fourth quarter, interventional cardiology, $186 million; peripheral interventions, 82 million; vascular surgery in the quarter, 12 million, for an overall cardiovascular number -- and these are domestic numbers by the way -- these our domestics that will allow you to back into the international numbers -- cardiovascular domestic was 279 in total.

Electrophysiology was 21 million.

Neurovascular was 21 million, for an overall cardiovascular group of 322 million in the United States.

Moving onto the endosurgery group in the United States oncology 27 million; endoscopy, 87 million; urology 47 million, for an overall endosurgery group sales number in the quarter of 161 million.

So that's cardiovascular group, 322, endosurgery, 161 for an overall domestic total of 482 (ph) for the quarter.

Hopefully that helps your spreadsheet analysis.

Moving onto the income statement, briefly -- in the quarter, we were up 15 percent at the topline.

We showed a little improvement in contribution at the gross margin line.

It was up over 16 percent.

Our gross margin for the quarter came in at 72, approaching 73 percent.

And that's up about a little over one percentage point of gross margin.

We took some of that back -- or a lot of that back, or all that back -- at the SG&A line, where we grew SG&A approximately 18 percent, as we continue to spend in preparation of the U.S.

TAXUS launch.

R&D, we continued to increase our investment there, up 35 percent in the quarter.

Of course, then that represented a 24 percent increase in operating expenses on a 15 percent topline.

And most of that was increased R&D spending.

And of course, a lot of SG&A in preparation of the TAXUS launch.

We did improve on a quarter-to-quarter and year-to-year basis, the tax rate.

Last year our tax rate in the fourth quarter was 29 percent.

And our tax rate in the fourth quarter of 2003 was 25 percent.

Before I leave the quarter, for those of you that keep track of stent numbers, our overall stent number for the quarter was 154 million worldwide.

And our number for TAXUS worldwide was 95 million.

And good growth, obviously, on the TAXUS in a worldwide basis, primarily Europe and Intercontinental.

Our domestic stent number for the quarter was just about 35 million.

That will give you the international and domestic stent numbers.

Moving on quickly for the year 2003, it was a very good year for Boston Scientific.

As you recall, in January of last year, we met with Wall Street in New York and put out our numbers.

And we exceeded our topline for the year by a tad.

And we came very close to the EPS number.

The EPS number was, I do believe on a pre-split basis, 129, and we came in at 124.

So pretty much in line with our goals that we set out for ourselves at the beginning of last year.

So we are very excited about achieving most of our goals for 2003.

The difference on the EPS line had more to do with our decision to spend pretty heavily in preparation of the TAXUS launch in the United States in 2004.

Overall, what is not to like, cardiovascular group grew 21 percent for the year, on an as-reported basis.

On a constant currency basis, our cardiovascular group grew 15 percent.

For the year, our endosurgery group grew 14 percent on an as-reported basis; and for a constant currency growth rate of 10 percent.

So double-digit growth, both -- and this is on a constant-currency basis -- double-digit growth for both our cardiovascular group and our endosurgery group for an overall constant-currency growth rate of 14 percent for the year, 19 percent on an as-reported basis.

So we are very pleased to report that we were able to achieve most of our goals for 2003.

And as a reminder, we will be setting forth our goals and outlook for 2004, five and six on February 23rd in New York.

A little bit about the P&L for the year -- topline, we grew 19 percent as reported.

We added a little at the gross margin line; we are up 21 percent at the gross margin line --- came in at 72.4 percent gross margin as compared to 71.2 in the prior year.

As I mentioned on the quarter, we did spend at the SG&A line.

But on an annual basis, still below the growth rate.

At the topline, we grew SG&A for the year 17 percent.

And we also grew our R&D line 32 percent as we continue to invest in the pipeline.

Overall, our operating income was up 20 percent.

And that's on a 19 percent as-reported topline.

So we saw good contribution at the operating line.

