Boston Scientific Corp (BSX) 2004 Q3 法說會逐字稿

Good day, everyone and welcome to the Guidant corporation's 3rd quarter earnings release teleconference.

Today's call is being recorded.

Today's a presentation will include forward-looking statements including statements concerning financial results and product development.

Exhibit 99 to the company's 10-Q describes factors that could cause actual results to differ materially.

The company does not undertake to update its forward-looking statements.

With us today is Guido Neels, Chief Operating Officer, Keith Brauer, Chief Financial Officer, Dana Mead, President Vascular Intervention, Beverly Huss, President, Endovascular Solutions.

Fred McCoy, President Cardiac Rhythm Management and Mr. Andy Reith, Director of Investors Relations.

At this time I would like to turn the call over to Andy Reith.

Please go ahead, sir.

Thank you, Tony and for those of you on the webcast or the phone call, I would like to thank you for joining us.

With me are Guido Neels, Keith Brauer, Deb Mead, and Fred McCoy.

We will ask for brief conversations and observations and I ask Keith to talk about the quarter and comments related to future guidance.

Dana, Bev and Fred will each provide a more detailed update on their business.

And then after completing the formal remarks, we will open the phone lines for your questions.

Before I start, I would like to have a couple of housekeeping items, please.

First of all, we will once again provide slide visuals along with this webcast.

Additional supplemental financial information will be available on our Web site at WWW.Guidant.com.

And secondly, as a courtesy to everybody during our Q&A session, we would appreciate it if questioners would limit themselves to a single question plus one follow-up.

That will allow us to take more questions during that period.

Thank you for all of that.

Now Guido, I will turn the call over to you, please.

Thank you, Andy.

Today, we will review the results from a very solid 3rd quarter, and provide some insight related to our prospects going forward.

As I reflect on the quarter, I would like to make the following observations.

First, we demonstrated our capabilities in achieving important nonfinancial milestones.

Actually, the key team theme of all my observations is execution.

It is about an organization's ability to successfully focus on long and short-term initiatives while delivering operational results.

Second, we posted record financial performance.

We implemented cost reductions consistent with the restructuring plan we layed out previously, while continuing to invest in R&D and distribution capabilities to maintain product flow successfully.

Third, our sales force continues to demonstrate improved competitiveness.

And finally, looking ahead, the progress made in the 3rd quarter positions us well for solid financial and milestone performance as we conclude 2004, and head into 2005.

Let me elaborate on each of these points.

Key milestones of note in the 3rd quarter were the release of the first clinical the the launch of carotid artery stent systems in the U.S. and expanded ICD and CRTD reimbursement coverage.

These achievements demonstrate our commitment to building a broad and deep portfolio.

As you look at our 3rd quarter results, you can see the solid foundation being set for the remainder of this year and 2005.

We saw continued strong growth from conventional and heart defibrillators offsetting most of the declines in our stent revenues.

We made the observation in the mid quarter call that the worst of the stent declines is behind us.

This was born out in the 3rd quarter as we experienced a sequential worldwide stent revenue increase from the 2nd quarter of '04.

Also, new platforms, such as carotid stenting and other emerging business opportunities provided over $20 million of growth in the 3rd quarter -- versus the 3rd quarter of 2003.

Our financial results benefited from strong execution and a competitiveness of our sales organization.

We effectively launched our proprietary easy track two and three left ventricular leads and rapido access systems and regained share in the 2nd half of the 3rd quarter despite increased ICD competition.

The VI organization gained share in the U.S. and I expect we will continue to gain share in the future.

Also, gross margins also improved sequentially.

Which speaks to our financial health.

As I now turn to the future, I will again discuss the key initiatives that we introduced in our November investor conference last year.

We continue to see progress in each of these areas.

First, bringing drug-eluding stent successfully to the market.

Second, ensure success of our implantable defibrillator and resynchronization technologies, clinical science and market expansion.

Third to maintain and expand the competitiveness and capability of our sales organizations and finally, to demonstrate financial performance.

I will begin with our drug-eluding stent program.

Guidant is now prioritizing its vision E drug-eluding stent system as the company's lead drug-eluding stent program.

The reasons for this are very straightforward.

First, as reported at TCP, spirit first clinical results were extremely positive as demonstrated in segment weight loss.

Moreover, since CTC, we have held very positive discussions with the FDA regarding our ability to move forward with our IDE filing for vision E in the U.S.

And starting tomorrow, we will have similar conversations with the European regulators regarding the approval path rate in Europe.

And last but not least, vision E is very -- is a very manufacturable product.

Now, does that mean that we're walking away from the champion technology?

Not at all.

Guidant will continue to develop its bio observer polymer technology for proven clinical long-term -- for proven clinical and long-term strategic reasons.

In sum, I think there is great value to laser focus on organization.

This is the right time to completely focus on vision E in order to ensure market approval as early as possible.

Now, let's turn to the implantable defibrillator markets.

The new left ventricular lead and access technology which we launched in the 2nd half of the 3rd quarter bear out the promise of easier, faster, and more predictable implantation.

Guidant has again market share gain momentum, and it speaks well to the competitiveness of our sales force.

In addition, we continue to see worldwide implantable defibrillator market growing at a rate above 20% annually, based on compelling clinical evidence from studies like companion maybe two and Scud, and in addition, the recent proposal by CMS for expanded ICD coverage and the expanded FDA indication for CRTD devices based on companion clinical trial results which really should double the total in annual indicated and reimbursable [inaudible] for implantable defibrillators an resynchronization devices.

Also in the 3rd quarter, we further demonstrated broad progress in our sales force capabilities and competitiveness as evidenced by the endovascular solutions organization successfully introducing the aculink and acunet carotid artery stent system.

A rigorous clinical training and education program is being implemented and I'm very happy to report that we are ahead of schedule.

The vascular intervention U.S. sales force demonstrated success in gaining and holding cipher market share in target accounts and we expect to continue to gain further share.

And as for the cardiac rhythm management, like I said, we gained momentum in the latter part of the quarter.

In addition, our decision to establish the heart failure therapy development sales force was based on the need to directly promote the benefits of ICD and CRTD therapy to referring physicians.

It is increasingly apparent that this is the right way and the right strategy as indications are expanding and revenues are growing.

Finally, we remain committed to solid financial performance.

Even during a period of declining bare metal stent sales.

So I am optimistic that the remaining 90% of our portfolio should provide top line and earnings growth as we prepare for drug-eluding stent entry.

Dana, Beverly, and Fred will elaborate on all of these points.

But first, let me turn the call over to Keith for our financial overview.

Keith?

Thanks, Guido.

Next, I will lead to you the highlights of our 3rd quarter financial performance and discuss our outlook going forward for the remainder of 2004 and 2005.

Total sales for the 3rd quarter were $925 million, representing growth of 4.4 million versus the prior year. 87% of our product portfolio which excludes worldwide coronary stents grew 11% versus the prior year.

Growth in implantable defibrillators and our emerging businesses more than offset the sharp decline in stent revenue.

Worldwide coronary stent sales which now represents just 13% of our total sales are down 9 percentage points versus the prior year.

