Boston Scientific Corp (BSX) 2005 Q1 法說會逐字稿

Welcome to the Boston Scientific Corporation first quarter earnings results.

OPERATOR INSTRUCTIONS With that being said, let's get right to this first quarter agenda and here with our opening remarks is Executive Vice President and Chief Financial Officer, Mr. Larry Best.

Please go ahead, sir.

Good morning.

And thank you for attending our call to focus on our first quarter results of 2005.

With me today on the call is our Chief Executive Officer, Jim Tobin; our new Chief Operating Officer, Paul LaViolette; the head of our Endosurgery group, Steve Moreci; and I also asked Paul Sandman, our General Counsel, to be available for any questions.

He's our General Counsel.

Before we begin, because we will be making, obviously, some forward-looking comments, I would like to ask our head of Corporate Communications, Paul Donovan, to read the Safe Harbor.

Paul?

Thank you, Larry.

This conference call contains forward-looking statements.

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

Thank you, Paul.

Let me begin by saying that the first quarter of 2005 was a record quarter for Boston Scientific.

We continued to achieve new heights in sales and earnings.

Net sales exceeded 1.6 billion, up approximately 50%.

Worldwide coronary stent sales 721 million, an increase of 154%.

Our net income grew 122%.

And our EPS, earnings per share, grew 122%.

So, off rather big numbers on a base business, just a spectacular quarter and we're very pleased with the results that the Boston Scientific team delivered.

Let me be more specific.

Net sales for the first quarter were $1.615 billion, as compared to 1.82 billion in the first quarter of 2004, an increase of 49%.

Excluding the favorable impact of $26 million of foreign currency, net sales increased 47%.

Worldwide coronary stent sales for the first quarter were $721 million, as compared to $282 million in the first quarter of 2004, an increase of 154%.

Worldwide sales of our TAXUS system during the quarter were 686 million, an increase of 219%.

U.S. sales of our TAXUS system was approximately 494 million in the quarter.

On the net income side for the quarter, excluding net special charges, net income increased 122% to $431 million or $0.51 per share, as compared to 194 million or $0.23 per share in the first quarter of 2004.

Reported net income for the quarter, including net special charges of 73 million, was 358 million, or $0.42 per share.

The net special charges for the quarter consisted of purchased and processed research and development, costs related to the acquisitions of our bifurcation stent platform, Advanced Stent Technology systems.

Let me provide you some highlights on the sales line and then I'll take you through the income statement and talk a little bit about cash flow.

Then I'll turn it over to Paul LaViolette to give you an update on his perspective as far as the operating results in the first quarter.

And then we'll turn it over to Jim Tobin for his remarks, CEO perspective, and then, again, we'll open it up for questions.

And in addition today, we have Steve Moreci, head of our Endosurgery group, and Paul Sandman available for questions, also.

With regards to sales, a very strong showing for the Company.

Our cardiovascular group reported sales of 1 - - almost 1.3 billion, as compared to 819 million in the prior year first quarter, up 58% as reported, up 56% on a constant currency basis.

Our Endosurgery group also had a good quarter, growing 10% on an as reported basis and growing 8% on a constant currency basis.

And in addition to our Cardiovascular group and our Endosurgery group, of course, we have a new franchise in Advanced Bionics.

They continue to do very well and they - - their sales in the quarter came in at 33 million, for an overall total worldwide sales number of 1.6 billion 15.

There was no difference in the number of business days in this quarter versus the first quarter of the prior year, so it really is an apples-to-apples comparison.

To give you some perspective on the global results of sales, broken down domestic versus international, our domestic business grew 74% and has exceeded $1 billion in the first quarter.

So our domestic run-rate is now in excess of 4 - - or roughly $4 billion for the year; a strong showing up 74%.

When you look at our international business, again another strong record-setting performance.

Our international business was up 21% on an as-reported basis and 16% on a constant currency basis.

So very strong double-digit growth.

And keep in mind that this really is with TAXUS in the prior year, so even with a - - it really is apples-to-apples.

If you look at the sub-segments of international business, our European business was up again strong double-digits, 27% on an as-reported basis and 21% on a constant currency basis.

And again, our international - - or, I'm sorry, our intercontinental, those are our subsidiary companies outside of Europe and Japan, also had a very strong quarter.