And of course, we were able to increase the net and the EPS line as a result of a more efficient tax structure. 29 percent tax rate last year -- I'm sorry, for 2002.

A 25 percent effective tax rate for 2003.

So contribution of a reduction of 4 percent at the tax rate line.

So overall, we came in on a pre-split basis at 124 versus $1 in the prior year or no a post-split basis, 62 percent per share versus 50 cents per share in the prior year, up 24 percent.

I think that provides you a pretty good overview of the fourth quarter 2003 and the year 2003.

At this point, why don't we turn it over to the audience for questions.

And we will try to answer any questions you may have.

Keep in mind that on the phone we have Jim Tobin, our Chief Executive Officer;

Paul La Violette, head of our Cardiovascular Group; and Steve Moreci, head of our Endosurgery GROUP.

At this time, I will turn it over to questions.

(OPERATOR INSTRUCTIONS).

Dan Lemaitre, Merrill Lynch.

I know you don't want to talk too much about the outlook.

But I just wondered if maybe somebody could give us an update on the production side of TAXUS, particularly as it relates to your goal of being able to service a substantial portion of the U.S. market, if approval does materialize on a timely basis?

Things are very much on schedule.

I guess first of all, the update is that the FDA will be showing up in the Maple Grove facility today to commence the audit of that plant.

And that, of course, is a prerequisite to all of this.

But our supply preparations have gone extremely well.

Our two critical yield points, which is to say the yield of the finished product, coated, crimped stents, and the yield of the drug release assay to verify the paclitaxel contents are both yielding ahead of plant.

We have built, which is to say, through crimping coated stents, in excess of one-quarter million units for the U.S. launch.

The majority of those have progressed through sterilization.

And the majority of those are in the queue for the drug release test, which again is yielding about 90 plus percent.

So we expect the majority of those units to be in finished goods by the middle of this month.

Our target was to have something in excess of 125 to 130,000 units available upon launch.

It appears we will be north of that by some amount.

Okay thanks.

I will set the pace by sticking to one question.

Bruce Jacobs (ph), Deutsche Bank.

Can you folks rank, by order of importance, the factors that you think have most constrained the penetration of the Cypher stent?

My sense is, there are at least several factors and these will vary a little bit account by account.

But clearly, supply continues to be a nagging issue.

And I think supply causes many procedures to go to BMS (ph) in part because of either physical lack of product or because physicians are simply still not used to the fact they can expect to have a drug eluting stent readily available to them when they start their procedure.

I don't think there's any question that the overall mechanical performance of the Cypher stent is also limiting performance.

And a number of physicians really would prefer not to have to struggle with the placement of a fairly low deliverability stent in challenging cases.

So those to me, stack up as the top two.

Economics is the third.

And yet, in our assessment of things, we believe fairly firmly that economics is a minor factor relative to the others.

And, that once a more deliverable device is available, we expect to see relatively quick increases in penetration from the current levels that are in the low 50 percent range to something closer to 60, shall we say right out of the gate.

And then over time, some additional sizes.

Obviously just continuous selling and market conversion activity should bring that closer to 70 percent by the end of the year.

Mike Weinstein, J. P. Morgan.

Good morning, can you hear me?

Yes.

Sorry about that, a couple of follow-up items, if you would not mind -- first if you could touch on -- with the inspections (inaudible) starting today, where you are relative to the labeling dialogue (inaudible) shelf life and TAXUS.

And then, Paul, following up on the answer you just gave on the stent update with Cypher -- one of the components of the market, penetration has been a little bit below expectations in the number of drug eluting stents used for procedure.

And if you could just give your thoughts post the TAXUS launch where that might go, that would be appreciated.

We have had some labeling discussions with the FDA in these past number of days.

And they obviously relate to what I would call detailed elements or refinements of our DFU (ph).

So those discussions are going along well and as expected, and I think indicative of -- I would describe it as -- the tail end of the overall PMA process.

Shelf life continues to be an open item.

We won't know that until the auditor is done and all the data has been assessed.