Taking a look at sales by product line, worldwide implantable defibrillator sales of 445 million grew 16%.

U.S. implantable defibrillator sales were 357 million, up 13%.

This growth is driven by the overall strength in this dynamic market.

Worldwide pacemaker sales of 181 million, or essentially flat versus last year.

U.S. pacemaker sales were 112 million, a decline of 4% from last year, driven by the mixed shift to defibrillators.

Worldwide coronary stent sales declined 38% to 122 million, due largely to the rapid acceleration of drug-eluding stent penetration in the U.S., as well as the impact of drug-eluding stent and other competitive launches in Japan.

However, revenues this quarter grew slightly, versus the prior quarter, driven by higher cortis sales.

Of note, U.S. cortis revenues are about equal to our U.S. bare metal stent sales.

Ongoing, we expect sequential worldwide coronary stent revenue decline to slow.

Worldwide angioplasty sales of 105 million were flat year-over-year, driven by decreased balloon utilization as physicians become more comfortable with direct DDS stenting.

Finally, the sales of peripheral, carotid and cardiac surgery systems which we describe as emerging businesses, were 72 million, and grew a strong 41% in the 3rd quarter.

Moving now to the income statement, gross margin of 75.3% improved 30 basis points from the 2nd quarter, but declined 120 basis points from the prior year.

The year-over-year margin decline is largely due to lower worldwide coronary stent sales.

The total of research and development, selling, general, and administrative expenses, decreased 8% versus the prior year, driven by structural expense savings from our restructuring program.

Pre-tax charges related to this program are 66 million, covering expenses associated with reduction and redeployment of employee, contract termination costs, software program write-offs and other related costs.

We continue to anticipate annualized savings from the restructuring of over 100 million associated with this action.

Income and earnings per share from continuing operations were 161 million, and 50 cents, compared to 145 million, and 46 cents in the prior year.

Excluding special items, adjusted income and earnings per share from continuing operations for the 3rd quarter and prior year were 202 million and a 63 cent, compared to 180 million and 57 cents.

Resulting in an 11% earnings per share increase.

After a loss from discontinued operations of 7 million, net income was 154 million, compared to net income of 129 million in the prior year.

Turning to the quarterly balance sheet, net cash increased nearly 300 million to 1.1 billion.

We now have cash and short-term investments on hand of approximately 1.9 billion.

For our key balance sheet metrics, day sales outstanding increased slightly to 82 days, driven primarily by seasonality of European receivables consistent with the prior year, and delays in payments from a number of hospitals in the southeast region as a result of recent hurricanes.

Overall, our aging quality continues to be very strong.

Days crossed in inventory declined five days primarily due to continued reduction of raw material, inventory, at cardiac rhythm management and part of the ream manufacturing initiative.

As many of you know, both the House and Senate recently passed the American jobs creation act of 2004.

If the President signs this act, among other items, this act will enable Guidant during the next year or so to repatriate approximately 1.5 billion dollars of cash permanently invested overseas.

We expect to use some of this cash to reduce our short-term debt balances.

Our priorities for the remaining cash balance are unchanged.

That is, the first and foremost fund growth opportunities including new technologies, and capacity expansion.

Now, for guidance.

In the 4th quarter, we expect sales of 925 to 965 million and adjusted earnings of 63 to 68 cents per share.

We again expect sales growth in implantable defibrillators and our emerging businesses to more than offset declines in worldwide coronary stent revenues.

This translates into full-year 2004 sales guidance of 3.72 to 3.76 billion, and earnings per share guidance of $2.40 to $2.45 per share.

For 2005, we continue to forecast sales from 3.9 to 4.1 billion, representing sales growth of mid to high single digits.

We expect 2005 earnings to be 252 to 267 per share.

This growth of mid to high single digits reflects our disciplined approach to spending and includes savings from a restructuring plan I discussed previously.

I will now turn the call over to Dana to provide an update on the vascular intervention business.

Thanks, Keith.

Today, I will discuss 3rd quarter vascular intervention performance, the competitive dynamics in the drug-eluding stent market, the recently presented spirit first data and finally our drug-eluding stent programs.

The vascular intervention worldwide 3rd quarter revenue of 227 million was down 25% year-over-year, but down just 2% sequentially, despite continued drug-eluding stent penetration, drug-eluding stent and metallic stent competition in Japan, and the impact of seasonality.

U.S. 3rd quarter revenue was up 7.5% sequentially, primarily due to stabilization of our core business, and increased cipher core promotion revenue.

Let's take a quick snapshot of the U.S. metallic stent market.

We continue to have a strong leadership position in the U.S. metallic stent market with 54% share in September.

Pricing remained remarkably stable in September with year-over-year pricing reflecting no erosion.

Our disciplined price stewardship combined with our broad metallic stent portfolio has enabled consistent worldwide metallic stent leadership over the past seven years.

Our metallic stent portfolio was further enhanced with the U.S. approval and launch of the high performance multilink mini vision in August.

Reported 3rd quarter worldwide drug-eluding stent revenue continues to highlight the rapid and predictable development of the drug-eluding stent market.

On an annualized basis the drug-eluding stent market is an approximately a $4.2 billion run rate despite European drug-eluding stent penetration of only 32% and just 40 million of Japan drug-eluding stent revenue in the quarter.

Continued worldwide penetration and stable pricing give us further confidence in the long term attractiveness of this market.

Our market research with samples over 200 labs monthly tags drug-eluding stent penetration at 84% for September.

We expect penetration to continue to advance slowly for the balance of year ultimately exiting the year the in 85 to 87% range.

Our view on U.S. drug-eluding stent pricing which is consistent with reported data, indicates that pricing has stabilized at approximately $2,500.

Third quarter U.S. cipher share was 36%, although we experienced a positive trend as we exited the 3rd quarter.

As we look forward, we are encouraged by two key factors.

Number one, Cypress supply is expected to grow significantly over the next few months, allowing for cipher to be reintroduced to a large portion of the market which is currently unserved.

Number two, at approximately 225 Guidant friendly accounts that have unconstrained cipher inventory, we have in excess of 70% share.

When we announced the J&J co-promotion agreement in February, we guided to you 4 to 6 cent range of accretion in 2004.

We are already within this range, and we expect to exceed the range by year end.

This fully contemplated in our 4th quarter and full-year guidance.

The spirit first six-month clinical data and angiographic data were recently presented at TCT.

These outstanding results further support our competence in every role across multiple stent platforms and polymers.

As depicted in this graphic, the future one, future two, and spirit first trial results were remarkably consistent.

These data were highly statistically significant and give us confidence that the clinical efficacy of both the champion and vision E. I will now update you on our two drug-eluding stent programs.

During the past few weeks there have been a series of important events that have caused us to modify our drug-eluding stent strategy.

We have now gained alignment with the FDA on the clinical and regulatory strategies for both the champion and vision E.

Last year, we gained FDA support for champion U.S. pivotal trial, the future fort trial, that included a primary end point and end segment late loss.

Following this year's TCT, we met with the FDA to review the exceptional spirit first clinical results, our spirit three clinical strategy, and our comprehensive preclinical package.