As reported, up 38% on the top line, and on a constant currency basis, up 32% on the top line.

So very strong performance both in Europe and intercontinental.

The other segment of international business, of course, is Japan.

In Japan, we are not in the drug-eluting stent business yet.

And, therefore, our Japan business was relatively flat for the quarter, as expected.

Moving on to kind of the big picture in terms of buckets.

If you take our first quarter of '04, which came in at 1.082 billion, the biggest add-on for the quarter a year later was increase of drug-eluting stent TAXUS, sales of 461 million, and a decline in bare-metal stent of 35 million and that's the biggest swing factor.

All of our other businesses grew nicely and contributed to an overall sales of 1.6 billion 615.

As I mentioned before, on the coronary stent sales side, overall coronary stents came in at 721 million, and that compares to the fourth quarter last year of 730 million, compares to the first quarter of '04 of 263 million.

So very strong growth in coronary stents.

The TAXUS portion of that worldwide number is 686 million.

And looking at the domestic business, our TAXUS sales were 494 million.

Our overall coronary stent sales in the U.S. in the first quarter of '05 was 502 million.

So continued strong momentum in our coronary stent franchise.

Let me now turn to the income statement and take you through the build of the as-reported number.

Starting with our base business, and our base business for purposes of comparability excludes Advanced Bionics which was acquired mid-year last year.

Now if you take our base business our net sales came in at 1.582 billion.

Our gross margin on that business came in at 70 - - a little over 79%.

Our operating income came in at 607 million.

As a percentage of sales, our operating income was 38% of sales.

On a net income basis, on a 1 billion 582 top line, we delivered on the net income line 453 million in profits or a net margin of 28.6%.

And, of course, on an earnings per share basis, we came in at $0.53 a share.

Pretty much in line with our internal expectations.

Now, if you add another column and you add the results of Advanced Bionics, Advanced Bionics came in at 33 million in the top line.

It had a gross margin of roughly 58% as it continues to grow its business.

Its net income was dilutive, 22 million.

And overall it represented a dilutive impact on our business of $0.02 a share in the quarter.

So that - - when you take our base apples-to-apples business, you add Advanced Bionics, which was dilutive for $0.02 a share in the quarter, our operating results on an ongoing basis came in at 1.615 at the top line, just under a 79% gross margin, actually 78.7% gross margin.

Our operating income was 586 million, or as a percentage of sales, an operating income of 36.3% and our net income came in at 431 million, or a net margin of 26.7%.

And that resulted in an earnings per share number, earnings per share of $0.51 a share.

Again, right in line with our expectations and our range of both top line and bottom line that we presented to the analyst community in February of the first quarter here in 2005.

So pretty much as expected results.

If you then take the special charges, we can get to as-reported numbers.

The only special charge in the first quarter had to do with our acquisition in the quarter of AST, our new bifurcated stent platform, which we'll be working to bring to the market a drug-eluting bifurcated stent that we think will be novel and create leadership in that segment of the drug-eluting stent market.

There was purchased R&D of 73 million in the quarter and that was dilutive for the first quarter at $0.09 per share.

And that's how we get to the as-reported EPS of $0.42 per share.

Moving on, just quickly, to the strength of our financial results, we continue to generate substantial ability - - or substantial cash flows.

If you look at EBITDA, which many measure us by, our EBITDA, earnings before interest, taxes, depreciation and amortization, for the quarter came in at $636 million.

So we continue to generate a lot of cash from our operating activity and from our business.

In terms of net debt, at the end of the first quarter, our net debt was $589 million.

If you compare that to the first quarter of last year, our net debt was 983 million.

So roughly speaking we, over the last four quarters, paid down $400 million in debt.

And our balance sheet at the end of the quarter was probably the strongest balance sheet we've ever had.

Our financial flexibility is stronger than it's ever been.

And obviously, the first quarter of '05 was just very exciting with the kind of growth that we were able to deliver.

In terms of guidance going forward, before I turn it over to Paul LaViolette to talk about his perspective on the first quarter, let me just say that we will be looking at our - - the guidance that we have out to the analyst community, taking it from the February presentation, and taking a hard look at it to determine whether we confirm the guidance or revise the guidance.

We will be doing that on May 25 at the analyst meeting at the PCR course in Paris, France.