We continue to have a fairly high degree of confidence that we will achieve at least six months, and we will know that shortly.

We feel we have data that might support that strongly and perhaps, a little bit more.

In terms of Cypher stent for procedure, I think that does hit two of the factors that I discussed earlier.

One, the overall deliverability; and two, to some degree, economics.

Clearly, the CMS codes allow for labs to profit in drug eluting stent cases if they use one stent per case.

We think we are comfortable that the current utilization of drug eluting stents is fairly low, perhaps 1.3.

That is below an average fair metal stent case, which would be at least 0.1 or 0.2 of stent per case higher.

And then, of course, if you really wanted to treat complex angioplasty and truly CABG conversions, you would certainly look at more than 1.5 stents per case.

And that is starting to become an economic drain.

So I think our sense is that utilization per case will increase with a more deliverable stent.

And at some point, the industry will have to address, specifically, the economics of multiple stent cases, if we really want to see CABGs convert at a rate faster than they have converted so far.

And so far, we think it is in the single digits.

Does that answer your question?

Yes, thank you very much.

Dhulsini De Zoysa, Global Partners.

This question is really for Paul.

Paul, would you comment on any changes you were seeing since September in the DES pricing in the U.S., and what you expect to see from your competitor once you enter the market?

Yes.

Subsequent to the April 24 release, there really has been one pricing re-calibration, which was announced in late August and promoted at the TCT (ph), and really executed down through the hierarchy of accounts through the month of September and October.

Subsequent to that, there has been no price shift.

And prices to this day are really quite stable.

There is no indication of any additional pricing change.

And that, given our impending release, is the status that we expect to launch into in the next few weeks.

It takes a fair amount of time mechanically through negotiations, etc., to alter the marketplace pricing structure.

We don't see any signs of that.

And I think it's safe to say, Johnson & Johnson has not signaled any intent to do that.

So prices right now are very, very stable.

So nothing meaningful since January 1?

Correct.

Glen Reicin, Morgan Stanley.

Just a bunch of mechanical housekeeping questions here.

Can you give us the totals in the quarter for CIMIT cardiovascular, peripheral, and then the vascular business -- the vascular surgery business?

I have some more follow-ups after that.

I think I did.

No, you gave us the total cardiovascular; you didn't break down between the peripheral -- the cardiovascular and the vascular surgery piece.

I thought I did, but maybe I am --

You gave us the U.S. portion, but you did not give us the totals.

The totals, worldwide.

Yes.

Okay, what's the next question.

I just noticed on the P&L, amortization went up pretty dramatically sequentially.

And royalties were down.

Both of those don't make a lot of intuitive sense.

I don't recall you making any large acquisitions in the quarter.

And I would have royalties would be up, given what's happened on TAXUS.

Can you talk about that?

On the amortization side, what that represents is our write-off, if you will, through amortization, because we decided not to go forward and market the L.T. stent.

In connection with the acquisition of IVT, we allocated a certain portion of the purchase price to the L.T. stent, because at that point, we were pretty excited about it -- it was going to launch.

The good news is, other pieces in the pipeline turned out to be better and more exciting.

So we basically just recently decided to write off the investment in the L.T. stent.

What is the normalized number now going forward on a quarterly basis?

That continues to change, as we continue to make acquisitions of emerging technologies.

What's your best guess?

I will get you a run rate in a minute here.

I don't want to be misquoted.

You want the annual or quarterly run rate?

It doesn't make a difference.

And then the same thing on royalties, what happened this quarter, where they were actually down?

Without the L. T., it was 23.

And on the royalties, the fluctuation there -- the increase is a result of the Angiotech agreement.

It was actually down sequentially.

That's what surprised me.

There is an offset in there, let us look into it.

Okay.

And then finally, maybe Steve can talk, according to when I have this data last year -- and it may not the right -- is a couple of your businesses were down domestically.

Maybe talk a little bit about the endo business or urology business.