Our conversations reconfirmed that spirit first will provide the clinical support for initiation of spirit three U.S. pivotal trial, and the spirit three trial design, will be similar to that of future four.

The trial will enroll approximately 1,000 patients, and in segment late loss will be the primary end point.

Over the next few week, we will also be meeting with European regulatory bodies, to discuss the potential to expedite vision E, European launch, ahead of our first half '06 guidance.

As it relates to manufacturing, we continue to deal with scale-up issues with the champion.

We called that in order to leverage the future one and future two clinical results, we were restricted to replicating the sub optimal manual coating process utilized by bisensors to produce the future one and future two clinical units.

In order to allow for large scale manufacturing, we developed a customized automated coating technology that is still being optimized.

These champion manufacturing issues have added significant complexity and are taking longer to resolve than we had previously expected.

In contrast, we continue to remain extremely confident in our vision E manufacturing process.

Vision E manufacturing utilizes traditional spray coating method which we have optimized internally over the past two years.

The drug polymer combination was also designed to be stable and durable during large-scale manufacturing.

We are consistently manufacturing vision E product in large quantities that meet our product specifications and product release criteria.

In addition, today, we have sufficient production capacity to support both spirit two, and spirit three enrollment.

Based on all of these factors, as well as recent discussions with our physician and technical advisors, we have decided to prioritize vision E as our lead drug-eluding stent program.

We remain committed to better understand the potentially unique benefits of the bio sorpable polymer technology utilized with the champion platform.

Based on our operational challenges and prioritization of vision E, however, we no longer plan to launch the champion stent in mid 2005 in Europe.

As noted earlier, we continue to pursue an accelerated European vision E launch, and will update you later this quarter as we gain further clarity from scheduled discussions with European regulatory bodies.

Our primary focus is now filing the spirit three U.S. pivotal trial IDE and initiating spirit three enrollment in the 1st quarter.

This strategy is designed to spirit three enrollment and accelerate U.S. vision E approval.

In the 1st quarter we also plan to initiate spirit two enrollment.

Now, I would like to turn the call over to Bev Huss, the President of Endovascular Solutions.

Thank you, Dana.

Today I will provide you with a brief update on the performance Guidant emerging businesses, the U.S. launch of the aculink and acunet carotid artery stent system and the U.S. carotid stent market opportunity.

In the 3rd quarter of 2004, the emerging businesses comprised of endovascular solutions and cardiac surgery grew by 41% to $72 million.

This growth was driven primarily by strong sales of vessel harvesting product, biliary stents and peripheral products and the recently launched aculink and acunet carotid artery stent system.

Today the launch of the aculink and acunet system is proceeding with a variety of physician specialties and has exceeded our expectations.

While we don't break out carotid sales as part of ES, carotid sales were a significant driver of the 52% year-over-year increase we posted in the 3rd quarter for the ES product group.

Physicians have clearly demonstrated their eagerness to begin offering this new therapy to their patients.

We expect growth in our emerging businesses to continue into 2005, accounting for approximately 40% of Guidant's overall growth next year.

As many of you know, Guidant received the first U.S.

FDA approval for a carotid artery stent program with embolic protection in the U.S. on August 31.

With this approval, U.S. patients who are at high risk for traditional surgery will now have for the first time a minimally invasive treatment alternative.

Important benefits of this minimally invasive treatment include no general anesthesia and the potential for shorter hospital stays and faster recovery time for patients.

In conjunction with the launch of the aculink and acunet, Guidant has implemented an extensive physician training program to ensure each physician is appropriately prepared to begin offering this new therapy to their patients.

As part of this effort, we are pioneering the use of virtual reality simulators at training centers nationwide.

During the 4th quarter of this year, we plan to initiate training with over 300 physicians.

With an additional 1,100 physicians to be trained in 2005.

Guidant is currently in the first phase of initiating the capture, post-approval study, which will include at least 1,500 patients.

Capture will provide the collection of additional data on the aculink and acunet when used by a broad group of physicians.

Last week we began enrolling patients in this important study.

On October 12, CMS took the unprecedented step of expanding reimbursement coverage to include patients enrolled in carotid artery stenting post approval studies such as capture.

Guidant commends CMS and the FDA for working together to provide greater access to this therapy for Medicare beneficiaries and we are looking forward to a proposed national coverage decision in December of this year.

Many private insurers are already providing coverage for this new therapy, including Aetna and the Blues.

This is has occurred sooner than our expectations an is further evidence of the value of this new therapy.

Now, I will briefly discuss the market opportunity for carotid artery stenting in the U.S.

We expect this market to grow in two phases and in two patient populations.

The first phase occurs from this year to about 2007, and those patients at high risk for surgery called carotid endartorectomy.

This segment of the market will grow from $90 million in 2005 to $200 million in 2007.

And that growth will be driven by the growing clinical evidence in the high risk surgical patient population.

Generated by multiple manufacturers, including the two and one-half year data from the Guidant archer series of clinical trials just to support the long term safety and efficacy of the aculink and acunet carotid systems.

A CMS decision on reimbursement for this therapy in the high surgical risk patient population expected in December of this year, physician training and experience with this new therapy, and increased patient awareness.

The second phase of growth comes from 2008 through 2010, and includes a different patient sub group.

Those patients that are at low and moderate risk for surgery.

This growth will be driven by further clinical evidence in this significant patient population and that evidence is currently being generated through several clinical trials in the U.S. and Europe.

These clinical studies include the national institute of health, and Guidant sponsored crest trial, various European randomized trials already underway and competitor trials.

Beyond this, market growth will be driven by expansion into the underdiagnosed patient population.

Various groups, including the American heart association, and the American stroke association, have current initiatives underway to establish screening and treatment guidelines for stroke prevention.

And to improve awareness among patients and physicians.

We estimate that the total untreated patient population in 2007 may approximate 1.5 million patients.

Over the next few year, Guidant will be working aggressively to develop and lead these new exciting markets.

I will now turn the presentation over to Fred McCoy, President Cardiac Rhythm Management.

Thank you, Bev.

Our cardiac rhythm management update will cover the worldwide defibrillator market and Guidant's competitiveness in it.

Second will be an update on key milestones.

And finally, I will share a few summary comments on Guidant cardiac rhythm management performance.

Given the calendar year 2004 is now three quarters actual.

Worldwide defibrillator market growth in the 3rd quarter was 27% year-over-year.

While this growth is consistent with our recent stated expectations, it does fall in the high end of our projections.

The market is clearly strong.

Fueled in substantial measure by CRT defibrillators.

Guidant year-on-year growth for the quarter was 16%.

Again, at the high end of our projections.

During the 3rd quarter, we weathered the impact of a new United States entrant in CRT defibrillators, and new product entries in the high energy segment of CRT defibrillators.

We are encouraged that, in that the 2nd half of the 3rd quarter for Guidant was considerably stronger in actual defibrillator implant volume than the 1st half of the quarter.

In mid August we began the launch of our new CRT left ventricular leads and access tools, the easy track two, easy track three and rapido advance in combination with the renewal family of CRT defibrillators, moved share, intraquarter in Guidant's direction.