A number of things will impact whether we confirm or revise the guidance.

First off, there has been a, as you know, probably know by now, there has been a delay in the requirement to expense stock options.

We will not expense on an early basis stock options, so we will revise the third and fourth quarter for not having the account for stock options.

We also, by the Paris course, will have a better handle on where TAXUS is and the strength of TAXUS on a worldwide basis.

It's - - PCR will be looking at our - - what we think we can do for the remainder of the year and again either confirming our previous guidance or modifying, tweaking it a bit.

And then, of course, other things that will play into that will be whether or not Medtronic is in the OUS market.

And we'll have a better idea of what is going on there by PCR.

And then, of course, most of you have probably noticed that over the last three or four days, we've announced three acquisitions of emerging technologies.

We've accelerated our acquisition of controlling Rubicon embolic protection technology.

We also accelerated our acquisition of TriVascular, what we think is a game-changer in the treatment of AAA disease.

And today, or last night, we also disclosed that we are exercising our option to acquire CryoVascular, a novel play in the treatment of peripheral vascular disease.

We will be calculating the impact of those acquisitions and factor that also into whether or not we confirm or revise guidance coming up in the PCR analyst meeting.

So with that, let me now turn it over to Paul LaViolette, our Chief Operating Officer, to give his perspective on the business.

Paul?

Thank you, Larry.

And good morning to all.

Well, it was a - - clearly an eventful first quarter, primarily in the drug-eluting stent area and that's what I will concentrate my comments on.

I will make a few additional comments on the acquired companies though just to give you a sense of what we're thinking about doing with those and then I will turn it over to Jim.

The numbers, of course, have already come out in our press release and you've already heard the Johnson & Johnson actual sales for the first quarter.

So let me just summarize those with Boston Scientific.

U.S. sales at 493 million.

And that, of course, gives us, despite the volatility in the quarter, over 60% share for the quarter, actually 61%, for the 90-day period.

Outside the United States, of course, we're still dealing with a tale of two regions, because Japan represents now a significant growth market and we're not participating there.

If we look at sales outside of Japan, our sales were $192 million.

And that gives us about 51% market share outside the United States, excluding Japan.

So our total picture is a leadership story.

And, of course, Q1 shares ending at 61%, including the ACC and related market volatility, in our view, gives us a very solid position.

Now, there obviously were dynamics within that first quarter that need some review, so let me give you a clearer, more granular sense of what transpired in my view through the quarter, and where that sort of leaves us now and will take us.

We think we entered the quarter at around 63%.

We maintained that 63, 64% level through much of the second half of 2004.

And three things really changed.

Some before the end of the year.

Some right up through early March.

The three things that - - or dynamics that have been influencing the market are obviously the ongoing supply of Cypher, whether that's up, whether it's wide open and I'll comment on that,.

Pricing gaps that have existed more to a greater or lesser degree between TAXUS and Cypher, often a gap of over $125 with TAXUS on the higher end.

And that average is influenced in large part by a fair number of $2,100 price accounts offered by Johnson & Johnson for Cypher, primarily through their agreement with Premier.

And our sense, just roughly speaking, is that each of those two, the supply and the pricing issues, probably cost us 1 to 2% market share through the course of Q4 transitioning into Q1.

And I will give you a little bit more sort of elaboration on those.

And then, of course, the third element overall was the data campaign emanating from the ACC, which I will spend more time on as well.

So first of all on supply.

It continues for us to be very difficult to gauge exactly what the supply status of Cypher is.

We do have a sense, clearly, that it has improved.

I would say over the past several weeks and months, it appeared that the demand was being largely fulfilled, and I think it's true, even to this day, that we believe there's relatively little downside, residual downside, as a function of improved Cypher supply, And I would categorize their supply status as generally healthy, certainly healthy for all of their top accounts, and perhaps at the minor nuisance level for some of their less - - lower volume accounts.

And it's, again, important for us to try to understand less what their specific supply status is but more a function of how much increased supply would affect market share, and we're very comfortable with the sense that there is very little market share shift potential remaining as a function of supply changes.

The second area is price.

If you look at third quarter to fourth quarter prices, our data shows that Cypher declined fairly significantly, about 9% over that period.