I don't know if I have the right numbers or not.

But maybe you can confirm that.

Yes, for the year --

No, for the quarter.

For the quarter, the oncology, urology and gynecology business is pretty much planned performance.

The oncology group was little weak in Japan.

That's why the number was 10 percent.

Back in the U.S., it number was 18.

The urology and gynecology business was solid across all the regions.

The one business that struggled in the quarter was domestic endoscopy, which was off slightly due to some price pressure and some tough comparisons, particularly in the biopsy and polythectomy (ph) franchises.

On the royalty piece, I think it's just a true up.

We had some credits go through in the fourth quarter.

I don't have -- not big numbers.

Let me give you the worldwide numbers you asked for.

Cardiovascular worldwide, 590; electrophysiology, 31; neurovascular, 62; that means an overall cardiovascular group of 683.

In the endosurgery area, oncology was 44; endoscopy, 151; urology, 61, for an overall endosurgery group worldwide of 256.

I got that.

I was wondering, though, when you just look at the CIMIT peripheral piece, the cardiovascular piece, and the CIMIT cardiovascualar piece, if you could give us those.

Interventional cardiology for worldwide, 442; peripheral interventions, 126; vascular surgery, 22.

Larry Keusch, Goldman Sachs.

Larry Keusch, I was actually pretty intrigued about the R&D spending number in the quarter.

It's the highest for the year.

And obviously, you had a pretty strong topline.

So it's even larger than that.

I am just looking for any commentary as to what was going on, kind of where the focus might be.

And I know you are going to save your guidance for '04 for the meeting.

But just sort of any thoughts on a go forward basis?

And then just quickly, any thoughts from Paul just on what their metal stent pricing is doing and where that might go?

On the R&D side, Paul, do you want to touch on the touch on that because most of that is cardiovascular?

You have two things that are pressuring stenting -- obviously, TAXUS 5 activity in the quarter was solid.

And then, you have a fair number of product builds that are taken and withdrawn, if you will, from manufacturing, to go against validations and verification testing, which we charge to R&D.

So that's almost an operation startup expense that is R&D driven.

Other than that, we are in a relatively steady build mode, but not a dramatic acceleration mode for cardiovascular R&D.

On their metal stent pricing, the prices in the quarter were about 950 to 955.

They trended down about at the same pace as they did the quarter prior.

On that one, I got the actual dollars here.

It's closer to 970.

And that compares to 980 in the prior quarter.

Any thoughts on where that could go?

It probably won't go up.

Yes, we are seeing discounting from some competitors that are marginalized in their market share positions.

I think we are seeing some fairly dramatic discounting on bear Cypher, and Hepacoat.

And my sense is, as Larry Best described, there will be continuous downward pressure as the market contracts, and as labs shift their focus to how to afford as many BES (ph) as possible.

Eli , Cathay Financial.

Regarding the TAXUS stent sales internationally, it sounds like they increased on a sequential basis about 50 percent.

Is that correct?

Did they go from 64 million to 95 million?

And if so, what were the main reasons for that very large jump?

You are right.

It was 48 to 50 percent.

That split was roughly 38 to 40 percent growth in Europe sequentially, and roughly 55 percent growth sequentially in intercontinental.

It was driven by a few factors.

Number one, overall penetration has increased.

Penetration grew a bit in Europe; and overall, Europe hit 20 percent.

Probably the greatest factor there was France reimbursement.

Now recognize we did not participate in the benefits of increased penetration in France, because that was driven primarily by the reimbursement granted to Cypher.

We of course subsequently, in January, received reimbursement.

And we are now shipping at a much faster pace in France.

So overall European uptick is part of it.

Overall intercontinental penetration increased to about 38 percent, including some of the larger countries growing fairly quickly.

So that's kind of factor number one.

Factor number two is obviously market share.

And we think our market share in Europe actually slipped a bit in a growing market, primarily because of the shift in mix away from France.