Looking into the 4th quarter, we projected the worldwide defibrillator market would grow 2 to 6% sequentially.

We further project that Guidant will sequentially grow in line with the market.

In the area of public policy, we are pleased with the CMS draft coverage determination to expand implantable defibrillator coverage to thousands of additional heart failure patients at risk of sudden cardiac death.

The draft coverage determination covers all of the made it to patient population and substantially all of the companion and Scud half patient populations.

We are currently working with CMS to gain clarity on several elements of the coverage determination, including the proposed registry, full consideration of the companion patient population, full consideration of the Scud half patient population, and the appropriate role of single lead defibrillator systems.

We anticipate that the final CMS decision would take place by the end of the year, with implementation in 2005.

In the area of clinical science, we look forward to the publication of Scud half results in the next few weeks.

That publication together with the publication of companion that took place in May should further increase awareness and adoption of the defibrillator therapy in a broad population of heart failure patients with left ventricular dysfunction.

On Guidant regulatory milestones, we are pleased with the expanded Guidant CRTD FDA labeling based upon companion, which was recently delivered in September.

Second, we are on track for FDA submission of renewal two and renewal four in the 4th quarter.

In addition to industry leading therapies and diagnostics, these devices offer Guidant's left ventricular offset feature which will provide physicians with additional CRT programming flexibility for select patients.

As previously reported, we completed enrollment in the renewal three, AVT trial in the 3rd quarter.

We are on track for FDA submission in the 4th quarter.

The renewal three, AVT, combines all of the features currently available in our renewal three CRTD, with the complete suite of atrial therapies currently available in our vitality AVT ICD.

Finally, Guidant is making substantial progress in our latitude advanced patient management program.

We had received FDA clearance in May for latitude in clinic.

Our web-based open heart detector system.

We are currently in the field pilot phase and plan to move to commercial availability during this quarter.

Latitude in clinic is the tangible leading edge of a series of latitude offerings scheduled over the next several quarters. 2004 has been a year of solid execution against the key milestones that will promise to further drive market growth and Guidant competitiveness.

As we now approach the conclusion of 2004, we offer a few comments.

The worldwide markets for cardiac rhythm management maintain a healthy growth profile.

Over the previous four quarters, worldwide CRM market growth has been 16%.

Interestingly, that is consistent with the annual market growth average from 1999 through 2003.

Leading the way over the last four quarters has once again been worldwide defibrillators where market growth has been 25%.

Further, despite increased competition in CRT defibrillators, Guidant growth over the past four quarters is equal that of the worldwide CRM market at 68%.

This is clearly very solid guidance competitive performance in cardiac rhythm management.

We're not surprised.

Guidant has grown faster than the market in cardiac rhythm management 16 out of the past 18 years.

This concludes our formal remarks.

We'll now open the call to your questions.

Thank you.

Today's question-and-answer session is held electronically.

If you would like to signal to ask a question, please press star, one on your touch-tone telephone at this time.

Once again that is star, one to signal to ask a question.

If you do find that your question has been answered and would like to remove yourself from the queue at any time, feel free to do so by pressing star, two.

Also, if are you using a -- excuse me, if your phone does have a mute function, we do ask that you disengage that function to ensure that your signal may reach our equipment.

Again, that is star, one to signal.

We will go first to Timothy Lee with Merrill Lynch.

Good morning.

Hi, Tim.

Dan, I don't know if you mentioned this, I'm sorry if I missed this, did you comment on the U.S. commercial timeline for the future programs or is that kind of shelved or were you not -- will not seek commercial approval of that program?

What we're doing right now, Tim, is obviously we're extremely committed to the base, biosorpable polymer technology and the benefits we believe that that will have into the future, and we are stepping back a little bit and evaluating exactly what the clinical and regulatory strategy moving forward will be with the current champion product.

As we gain greater clarity in that, over the next few month, we will update you on how that would translate in any future milestones.

And then kind of given this change in strategy, how does this impact your relationship with biosensors and others, downstream milestone payments that were associated with that asset purchase.

If you can comment on, that please.

Probably won't comment specifically on that agreement at this point.

There are very few restrictions, if any, on us, in the agreement.

Okay.

Thank you.

Next, to Dhulsini De Zoysa with SG Cowen.

Good morning.

Fred, would you be willing to give us maybe a little more color on your comments regarding your acceleration, the acceleration you saw in the ICD and ICD sales in the 2nd half of the quarter?

Should we be thinking some trialing with, you know, early in the quarters, getting back, coming back your way, or is it truly the leads that are making the difference?

And also, your competitors are talking about the remote monitoring being a competitive advantage that will help take share.

Are you running into that already?

Well, thank you, Dhusini.

Good to hear from you.

The commentary I made with regard to the sequential growth, 2nd half of the 3rd quarter, versus the 1st half of the 3rd quarter can be reduced to the following number.

We saw a 10% increase in the medical records reporting of our implants of CRT defibrillators here in the United States.

Between the 1st half of the 3rd quarter and the 2nd half of the 3rd quarter.

We would make the observation that that is most clearly associated with the market availability of the easy track two, easy track three, and rapido advance, lead access and bipolar lead family from the company which dramatically improves ease of use for physicians into a case and gives them programming flexibility beyond the case.

Those leads and the lead delivery system work best and the leads in particular, work only in their bipolar form, with Guidant renewal CRT defibrillators, and as a result of that, we would describe that as the primary mechanism by which that uptick took place.

That looked like share taking to us.

Looks like about two percentage points between the 1st half of the 3rd quarter and the 2nd half of the 3rd quarter, on CRT defibrillators.

Okay.

And then Fred, if I may follow-up, what are your assumptions for ICD market growth in '05?

And your shared year-end '04 versus year-end '05?

With regard to the market itself, I feel pretty comfortable in saying that the market next year is going to grow at 20% plus.

With regard to the share outlook, we're not yet ready to comment on that, except to say the following.

Is that in the middle of next year, we're going to start annualizing against these numbers here in the middle part of this year, in which we've been growing slower than the market.

At a moment in history in which we're going to be in a new product development cycle.

That will apply to our core defibrillators, that will apply to CRT defibrillators, and that will apply to our lead, and that will apply in particular to our Brady leads and as a result of that, we would look to be in share taking mode during the 2nd half of next year, particularly when you compare that on a year-over-year basis.

Between now and then, we intend to defend share in defibrillators.

And the commentary that I made as we look forward in the 4th quarter, is that by growing inline with the market to that point.

Okay.

I will get back in queue.

Thank you.

Thanks.

Next question, please?

Thank you, we will go next to Rick Wise with Bear Stearns.

Good morning, everybody.

My questions are maybe, Dana, if you could take us through the spirit three timing and details, give us a few more particulars, I think you said it starts in the 1st quarter.

How long do you think it will enroll and remind us of the follow-up period, the number of centers, and maybe just discuss generally the challenges and rolling, given not only to approved products but you're also indicating the greater supply availability on the J&J quarter set.

Yes, well, spirit three, based on the conversations we've had with the FDA just last week, post TCT is going to look very similar to what we had described previously with future four.