I think it is fairly safe to say that in the last 90 days, that price has stabilized somewhat, and I think it was probably down from beginning of Q1 to end of Q1 only about a percent.

Our pricing has been extremely consistent.

We've maintained and have contended that our price trends would be down about 8% year-over-year, and my sense is we're extremely consistent with that in all analyses.

We saw the gap between TAXUS and Cypher narrow slightly as J & J's bottom stabilized.

And our sense is that that now is at about $100 or maybe even a little less than $100.

So we think that is a good thing.

We believe we can actually gain share when the price point for the two products is less than $100.

And between that narrowing gap and the sense that our pricing change is extremely consistent with past quarters, I think leads us to be optimistic about the role that price is playing in this market.

We think it is a stable area, stable subject going forward, and that it should be a moderating influence on overall share activity.

The third area which really has captivated the market in the last month is the safety and efficacy challenge on TAXUS.

Again, coming out of primarily Reality, the J & J-sponsored study on head-to-head comparisons, but also to some degree some of the smaller trials which have positive, neutral, negative data, depending on how one looks at it.

But when you put it all into a campaign, it can sound compelling.

We believe we've weathered that campaign pretty well.

We believe that our share dipped from about the low 60's prior to that campaign, and prior to the ACC, to somewhere in the high 50s, the mid-to-upper 50s, post ACC, and that period was relatively short-lived.

Our recovery is now in place and certainly is back up to +60% by the end of the quarter.

And that, of course, allowed us to have a 61% actuals-to-actuals share reported for the first quarter.

If we compare our average daily sales in, let's say, the first week of March to the three weeks after March, including obviously the dip to the lower share position immediately post-ACC, we see that our average daily sales were essentially without distinction pre- and post-ACC.

So there was a lot of intra-month volatility, but in the aggregate, much of that has been - - well, it's reached equilibrium.

If we look at customer activity, our account base has remained fundamentally unaltered.

The number of accounts ordering TAXUS post-ACC on a given week was exactly the same as pre-ACC at that 1,125 to 1,130 account range.

And our reorder rates across that account base also remain not only consistent pre-ACC, but consistent with where we've been really all through last year.

So we basically have seen very few customers actually change their order pattern or switch and, while there may be a few, those numbers are in the aggregate imperceptible.

If you look outside the United States, I think the same sort of resilience has been demonstrated.

Our outside the United States shares, again excluding Japan, over 50% for the first quarter.

That's taken place in a European market where penetration has increased to about 37% and on the intercontinental basis, we think penetration has steadily increased over 40% and it is now in the 43 to 45% range.

So, not surprisingly, the specific share dynamics related to the ACC were somewhat muted on an offshore basis.

But all that factored in, we feel that leadership outside the United States and Europe and intercontinental combined, recognizing that leadership was achieved on TAXUS Express and that TAXUS Liberté is now launching, we feel very good about that.

And I'll spend a few more minutes on TAXUS Liberté in a minute.

We don't have much to report about in Japan, other than that our Japan program is completely on track with our prior stated commitments for a second half of '06 launch.

And obviously we are pleased to see the Japanese market penetrate so quickly because obviously that represents upside for us going into next year.

Just carrying on a little bit further, regarding the ACC dynamics.

I think you're aware there were safety questions that were generated and bottom line, we think the market viewed those claims with a great degree of skepticism and, frankly, questioned the credibility of the campaign.

I will admit without question that the campaign forced us to respond.

We had to do so physician-by-physician with a fact-based discussion.

We find those to have been uniformly successful.

But it has been time consuming, and that's what we spent a lot of time in these past weeks taking care of.

The efficacy battle, again data based, is still ongoing.

And I think it is a combination of offensive programs which both will lead to relatively few share point shifts but probably, in the end, a slightly expanded marketplace.

We are marketing offensively with a pretty rigorous clinical trial data set.

Our Reality campaign is under way.

And that's a combination of our own use of the Reality data which, as you know, came out on an efficacy basis quite healthy and strong for TAXUS.

And we're combining that with what is now a considerable amount of real-world experience that physicians have, having placed over a million TAXUS stents.

And, when asked the question about their own reintervention rates with TAXUS, of course they all experienced quite successful clinical performance and that, combined with confirmatory data from trials sponsored by our competitor, helped to reinforce the fact that, indeed, TAXUS is a highly effective product.