Our intercontinental share grew to our calculation of 77 percent, up six points with gains in some large markets, Canada, Australia.

We now have over 80 percent share in most of the large markets around intercontinental.

So it's been a combination of growth factors.

If you look at our international sales in the quarter in comparison to the Cypher, the sales for the two products, respectively, in Q3 were 64 million for BSC and 60 million for J&J.

If you take out a few million for each company for foreign currency impact, our estimates are that J&J sold something on the order of $13 million worth of new stents in France in the quarter, which means that their overall growth outside of France in all of international for the quarter versus third quarter was about $4 million.

Our growth in the same perspective was $26 million or about 6.5 times greater than the J&J increase.

So it's very clear to us that we are getting increased gradual penetration in virtually all markets outside the United States.

Our shares are continuing to grow.

And the only soft spot for us was France.

And we see our share in France growing to something over 50 percent by the end of this quarter.

So it's generally very strong across the world.

As a follow-up to that, is it realistic to expect your share in Europe to rise to the 75 to 80 percent level?

We are seeing a couple of factors the are a positive in Europe.

I think, first of all, recall that over the past year, we have been impaired somewhat by the long-term tender cycles that dominate purchasing activity in southern Europe, across Spain, Portugal and Italy, primarily.

And we are participating now as those tenders kick in, in January through the first quarter.

So we are seeing acceleration in southern Europe where our shares tend to be closer to 50 percent.

But if you look across the rest of Europe, excluding the French situation where I just described our share, we do expect to basically be in that same position.

We think our share in the UK today is 86 percent.

We think our share today in the four northern countries is 87 percent.

We are seeing growth in some of the southern countries, as I mentioned, such as Spain and Portugal, where our share is now, over 60 percent.

And it will grow as the tender cycle kicks in.

So the one real soft spot is France, where we get down to 19 percent.

And again, I think that's going to go up probably 30 to 40 points over the next 60 days.

So yes, I think shares across Europe can certainly be strong, trending toward 70.

We have a basket of a lot of countries in the midsize countries.

And in central Europe, where shares are a little tougher to gauge.

But I think 70 percent or north is doable.

On the quarter, our coronary stent sales in Europe were up over 300 percent.

And in the quarter, our coronary stent sales in intercontinental countries was also up over 300 percent.

So where TAXUS is fundamental, obviously, you're seeing a huge move.

Matthew Dodds, SG Cowen.

A couple of questions for Paul -- first, for Express in Japan, do you still expect the reimbursement approval this quarter?

Second, on the TAXUS manufacturing, do you need to get Maple Grove approved to get FDA approval.

Can you just get Galway first and then have Maple Grove follow?

Or do you need both?

For Japan, we are approved and reimbursed and have gone into our launch.

I returned from Japan a week ago.

The sales force is fully trained on Express.

We have gone through our market evaluations.

And that team is now going into a full launch mode on a wave by waive basis.

So that is .

Underway and we will report, at the end of the first quarter, how that has gone.

We expect that we will do well.

And we are fairing quite well against the leading stents in Japan.

On the TAXUS manufacturing business, yes, we clearly do need Maple Grove.

We have independent lines in Galway and Maple Grove.

But we clearly need the capacity of Maple Grove to service the launch.

Wade King, Wells Fargo Securities.

Can I ask a question about the BEACH trial?

Could you give us some parameters as it relates to follow-up duration expected in the patient population, and the expected timeline for submission approval?

Any comments you can make on the labeling you're hoping for, please?

The BEACH trial is our carotid high-risk trial by definition.

So the indications will be focused on high-risk patients.

Of course, the next wave of carotid trials will focus more on moderate risk patients.

But all indications for the first wave of companies approved for carotid stenting will be for high-risk patients.

The follow-up requirements for carotid intervention are one year.

We are looking at a submission at the end of this year, and an approval in, I believe, the third quarter of 2005.

As it relates to the high-risk group of the patient population, that would be potentially candidates for this type of device, could you give us numbers on what you consider the high-risk cohort to be, and how you actually define it?