And so in a randomized portion of the trial, you will have approximately 1,000 patients with primary in point being in segment, late loss.

We plan to continue to move forward with approximately 80 centers.

Obviously, the focus on one clinical trial and performing that one clinical trial through to completion will help us positively impact enrollment in that all our regulatory and clinical resources will be focused on that trial only.

We will, as I have mentioned previously, look at incenting appropriately to drive enrollment into that trial.

Obviously that trial will not be competing with future four for our top implanting centers.

We are also looking at flexibility in the enrollment criteria as we mentioned previously, to include multivessel disease will help.

And I think the combination of all of those things, coupled with the exceptional spirit first clinical results, and the familiarity that physicians have with the vision platform, and their interest in having the vision available in the drug-eluding stent format, as the vision E will add to enrollment.

Enrollment times, all of the companies that talked anywhere from very fast enrollment, three months, all the way up to six months, we're going to do everything we can to be on the lower end of that range.

Okay.

And just to follow-up, you talked about the cipher additional volume impact on EPS of 4 to 6 cents in '04 and sort of being, I think, above the end of that.

Can you all quantify the impact of what you're expecting in '05?

And last, I would appreciate a comment on the CEO search and decision.

We thought we might see a decision by October.

What's taking so long to get that resolved?

Thanks so much.

Okay, let me tackle the accretion from the co-promotion.

I can tell that you we do have a belief that we will continue to increase share in the drug-eluding stent market in the U.S. exiting this year and have an opportunity as more product becomes available so J&J will continue to do that into next year.

We are not going to share specifically what that guidance would look like for next year.

Keith, do you want to comment?

I will.

Rick, this is Ron.

Optimally we said October would be a great announcement for us in terms of a succession around the CEO.

And still, it is true, we may end up missing that milestone by a slight amount, but it should be relatively near term in front of us.

I would say the more important message is, as you have listened to this team today, the performance both the financial performance and the changing product portfolio and being able to deliver the kinds of results and make the tough decisions specifically around operating expenses to make sure that we're well positioned for '05 and going forward, and still being able to deliver on an adjusted basis of 23%, 22% ROS, think it is a bit heroic, but more importantly, at the same time, delivering results, whether we talk about the reimbursement issues, whether we talk about the clinical trial issues, or whether we talk about FDA approval, broadly across the corporation, I think is a great statement for the team that's in place.

But the decisions and the announcements are still in front of us.

We will potentially miss the October time frame, but we shouldn't have to stretch that very long.

Thanks, Ron.

Next question, please?

Thank you.

Next to Bob Hopkins, Lehman Brothers.

Thanks and good morning.

Two quick questions.

First, Dana on your comment about cipher supply.

Could you give us your sense as to today what percentage of the total drug-eluding stent market opportunity in the U.S. is not currently being served by J&J due to their tiered programs and supply problems?

You know, J&J would be the right person to give you the specific data on that, if they're willing to share that.

I will say there is a significant amount of the market that is currently not served today.

And therefore, we believe there's a very realistic opportunity to continue to grow share through the end of next year -- this year, excuse me and into next year.

But any brackets you can put around that?

Do you think it is 10% of the market that they're currently not getting?

What does significant mean?

It is less than half, but not that far off.

Okay.

And then my second question, I will turn to Europe, should -- you know, give us a little bit of help there, if we can.

Should we take our drug-eluding stent numbers that we might have for 2005 in Europe out of our models?

Could you handicap what you think you might hear from the European regulators in terms of how quickly you can get vision approved over there?

Sure.

Our current guidance still stands that we would expect to have the vision E product in Europe in the 1st half of 2006.

However, it needs to be said that as Guido mentioned starting tomorrow, we have a series of scheduled meetings with European regulators to examine how we can expedite vision E approval in Europe, and as we noted in prepared remarks, as we learn more about that, we will update you over the next few months to do that.

We do think there is certainly an opportunity to do that.

Again, we can't share the specifics until we've had those discussions.

When would you think you would have that update for us?

You know, it is going to be an ongoing discussion with those regulatory bodies over the next few months.

And as we articulated it, will be probably sometime by the end of the year, we will have a much better, cleaner view of where that stands.

Thanks very much.

Next we go to Glenn Reicin with Morgan Stanley.

Good morning, folks.

A couple of follow-up questions here.

Dana, you mentioned that you would start your -- you would follow the ID and start your clinical trial in the 1st quarter.

Six months, six months for accrual of patients in the trial.

Does that imply 3rd quarter '06 U.S. filing?

And then a related question with respect to Europe.

What exactly is lacking in spirit first data that you did not have with future one and two?

In other words, why does this set you back at all theoretically?

It seems to be it is a very similar subset of data here.

Well, let me start with the second part of your question, with the data.

You know, Glenn, you know, we do believe there is an opportunity to expedite that approval time, and again, I think it is inappropriate for us to speculate till we've had those specific discussions with the European regulatory body so obviously based on the fact that we're having these meetings, we've got the spirit first data, we've obviously got a broader understanding of enrollments from our other trial, the enrollment was approved in Europe and we have a very strong preclinical package, so we are optimistic, however until we have those discussions, it is probably not fair to comment.

In terms of U.S.?

In the U.S.

As you know, we haven't speculated on U.S. approval times.

I will say that this prioritization, the vision E product will help us expedite getting to the U.S. market, as soon as possible.

So you will have to do your own math on how long you think it is going to take us to enroll, what that follow-up period would be, which would be approximately nine months, we will have to prepare a report, we will have to submit that to the FDA, and then there will be a number of things that we will have to consider as we go through that process.

We don't know if we will have to go to panel or not, depending on where we are in the queue, and then just how long that FDA process will take.

I will tell that you we will do everything possible to expedite it.

Like filing our FDA submission and modules, et cetera.

Just one follow-up.

I noticed that despite the uncertainty on the European launch, you maintain your revenue projections for next year.

When I do my back of the envelope kind of check, it sounds to me that carotid stenting and quarters payments can pretty much offset a delay in sort of DS in Europe.

Is that a good way of looking at it?

Well I think all of those things contribute to the things.

Glenn, this is Keith.

I think that is one way you can look at it.

I think the other business too that have you and how much the stent -- that's why at this stage we're still pretty comfortable keeping this ranges exactly the way I outlined it.

Okay, and that is assuming more than 50% market share next year for carotids?

We aren't talking about market share, but we do expect to be a leader in the market with our current offering and our new product pipeline that we have.

Thank you.

Next to Mike Weinstein with J.P. Morgan.

Go ahead, Mike.

Can you hear me?

Yes, sir.

Sorry about that.

We had mute on.

We're not that good with the phone.

I would like to spend another minute, Dana, if you would, on the decision relative to champion and spirit.

And I guess the first part of it, is focusing on the decision not to launch champion in Europe, ahead of this meeting, with the European authorities relative to the timeline for spirit.

Why make that decision now, rather than a couple of weeks after you've had those meetings?

Okay.

Well, first of all, I think as we reflected in the prepared comments, we continue to have these operational challenges with champion, which we believe does not make us certain that we would be able to launch the product first of all, if it was going to be prioritized in the U.S.