This, of course, combines with ease of use, acute performance, catheter deliverability, some of the benefits that we feel TAXUS has versus Cypher.

And I think all of these lead to a quite solid market leadership position with again over 60% market share.

Our sense is that we are engaged in very fact-based discussions with our customers.

We try to make it very clear that TAXUS is the only program that has demonstrated an increasing TLR benefit over two years.

We try to point out that TAXUS has the most consistently positive diabetic data.

We try to point out that TAXUS is the only program with small vessel data that has either been generated or is as positive as the TAXUS program has demonstrated.

And we also try to point out that we have pipeline progress.

We are moving our pipeline forward with technologies such as TAXUS Liberté around the world, and obviously that's meaningful to our customers.

It's meaningful in a market that is so dependent upon new product cadence and where technology and market leadership are sort of linked at the hip.

The TAXUS Liberté program is important to our future, as you're all aware.

You're also aware we have launched it outside the United States in the non-CE Mark requiring countries.

That launch is going exceptionally well.

It's for sale in about 14 markets and has gained share in basically every one of those markets.

In some instances, we feel the share gain is up to 20 market share points.

Now, it is too early to project that entirely across the globe and we'll see a clearer sense of that, hopefully this summer when we anticipate releasing the product with CE Mark in Europe.

It's important to note that our timelines for the European launch have not changed since I reported them to you last at the ACC.

So we have a variety of elements of progress moving forward, including the launch of new sizes in Europe where we're first.

And we intend to go aggressively into PCR in May, as Larry referenced earlier, with a lot of emphasis on new technology and considerable new data flow from trial subsets that have never been reported or frankly evaluated by any other company.

And this will include more data from TAXUS 5, with IBIS data that is extremely telling about the impact of Paclitaxel.

We will have two-year follow-up data from TAXUS 6.

We'll have real world experience from Milestone and Arrive and, of course, we'll report our 30-day data from the ATLAS trial, which is the first second-generation IDE trial done for TAXUS Liberté in the United States.

So all of that in our view will keep us on the offensive throughout the middle of this year.

Let me just wrap up by summarizing that if you look at our overall progress, we've launched the first second-generation drug-eluting stent on a worldwide basis and we expect that rollout to continue to gain momentum throughout the year.

We are consistently gaining regulatory approvals on our drug-eluting stent platform in the United States.

And, of course, that will be bolstered most significantly by the completion of our second - - our clinical trial for the second-generation stent.

That, of course, is completed enrollment.

The schedule for Japan is on track.

We were disappointed last year when we learned that we needed to do a clinical trial.

But, from that moment, we put the program in gear and it has been unwavering since then.

e are pleased to be launching our next generation stent platform in a bare configuration in the U.S. as well, frankly, as a series of other smaller cardiovascular products that will give us a lot of face time in the cath lab in the coming weeks.

And after all is said and done, in this most sort of tumultuous and eventful quarter in recent past, we are very pleased that in this highly contested drug-eluting stent market we hold 60%, as of the quarter.

So with that, I will turn it over to Jim for his comments.

Thank you, Paul.

Just very briefly sort of my perspective on this.

Q1 was really the fourth in a series of four dramatic quarters.

You're not going to see that again any time soon, from us or anybody else.

I would say that our performance outside of stents is somewhat uneven.

We've got some things to work on there.

But the stent performance was pretty good considering what we've been up against, and all the noise associated with all of that.

I think the results are outstanding.

We expect to make a good showing at PCR and progress continues on the pipeline.

TAXUS Liberté is out there.

Precision is now out there in quantity.

We've made a series of now four recent acquisitions to support our pipeline activity, which is evidence of our confidence in those activities.

And, frankly, evidence of the fact that we have financial flexibility now that we hadn't had in the past, and we can do some things to speed things up and make things happen.

So we're focused.

We're moving forward strongly.

And we're optimistic about the future.

And with that, let me turn it back to Larry.

Thank you, Paul.

Thank you, Jim.

I think at this point, we'll turn it over for questions.

And I'll ask the moderator to help us out.

Indeed and thank you very much, Mr. Best. [OPERATOR INSTRUCTIONS] And representing Credit Suisse First Boston, our first question comes from the line of Adam Galeon.