I don't have those numbers off the top of my head.

It's clearly a minority of the cases.

If you look at the total carotid stenting market potential, probably two-thirds would reside in the moderate to low-risk group.

So that as the market commences, with the likely approval of the J&J system Q3 of this year, it will proceed slowly.

And I think it will start to build through the next probably 24 months before it's reasonable to expect indications of expansion in any way.

Rick Wise, Bear Stearns.

Paul, maybe we can follow-up on balloon, guidewire and IVIS numbers.

All three were incredibly strong; you seem to be taking share.

Can you give us a little more color?

This is the kind of growth I would have expected once the TAXUS Express was launched.

What's happening, maybe particularly in IVIS?

How sustainable is all this?

And where are you taking the share from?

First of all, the growth is -- I think growth is sustainable across the board.

A particular spike in IVIS growth is probably not sustainable for two reasons.

Number one, there are some fairly large interventional cardiology pharmaceutical trials that are underway that are using intravascular ultrasound as a primary endpoint.

I think we have all seen the power of the IVIS data and it allows drug companies to perform studies on plaque morphology and overall plaque burden with much more refined endpoints.

So we are seeing some pharmaceutically sponsored trials that are leading some additional centers to purchase Galaxy control units, as an example.

So our Galaxy placements in the quarter were pretty significant.

I think we sold 60 boxes.

Although our catheter business was also quite strong, it wasn't as strong as the overall performance.

We are also beginning to ship Galaxy 2 for the first time in Japan, which, of course, is the largest worldwide market for ultrasound.

So that is what's happening there.

We are seeing more ultrasound catheter utilization with drug eluting stents.

I think that's a trend that will continue.

And I think most importantly, we feel we have barely cracked the surface on the total long-term value of intravascular imaging.

We've got some exciting R&D programs over time that I think will make that a much more commonplace practice.

My sense on balloons and guidewires is fairly simple.

You have a free dilatation requirement with drug eluting stents.

And you have a post dilatation emphasis with drug eluting stents based on the physician's desire to have good vessel wall opposition, and obviously, concerns about properly sizing the stent, ensuring ideal stent to wall placement to minimize any risk of a thrombotic event.

So very clearly, we are seeing the pre and post dilatation influence for PTCA (ph) catheters.

We expect that will continue as DES penetration continues.

And obviously, TAXUS will be similar to Cypher in the labeling requirement for pre-dilatation.

I think it's simply safe to say that we are getting most of the market uplift in the balloons because of our share position and the technology leadership of the Maverick platform.

Some competitive balloons that were expected to have an impact, such as the Stormer, really have not performed that competitively.

I think guidewires is actually an area where we feel pretty good about our position.

But we have two new guidewires that we think will be actually dramatically improving our overall competitiveness.

So I think the real message to me is, we are continuing to invest in our core franchises to expand our -- the breadth of our market share leadership positions, first and foremost.

And secondarily, I think the numbers that Larry cited about European growth in PTCA balloons and wires is a great example of the kind of leverage that you can experience when you're pulling through strong revenues on drug eluting stents.

It simply provides a very good opportunity to pull additional product lines through if your product lines are highly competitive, and I think that's the position we find ourselves in.

Maybe separately, since Jim has been so quiet, sort of an off-the-wall question, Jim, but there have been repeated rumors for whatever reason that you were not hanging around Boston.

And of course, given all the events at Baxter, that sort of added fuel to the fire.

Do you have any thoughts you want to share with us now?

I can't control what Harry does at Baxter.

I never have been able to.

I have a lot of work to do yet in this Boston Scientific endeavor here.

We are just getting to the point where we can really move forward strongly.

This isn't our last initiative in the stent business.

We have got other things coming along.

If you think about it, we will be, in another month or so, in a position where we are launching Express in Japan, Liberte in Europe and TAXUS in the U.S.

It doesn't get to be any more fun than that.