So we do have those operational challenges that I think I described.

The real reason we're doing this prioritization is around the resources and focus.

To make sure that we have the appropriate focus and the resources on the vision E program which we believe is our lead program long-term.

And we believe that for a lot of reasons.

Number one, obviously, the platform is known.

And we have a lot of confidence in it.

We have a great deal of competence in our manufacturing processes that we've been internally developing over the last few years.

And from the feedback that we've gotten, not only on the clinical trial data, the spirit first data, from talking to our physician advisors as well as the feedback we got from the FDA, we believe it is prudent to make sure that we do everything we can to expedite vision E, rather than put as much resource on champion.

We continue to be interested obviously in the biosorpable polymer technology and we continue to have activities around champion.

But again, we will have to update you once we thought through exactly how we want to move forward with that program.

Was the FDA encouraging you to champion -- to push spirit forward?

The FDA is very positive around the spirit program.

They like the stent very much.

But they've had -- which they've had a lot of experience with.

Clearly, they like the polymer and the data that we showed them around the polymer and I think they've got a lot of confidence in the enrollments.

Is part of that, that they are theoretically more comfortable with the durable polymer than the biosorpable one?

Not necessarily, Mike.

I think, you know, they might go that direction if you asked them the question broadly but we had supplied them with everything that they had asked for on our biosorpable polymer including showing them 12 month degradation data which is was very consistent and predictable so we had met all of the requirements they had given us around the biosorpable polymer, so they have not said they didn't feel good about it.

And the FDA has said to you basically -- read into that, they will approve the IDE based on the spirit first data available?

They have.

Assuming that we provide a complete package that we said we will provide it, yes.

When we think about just time line risks here relative to this program, is there anything that you can say at this point that would lead the FDA to come back with a round of questions on the spirit, on the spirit three IDE submission?

Not based on the discussions we've had with them, as of last week.

We will continue to have more and more pre-IDE meetings with them, to make sure once we've filed the IDE, we have the best chance possible to get a 30-day turnaround.

Okay.

Thank you, guys.

Next to Bruce Knudel with Sanford Bernstein.

Hi, Dana.

Spirit two, in Europe, what is does that program look like?

Do you think you need, you know, the results from that trial to kind of help as a marketing tool and proof of concept tool for European clinicians?

And then Fred, when do you actually expect, you know, V to V timing in CRTD in the U.S. and when do you expect, you know, the anti-atrial fibrillation features as well?

Thanks a lot.

Thanks, Bruce.

I will start with the answers.

Each of those product, renewal two and four in the first place, renewal ADT in the second case for the U.S. market are scheduled for the middle part of next year.

We have been saying 3rd quarter.

Interestingly a sister product renewal four ADT has just gone through market launch in Europe right now so we're looking forward to that -- that early experience.

And renewal four has been on the market in Europe for many months.

And to --

On spirit two, Bruce, as we mentioned, in TCT, we would expect that trial to enroll approximately 300 patients.

We expect to initiate enrollment in the 1st quarter.

And they will be the PI for the trial.

That trial can potentially serve two purposes.

Number one obviously will provide us with further data that will help support a launch.

In Europe and then depending on our discussions with regulatory bodies, there is a lot of different ways we can structure that trial to provide additional data through a review process, if we need to.

And one follow-up, Dana.

The randomized arm of spirit three is 1,000 patients and the nonrandomized arm, just to refresh us, is?-

What we're going to do in a nonrandomized arm, and we're still working with the FDA to make sure that we get the patient enrollment numbers exactly, where we're both comfortable with on that, is really the goal of that is to make sure that we're going to be able to launch a very broad product line.

Our goal is to have a 2 1/4 all the way out to 40 and 8 to 38 in length so we will work with the FDA to put the appropriate registries, parallel registries in place to allow us to launch a broad competitive product line.

Sot implication here is that 2,000 patient rule is really not applying to this product?

They had not brought that forward with us.

Although if you think about worldwide, we would be at a number that would get fairly close to that.

But we have not been told we need to do that.

Thanks so much.

Next to Jason Winz [ph] with Leerink Swan.

Hi.

Just wanted to get a little clarification on the contribution from J&J.

I believe you said half of the stent cells related to the J&J contribution, that has typically been a little bit lumpy, how should we think about modeling say for the 4th quarter and even next year since that seems to be a bit of an offset to some European sales.

I think you know that the cortis portion has two parts, it has the chassis that we've historically supplied to J&J for their RX systems, in the U.S., and it has a commission that we get for the co-promotion work we do with J&J in the U.S.

I would say that we would expect those numbers to be fairly consistent to what you saw this quarter moving forward.

You mean about this rate going forward, but without -- I mean basically flat sequentially or --

Well, you know, remember, it is two pieces.

And so those two can vary.

Obviously the co-promotion I mentioned earlier, as we increase share, that will continue to go up.

Yeah, and in my remark, this is Keith, I mentioned that, you know, we expected this decline to be -- it is tapering off now, so it may still have very small, but it is pretty much flattening out, for all the reasons you mentioned, some offset also because it has a steady state [inaudible] as well.

Okay.

Thank you.

Next to Tom Gunderson, Piper Jaffray.

Hi, emerging sales did well, better than we expected.

Can you give us a little more color on that?

Maybe break it out between surgery and peripheral?

And also, is that where AFX will find a place?

And were there any revenues for AFX?

This is Guido.

I will give a little comment on that and then I will have Bev expand on the carotid.

Because that is really where the engine is coming from.

Both the CS and ES grew, some of that came indeed from AFX, but clearly, the bump that we got from the carotid artery stenting business.

Bev?

Yes, you know, our base biliary and peripheral business has continued to grow at 2 or 3 X the market growth rate but the significant driver was carotid sales, and I think what we have learned is that there was a good deal of off-label carotid stenting going on, and there are more physicians out there with some level of experience with this new therapy.

Thanks.

And then Dana, could you give us a little bit maybe broader description of what you think is going on in the market today in the U.S.?

You've got 70% where your supply unconstrained, and Boston scientific claims 70%.

If we have all the supply we need from everybody, what do you see as the tipping point between decisions as to why someone picks a cipher over the taxes?

Sure, first of all like most markets when you listen to all the competitors they tend to sum up to over 100%.

I think we obviously did get reported data from from both companies last quarter that showed that J&J had 36% market share in the U.S. market and I believe listening to both companies they said that they were trending positively ending the quarter.

We did say, obviously, and we do see that our cipher sales daily and we do feel good about the way we're trending.

As far as how that market is begun to play out over time, I can just tell you that, as I mentioned earlier, that where we do have full supply in the accounts that we have targeted, and they are friendly with Guidant, we have proven that we can impact share in those accounts in those 225 accounts that I noted.

We have over a greater 70% share.

Obviously there are many other accounts where we do have not have 70% share, to have the current mix share that we have.

We will have more product exchange, dated probably over the next few months.

We will be addressing a large portion of the market that we're currently not serving.

And we will just have to see how that plays out.

Or plays out over time.

As far as I can see, that will only mean that we will gain share.

Not lose share through that process.