Please go ahead sir.

Thanks, good morning.

Larry, it sounds like you're waiting to issue Q2 guidance for a few reasons.

First, Medtronic's timing OUS, which I'm assuming you had doubt in Q2 guidance to begin with and then secondly talking acquisitions which shouldn't be too impactful, at least in the top line in the second quarter.

So I guess the most important swing factor is TAXUS as a moving target.

Yet Paul's comments make it sound like it is actually recovered and is quite stable right now.

So are we missing something here?

Why - - can you just flush out why we're deferring guidance a little bit?

Primarily for those reasons.

We also want to factor in some additional acquisitions that we'll make later in the year that were not in the numbers.

And I guess I can refer to one that is most likely and that is in the carotid stent area.

We'll probably be acquiring Endo-Tech then and there's a number of others that are a part of our pipeline that's going to serve up what we think is going to be a nice growth story and going into '07 and '08.

So, what we are going to do is kind of sit back and go through all of the strategic moves that we've planned over the next - - for, frankly, for the remainder of the year and factor those into our numbers.

Kind of push a pencil on how much are we going to spend on each one of these.

And then, of course, we have some internal programs.

One that's very exciting to us is Endovations and, again, a little bit has to do with looking at Endovations not only in the U.S. but on a global basis.

And look at our investment profile, and - - because we don't want to leave any growth opportunities on the table.

So, we're really taking the next several weeks to take a hard look at our investment appetite, and that includes - - at the same time, I will tell you that we're looking very hard, under the leadership of Paul now, at headcount, our growth in headcount.

Our original expectations were pretty aggressive in terms of headcount adds and we're relooking at the headcount adds to determine whether or not we should be that aggressive.

We want to have a business model that - - I mean this is - - as Jim Tobin pointed out, we've had historical, and I think that's probably a good term, historical growth.

No one in the medical device industry has done what we've done in the last 12 months in terms of the magnitude and that's behind us now.

In this quarter, it will be the first quarter where everything is pretty much apples-to-apples.

And we're not going to have hyper-growth.

We're going to have something more normalized.

And the way we're going to manage the business is to manage that normalized growth but with a keen eye on focus on delivering again some accelerated growth in '07 and '08.

So what should our spend be, how fast should we add headcount in this new chapter, if you will, and how much do we want to spend in the pipeline and when, to maximize the potential for '07, '08.

So it is really a management exercise that we're going to be undertaking and are undertaking as we speak.

We probably spent four, five hours yesterday just looking at the spend dynamics and where do we want to be?

Our goal is not to maximize '05 or '06.

Our goal is to show very strong growth in '07, '08 and '09 and that's where our focus is.

Pretty much '05 and '06 is within a range, pretty predictable.

Because our base business is so strong and our TAXUS business is pretty predictable in that there is only going to be two competitors in the U.S. market probably - - or for sure, at this point, in '05 and '06.

So, all of this comes into a strategy that we're focusing on right now and we're not prepared because we haven't drawn any conclusions.

And Paul's got a new role and he's going to have the opportunity to weigh in on his perspective because he's on the hook for it for the next foreseeable future here.

And so I think it's all healthy strategic exercise in managing our growth and our business and our profitability for the benefit of the shareholders over the next several years.

Got you.

So if we're reading you right here, and a lot of those things you just talked about or all those things are on the cost side, so if things look a little bit different on May 25, it would not be anything to do with the top line or TAXUS in particular?

No.

I think we're - - like I say, I think it is fair to say that we think '05 and '06 top line is pretty predictable.

Within a range, of course.

But pretty predictable.

The - - we were hoping for some upside OUS on coronary stents if Medtronic was not going to be able to launch.

They got through ACC.

They sound like they're going to at least get into the game.

So that upside is not there as much as we had thought.

Now we have to figure out, okay, how well is Medtronic going to do?

Is it a 10% play or is it a 20% play or something else?

So these are the things we're factoring in.

And to be honest with you, we thought there was going to be some upside to our numbers if Medtronic didn't get good enough data.

But I think their data is good enough.

They're going to attempt to play and that's going to take some share away, so we got to factor that in.

Okay.

Just a quick follow-up for Paul, maybe just some pipeline update.