So I am not going anywhere.

Bob Hopkins, Lehman Brothers.

A quick question for Paul, Paul I was wondering if you could give us an update and a reminder on when we are going to see data from the TAXUS 6 and the TAXUS 5 clinical trials?

And then also a reminder on what we sort of hope to learn in the relative value of both trials?

TAXUS 5 is -- first of all, let me address TAXUS 6, because that is sooner.

TAXUS 6 is still scheduled to release its data at Euro PCR (ph) in May.

And we are currently analyzing data as we speak.

So in the next 60 days, we will crunch through that.

And that will be published in May.

TAXUS 5, of course, is well behind that, because enrollment in the de novo arm for the core group of patients has been over for a relatively short amount of time.

But we still actually owe that protocol 50 patients.

We have about half a dozen of the very small vessels still to enroll.

And we have about 40 of the overlapping stent patients still to enroll.

And those, of course, are very peculiar patients that we are targeting.

And it's just hard to finish off those subsets.

So TAXUS 5 data, if you complete enrollment in the first quarter, and aggregate nine months of follow-up to that, you are looking at not having that trial really ready for analysis until the end of the year.

Now the enrollment in TAXUS 5, of course, was concentrated much more upfront.

And actually some of the very first patients enrolled in the core arms of TAXUS 5 are actually beginning to come through for follow-up now.

So we will have a lot of data on TAXUS 5 in the next couple of months.

But we won't have conclusions from the trial until the end of this year.

Both trials are very complex.

And of course, the main distinction between them is the slow-release used in the TAXUS 5 and the moderate release used in TAXUS 6.

So our goals are to both understand how TAXUS works in more complex cases, longer lesions, overlapping stents, smaller vessels.

And then to determine if there is in fact any distinction, clinically, between the dose release curves of paclitaxel in the slow and moderate formulations.

THOSE are our goals.

We think it's going to lead to indications expansion.

We think it's going to lead to an expanded product line with the addition of 2.25 and 4.0 mm stents.

And I think it will contribute to the overall base of comfort that cardiologists have about aggressively using drug eluting stents in more and more patients.

One just one quick follow-up, could you talk a little bit about the the pricing outlook in Japan for interventional cardiology products in the upcoming new year?

Yes, this year, we've just completed the negotiations with the MHLW for the next couple of years.

PTCA products in general were, once again, targeted for price reductions.

Although there is a three-phased approach to those reductions.

In the past, MHLW has tried to take the reductions upfront for the most part.

And we have negotiated that prices will be reduced by about 20 percent of the reduction -- of the relative reduction.

So if the reduction is 5 percent, we would take 1 percent now.

We would take 2 more percentage points at the beginning of 2005.

And we would take another two points in the second quarter of 2005.

So that's the phase-in, if you will.

And stents are in pretty good shape.

Stents are still about $2000 apiece, maybe 2100.

And they are expected to go down I would say modestly -- I don't have the numbers in front of me -- a few percentage points over the next year or year and a half.

And PTCA balloons will go down, probably higher single digits per year, although their pricing is still over $1000.

And a few other product categories were targeted for the first time, including IVIS catheters.

But for the most part, we see this 2004 cycle of reductions as relatively minor.

And frankly, lower than we had originally forecasted.

Bruce Nudell, Sanford Bernstein.

Paul, we got a sample of DS pricing in November.

And it was around -- it wasn't a complete a sample of course -- it was around 2850.

First, is that in the ballpark of what you guys are thinking?

And secondly, I wondered, as a follow-up to Mike's question, the 3.75 mm diameter stent -- for TAXUS -- how is that negotiation going?

I would say your a sample of 2850 is probably pretty good for the current market.

It might be a little bit high, because some of the discounting that's going on is taking place in some of the very large accounts -- what we call the supertanker accounts.

And it may well be that you have not fully captured the full effect of discounting and rebates in those institutions.

But I would say you're certainly within $25 or so of what we are seeing in the marketplace.