Just to dig in a little, sorry, to do the follow-up on the follow-up, but the 225 where you've got 70%, are you attributing that to a good relationship with the rep, are you attributing that to pricing because they get better bundling?

How -- what is it that makes that group different?

That group, number one, is our accounts that get product, so they have an unconstrained product supply, and number two, where we have extremely strong relationships with the accounts.

Okay.

Thanks.

We will go next to Adam Galyan [ph] with Credit Suisse First Boston.

Hi, thanks.

First, can I follow-up a bit on that J&J co-promotion?

I think the deal was set to terminate once you've launched in the U.S.

If they move to steeplechaser in the U.S. before you get to market with vision E, can you just confirm that there is no change to that collaboration?

And then also on that topic --

Yes -- number one, first thing you said is true, that when we do launch a product in the United States, the co-promotion in the United States would stop.

We would still be supplying that chassis that they were ona system that was utilizing our chassis, number two, you mentioned if they got a new technology other than cipher prior to us having a drug-eluding stent in the United States, we would also sell that product.

So any technology they have, they bring forward that they're selling, we will also sell with them.

Okay.

And then also on that topic, what if post-resolving all these capacity constraints you and J&J don't capture all the share were you going to?

Does price become a strategy in capturing share or it it your view and J&J's that either way, it's not worth it and you're committed to keep the price intact?

I don't want to think that way, first of all, but secondly, J&J controls all pricing and we can't comment on price.

Okay.

And if I could just ask a question on an unrelated topic, with all this uncertainty on the future programs can you just help us understand a little better where the everall misquoted vision with biosorpable polymer has been in development and what the experience has been so far there?

We have done some developmental work on, that feasibility work, we certainly think it is feasible to do it but we have a lot more development work to do.

We are going to consider a number of different options ahead of us an as we mentioned earlier once we get clarity on that, we will update you on exactly what our full product development strategy will be.

Adam, you ought to be thinking about too, the notion of iteration that has always been kind of a hallmark of our product development so there is a number of generations that we have already begun to work on.

Okay.

Thanks.

Next to Matt -- excuse me, next to Larry Keusch with Goldman Sachs.

Hi, everybody.

Just a couple very quick questions.

I will just rattle them off.

I guess for Fred, just sort of the feedback that you're now getting on easy track two and three.

And I guess what I'm really interested in is with the share gains moving in your direction, is it the bipolar aspect in that electronic repositioning that is doing it?

Or is it the deliverability at the margin, I guess?

Secondly, the 10% increase that you talked about from the 2nd half to the 1st half in terms of your defib implants, could you also put that in the context of perhaps a normal seasonality that may occur during the summer?

And then lastly, for Dana, just where does the strategy for Japan for DES fit in, as you now shake up all these programs here?

Can you use spirit two or do you need spirit three to start to go in the direction of Japan?

Thanks.

I will be happy to start out.

With regard to that intra-quarter share taking, we support our commentary, first of all, the implant run rate from our medical records is the fact that you make the observation about seasonality within the quarter, we did ask ourselves that question as well.

There may have been about an 8% market uptick between the 1st half of the 3rd quarter and the 2nd half of the 3rd quarter at the maximum.

But the market was also growing during that period of time.

So we would say that about half of this 10 percentage point step-up in implants is not associated with seasonality or market growth.

We make the observation as well and will support the comment that we sold CRT defibrillators in 89 accounts in the 3rd quarter that we had not sold them in the 1st half of 2004.

With regard to the reasons for that, clearly electronic repositioning, ease of deliverability, and the fact that we can use bipolar technology in a variety of vectors in order to give physicians flexibility, not only intro, but also post implant, are clearly creating very nice updraft for us, and as a result, the phone is ringing more often.

Larry, on the second part of your question, by the way, has it been a productive week in Boston?

We've got nothing done here.

I'm a life-long Red Sox fan.

Very nice sequential results for the Red Sox.

As far as our Japan strategy, we're basically going to convert the strategy that we had had previously with future four over to spirit first -- excuse me, over to spirit three, and part of that strategy was really tied to a harmonization effort that is going on with the FDA and the MHLW where they're looking to work together on some of these clinical trial strategies.

We are not going to share exactly what we're going to do there.

I will say that number one we were encouraged by the fact that cipher received approval in Japan a little less than one year after it received approval in the U.S. which is much better than a normal two or three year gap and we are working on creative approaches with both FDA as well as MHLW to expedite opportunity not just for Guidant but for other companies to get drug-eluding stent into Japan much closer to when they're approved in the U.S.

Great.

Thank you very much.

You're welcome.

We go next to Robert Falkner with Prudential Equity Group.

Thank you.

A couple of questions for Fred.

I wonder if you could talk about what you think the impact of renewal with EBT could be once launched mid next year.

And then moving on to Dana, I don't know if you can talk about balloon growth, I think Keith mentioned that the shift to direct stenting might be driving.

I wonder how much price, or let's say Boston scientific's bundling might or might not be driving the trends there.

Why don't we just start with that?

Well, Rob, thanks for the question about renewal 3 ADT.

It does strike us that atrial fibrillation is present in particularly chronic atrial fibrillation present in heart failure patients at a rate that is perhaps twice as high as it would be in defibrillator patients and as a result of that, and you would make a comparison between perhaps the vitality ABT ICD and the renewal three AVT, and see that perhaps the adoption rate could be higher in heart failure than it was for defibrillators there, straight defibrillators there.

And so we think about that as being maybe a good solid 15% of the market.

And we like the fact that we're on the inside track with regard to the chronic solution in that space.

Physicians tell us that they are interested not only the therapeutic capabilities of such technology but also the diagnostic capabilities of the technology.

And as a result we're looking forward to bringing that to the market by virtue of the fact that we have run a clinical trial, we will be bringing clinical data when we do it.

Are you defining the market as all of ICDs or just CRTDs.

In the description of the 15%, I was trying to carve that out to CRT defibrillators.

Great.

The defibrillator market currently for the atrial therapy portion, depending on how you define that, is about half that.

Thanks.

Rob, if you would look at what we saw in angioplasty, certainly there has been some discussion that have you seen a little bit less direct stenting than you did with the original drug-eluding stent experience.

Really part of it is for us is mix.

A high percentage, a little over half of our dilatation business is in Europe.

As you probably know, during the summer months, Europe slows down quite a bit, just to give you an idea, our wire volume was down about 7% in Europe sequentially.

Still up significantly over 15% year-over-year.

So we think European market was a little soft, and just kind of intra-quarter jockeying.

We don't think there was any major share shifts anywhere in the world.

And no significant pricing movement?

There was not.

Actually, if you look at pricing, it was extremely consistent sequentially in year-over-year with what we've seen.

Good.

Thanks.

Next question, please?

Next to Matthew Dodd, Smith Barney.

Just one question, on the pacing side in the U.S., Fred, are you getting a benefit from the CRTP at all or is this just market growth slowing down is why you're negative?

We have benefited from CRTP but we are sailing upwind and the Brady pacemaker market in the United States is flat and down and of course it is suffering in competition from the higher value therapies an we are enjoying the other side of it.