First, on sound seal. it sounds like there was a few hiccups and I wonder if you could give an update there.

TriVascular acquisition didn't seem like there was any milestone met there, so what triggered that?

And then anything out of Cameron next month at NASB?

Thanks.

Well, Ferris [ph] actually is doing very well there and I would say that over the last two or three months since we updated you, they are holding their time lines.

Our goal is still a CE Mark in the first quarter of next year, and U.S. pivotal trials also in - - starting in the first part of next year.

No significant changes there since February.

Technology progress, back in the clinic for more confirmatory work this summer, and I would say every bit of market intelligence we have continues to tell us that this sort of device-free closure technology is still very high in demand.

On the TriVascular front, no specific milestone has met, but I will say that the clearer the view that we have of that technology, the more comfortable we are that it is going to be successful.

And the same story, really, applies to Rubicon, applies to CryoVascular, applies to TriVascular.

What we're talking about here are triggers where we're increasing the odds of success.

We either see an opportunity to accelerate time to market or to, frankly, start to gain the synergies of Boston Scientific's resources and competencies to increase the acceleration once we get to market, increase market uptake, increase investment in capacity build, or what have you.

So with TriVascular for us, it was more a question of seeing that, really, the technology risk that we, of course, were protecting ourselves against really was diminishing over time and there really was not any technology risk remaining.

We were seeing the clinical risk decline consistently over time, as we see more patients enrolled and more patient months of data for those patients that have already been enrolled.

We're looking at upside potential outside the United States starting this year where we'll have CE Mark and we'll start to go into a registry-based launch out through this year and next.

And when we look at the CE - - I'm sorry, the IDE challenge forthcoming, the need to build capacity, the need to expand their pipeline development in additional sizes in the thoracic market, we just see that the risks have come into clear view and are lower.

That the opportunities have come into clear view and they are higher.

And we want to take charge of that program, make sure the investment potential is correct, and make sure we're maximizing that opportunity.

And I think that's precisely the kind of program overview that we're spending time on, to Larry's point, to make sure that we not only - - we clearly understand what their current burn is.

But what we're trying to do is close the deal, get complete clarity on our going-forward program management so that we can scale this program for market leadership.

And there's a fundamental distinction, generally speaking, between the small company approach and the large company approach.

The small companies are trying to get there, trying to push it over the line.

What we're trying to do is make sure that once it gets to the line it has the potential to immediately become a global market leadership platform.

There's the difference between those two and we are pulling triggers early on things like TriVascular because we want to see the highest likelihood that once the risk - - once the technology risk is mitigated, that we have the commercial program that's going to be most successful.

And I don't actually have an update on Cameron and whether they're reporting anything new at the meeting formally known as NASB and so I don't - - Larry, I don't know if you have a comment on that.

Yes, Cameron's actually, just by coincidence, coming in in the next couple of weeks to give us an update and so we will be better informed after that update.

Next question?

All right.

Very good.

And thank you, Mr. Galeon.

Next representing Bear Stearns, we go to the line of Rick Wise.

Please go ahead.

Good morning.

Several things.

First, Paul, do you think that with the ACC furor, initial furor clearly dying down, can you gain market share in the U.S. as things stand the rest of the year?

And maybe as the sales force is freed up to be more aggressive and focusing on gaining share?

Yes.

Absolutely.

Absolutely.

We have - - you know, this is not a market that exists in trend lines and in macro shifts.

This is a customer-by-customer, procedure-by-procedure marketplace where we have a superior field force.

We have a product that acutely performs in a better manner.

We have a product that in comparison to Cypher on a 9-month as practiced in the clinic, reintervention rate basis is indistinguishable.

Both technologies are going to go into the average patient practice, be used across the course of the year, something like 2 or 3% of those patients are going to come back.

So, the clinical data is ultimately a rich pool of marketing material that has to be sifted through.

The average cardiologist is capable of being overwhelmed by that data and the sifting process is something that the two marketing departments basically govern.

And as we turn our process up and as we listen to the market and recalibrate data presentations and move forward, we absolutely are in a position to gain share.

And I would again highlight the fact that our acute performance is clearly superior.

Really no one debates that.

Our data is really not to be beat.

It cannot be beaten in the larger scheme of things.

It has been attacked with some elegant and sophisticated campaigns.