We haven't commented on our own pricing position, and we won't do that until we release.

We're at a sales meeting today, and we have not told our sales force what the pricing is.

So I will be happy to tell you after I tell them.

The 3.75, of course, what you are referring to is the ability to dilate the 3.5 stent to 3.75 millimeters.

As far as I ,understand and this can still change, that is still going to be allowed.

I guess the question is, in the panel meeting, if I recall properly, there were some question as to whether or not you would be allowed a 3.75 mm diameter stent.

It seemed like an open issue at that .

Point but the panel has seemed favorably disposed.

Do you think you will be limited to, in fact, a 3.5 mm as the largest diameter?

No, the issue at stake here is the use of the 3.5 stent to 3.75.

There is not right now a separate 3.75 millimeter stent.

Fair enough.

With regards to pricing in general in terms of the DES, you mentioned that your perception was that pricing, per se, really isn't the principal economic driver in terms of stent uses.

I am assuming that it is at or around the 1.5 stents per case use, as you see with bear metal.

Could you just elaborate on why you think that healthy pricing should be able to be maintained?

Well, healthy pricing will be maintained primarily because it's not a distinguishing factor between the products that are available.

I do not think there's any question, most institutions feel as if they would like better prices than they have received so far.

Our job is not to make everybody happy by giving them the prices that they would like.

Our job is to make sure everybody understands the cost-effectiveness of drug eluting stents when they are applied, based on the reduction in re-treatment rates and based on overall clinical outcomes.

I think we are extremely well prepared to do that.

So I would say if you pulled a dozen cardiologists off the sidewalk and asked them what are the three most -- the three factors that most caused them gastric reflux, pricing is not one of their top issues.

It's about deliverability; it's about availability.

And it's been -- those factors have constrained their liberal use of drug eluting stents.

I really do believe it's difficult to predict precisely how drastically that will change when they actually start using a more user-friendly and readily available product.

But I think those factors will shift pretty.

Quickly, and generally speaking, the markets of interventional cardiology have not been price sensitive in the past.

And although the DES is an expensive item, it is generally reimbursed.

And I don't think price is going to be a major determining factor for physicians for some time.

Could we have a couple more questions, and then we will wrap it up for this morning.

We don't want to take too much away from what we planned in February.

If Paul keeps on going, we won't have anything to say.

I have a few more things to say.

Glenn Novarro, Banc of America Securities.

A question for Paul and then a question for Larry.

First Paul, the 2.25 (ph) TAXUS stent and a 4.0 and larger diameter TAXUS stent -- when can we expect them to be approved in the U.S.?

Can you give us an update as to when you expect to launch TAXUS Japan?

I think on the last call, I think you were talking about mid 2005.

For Larry, there has been some question as to what you are going to pay to Andgiotech.

In other words, the royalty on the entire stent system, including the balloon, or is the royalty just on the stent itself?

Maybe you can clarify that for us as well?

We are still in the mid '05 range for TAXUS Japan plus or minus 60 days.

The timing for 2.25 and 4.0 is early '05 in the United States.

We think that Cypher will probably be approved for those sizes in the second half.

And we will follow them by probably six to eight months.

Larry, just on the royalty?

The royalty is paid on the ASP, less the ASP of a balloon.

And then, that is primarily -- it's a little more complicated than that -- but it's primarily the basis upon which you apply after volume, about an 8 percent royalty.

So it's not 8 percent of the ASP of TAXUS.

It's 8 percent of the ASP less the ASP of a balloon.

How should we think about the price of the balloon in the entire system.

Is it worth $200, $300, a rough ballpark on that?

We are actually thinking about moving the price of the balloons up, only kidding.

Just ballpark, so we can?

It's around $300.

Okay, thank you for your interest this morning.

We will keep you up-to-date.

We look forward to the analyst meeting and seeing most of you there on February 23 in New York at the Waldorf.

Thank you, very much for your attention this morning.

Have a good day.

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