Do you think the CRTP market is declining as well?

I know it flattened out for a little while but your sense is that it is declining now?

I think the smart money wouldn't be on calling it about flat in through here and let's watch it over a quarter or two more.

We're just now at a point past the pave trial result, and ahead of the CMS national coverage determination which has a little wobble on this particular item that we better not predict the demise in the CRT pacemaker market any time soon.

Thanks, Fred.

Next to Mark Landy, Susquehanna Financial Group.

Good morning, folks.

Two quick questions.

First for Fred.

Fred, we've seen the launch of two monitoring devices, one with batch processing, and one with realtime processing.

Do you guys have any insights since you into what the physicians prefer?

And then probably a quick question for Dana.

We've seen the European regulators, you know, let you switch delivery systems with little clinical data.

Are they still open to that or now that there is product in the market there, probably a little bit more conservative there?

Mark, I suppose when you say batch processing, you're referring to care linking and when you're saying realtime processing you're referring to house call?

That is correct, yes.

Okay.

Terrific.

House call is transtelephonic monitoring application that has some enhanced features that's been available in the marketplace for way over a decade.

And it does involve people on each end of the transaction, and so it adds resources as opposed to taking them away.

I do think there is some involvement there that has caused PTM alternatives to be selected for certain select institutions or geographies over a period of time.

And I believe that will continue.

So it has some advantages.

I do think, however, that as one would place one's bets on a go forward basis you would go more to use your language batch processing mode in which clinical data is liberated in time and space and then deployed to clinicians or to service personnel in a mechanism in which data can be dealt with in realtime, as is required as opposed to on command.

Particularly in that it involves a person at each end of the transaction in the case of CTM alternatives like house call.

So, you know, how easy is to switch from realtime to more of a batchless realtime mode?

And then is there any preference in the marketplace for any of the two systems?

Well, it is not easy to make that switch.

It requires the ability to be able to work in a variety of different technical disciplines, if you're going to liberate the information fully, you've got to change the mechanism by which telemetry is handled in these devices and that has all kinds of interesting technical challenges.

And it takes a big research and development program over a number of years in order to cause that to happen.

That would be from the experience that we have had with our latitude, advanced patient management effort.

And then Fred, any preference in the physician community?

I think probably the preference in the physician community, as we go through the decade, is going to migrate towards the -- again to use your term, the batch processing mechanisms.

Thanks very much.

And then Dana?

Yeah, Mark, European regulator, obviously we will have a much better view of, a realtime view of our meetings -- after our meetings starting tomorrow and in the next few weeks.

We they are flexible if you have a very strong argument and we do believe that the combination of the spirit first data, the experience that they have with vision, and the vision platform in Europe, the experience they have with ebbrollment and what you see with ebbrollment in the future one and future two trial, as well as all of our pre clinical work give us an opportunity there, but until we have those discussions,we can't really comment further.

Back to Rob's comment he mentioned the impact of pricing that bundling might have in the United States.

Just to give you year to date numbers our U.S. stent pricing is only down 1.7% year-over-year, our Bloomdale patient is only down 4% and our wire pricing is down less than 1% -- year-over-year.

So certainly these bundling efforts have had little to no impact often pricing on the other core products.

I would argue that the pricing has stabilized rather than going the other direction.

Tony, we have let this run over to accommodate everybody so let's just take two more questions and then we will wrap it up.

Okay.

We'll go next to Eli Kammerman with Cathay Financial.

Thanks for taking my questions.

Questions for Keith and Bev.

First on the R&D expense for the quarter, for the past three years, R&D has been up sequentially from the 2nd to the 3rd quarter but it fell dramatically this year.

Curious as to what happened there, especially with your re-development activities?

And then --

Good point, Eli.

Usually R&D is about 13 to 15% of sales.

Remember we had the restructuring in there, and we redirected R&D priorities toward the ES stent and heart failure and all the critical capability that we had and also part of the restructuring there were structural changes in terms of bonus and restricted stock so some of that isn't at all as it seems in terms of dollars being cut on R&D.

It is more some of the other pieces like bonus and restricted stock that had come down on that.

Okay.

And then another clarification on the financials, in the year-ago 3rd quarter, you originally reported 938 million in revs, of which about 18, looks like, they were from discontinued operations.

So what's the real comparison for the cardiac surgery division?

Is it 17 versus 50?

Or 17 versus 30, 33?

I mean 72 versus 50?

Or 72 versus 33?

Eli, it is versus the 50 number.

Right.

Okay.

So then where did that 18 million revenues disappear from for the restatement?

Radiation is where it is [inaudible].

And also Brazil, remember, we exited Brazil as well.

Okay.

Thanks so much.

Next question, and this will be our final one, Tony.

Our final question will come from John Calcagnini with CIBC World Markets.

Hi, guys.

Just quick, I wondered if you could give us ICD unit growth in cans in the quarter?

And talk a little bit about the impact of price both for the U.S. and OUS?

That was the first part of my question.

Sure, John.

Let's start with price.

U.S. defibrillator pricing was down 2% sequentially, down 3% year-over-year, and outside the United States, on the constant currency basis, pricing was up by 1%.

From a unit standpoint, units grew on a worldwide basis in line with revenue at 16%.

Okay.

And I wondered, Fred, could you talk a little bit about what do you normally see between the 1st half of the 3rd quarter and the 2nd half, in terms of ICD sales?

I mean one might think that the 2nd half of the quarter might usually be stronger anyway.

And then I just had one final question.

Maybe for Ron.

Which is, you know, should we assume that a CEO will be an external candidate given the delay?

Or are there other strategic decision that are delaying the process?

I think you're exactly right with regard to the potential seasonality within the quarter.

As we looked at it, the net of it is no more than 5% could be explained by seasonality within the quarter.

And so we would describe this 10% as being at least twice in excess of what we would normally expect and we're very heartened about that I.

And John, one other thing I would add to Fred's comment is that those numbers relate to implants or actual clinical experience, not reported revenues only.

Okay.

John, this is Ron.

I wouldn't try to read anything into that.

It's a process of the board getting to an absolute decision point.

The only thing we know for sure, whoever is appointed will be better than the guy that's got it now.

All right.

Well, thank you.

All right.

We'll turn the call back over to Guido for some closing remarks.

Thank you, Andy.

I would like to first of all thank the entire team for what they have delivered today in the 3rd quarter.

It's been an extremely good and heartening experience.

And I think that also bodes well for the future performance in the sense that both from a financial and non financial side that we will continue and we do expect to continue to make the milestones that we had set forward for ourselves.

I think it also characterized our performance -- characterized by expanding portfolio and as quarters progress, the decline in the vascular intervention group will diminish and the defibrillator business and the emerging business will fuel overall growth again.

And then again, looking forward, I think the milestones we should be looking forward to a vision E program that by the focus that we now have decided to put on it maximizes our chances to get to the market as soon as possible.

The emerging markets continue to perform very well and moreover, good prospects for the defibrillator market and also vision in it.

With that, I want to thank you all and good day.

This does conclude today's conference.

We thank you for your participation.

You may disconnect at this time.