It takes time to defend against that.

And perhaps we should have done something differently so that we weren't on the defensive.

But we were put on that defensive and it takes time to regain that.

And we're in the process of doing that while continuing to launch new products in other areas in the cath labs that buy us that lab time.

And while we are not so subtly reminding our customers that we are bringing a continuous pipeline forward in drug-eluting stents that they may not see from others in the near term.

And that spans everything from TAXUS Liberté for sale outside the United States today to bifurcation technology that is already in our house and being worked on for drug-eluting platforms going forward.

So there are a lot of things that our customers have reason to look forward to from us and we think all of that is a basis for us to gain share going forward.

Two other things.

Endovations, are you still on track for a second quarter of '06 launch?

And maybe, if you all could discuss a little bit the initial clinician reaction to the concept.

I would be curious to hear what you are hearing.

And last, Jim alluded, I think appropriately, to the uneven performance for some of the other smaller franchises excluding the stent business.

Maybe highlight whatever you like, Larry, but help us understand what is going on and when can we expect some of the other businesses to be more sustained?

Well, maybe I'll take that one.

It's - - it really is two camps.

We have a couple of businesses that are performing very well and recovering nicely.

And a couple that are slow.

If you look at several major remaining businesses, the peripheral interventions business growing very nicely, 13% worldwide, 10% in the United States.

I won't go through the franchise-by franchise activity, but that looks very solid.

Urology business also doing exceptionally well.

Growing around the world and very healthy growth, solid double-digit, actually over 20% growth in the U.S.

Then - - and then our neurovascular business, I'm pleased to say, has actually rebounded.

We had told the street, I think a quarter or two ago, that we expected that to happen.

That business has cycled through, grew double-digits in the United States, has I think a five-product launch sequence planned over the next two quarters.

We expect that to sort of continue going forward favorably.

On the downside, our electrophysiology business, which is our smallest business, about 1% of sales, is, as I mentioned previously, sort of off-cycle on new technologies, primarily based on the conventional ablation market where we are the market leaders with about 70% market share.

And our Chilli catheter system which we acquired two years ago is just aging somewhat and we are launching a Chilli 2 product in probably May or June that we think will start to begin the resurgence of growth in electrophysiology.

And then lastly, and probably our biggest non-grower, is endoscopy.

And endoscopy is really a story of two elements.

One is overall growth in the endoscopic device market where we continue to have very strong performance.

Actually, our endoscopy unit sales are impressive.

We're not yielding market share.

When in fact, if anything, we're probably growing market share in a number of places with major franchises, multi-million unit franchises like biopsy forceps, growing at 9, 10%.

The problem has been economics and price competition, primarily driven by shift in the location of procedures to outpatient clinics and ambulatory surgery centers and that sort of dynamic which has pressured the price.

But our overall underlying business there is pretty strong.

The Endovations technology which, of course, leverages off our predominance in endoscopic accessories, continues to be very much on track.

And yes, to answer the question, we are targeting a launch in the second quarter of next year.

We will be in commercial activity well in advance of that, through the - - really the whole early part of 2006, targeting a very substantial launch in the middle of the quarter coincident with some major gastro - - some GI conventions.

The milestones for that group also continue to be very much on track.

And, as Larry alluded to earlier, it is one of the areas where we're looking most closely at adding significant headcount as we pass some of the early technology milestones, head into the human clinic, and really validate the experience.

But it is looking very, very good.

Thank you.

Do you want to add anything on Endovations.

I think Paul pretty well summarized.

There's a lot of enthusiasm for the technology.

I think you asked about the customer perception.

There's a lot of enthusiasm and, as we've been revealing more of the technology that we started basically at the February analyst meeting, some of the key thought leaders are getting much more engaged.

And so the best this thing I can say is that as time moves on and as we get closer to some of the major milestones in the program, we'll reveal more.

But bottom line it is looking very positive.

Thank you.

Thank you very much, Mr. Wise.

And next in queue is Tom Gunderson with Piper Jaffray.

Please go ahead.

Hi, good morning.

I want to focus a little bit on international, Paul.

It seems that between the J & J conference this morning and yours that maybe things are accelerating a little bit on penetration with drug-eluting stents.

Have you changed at all your assumptions for what your end of '05 penetration will be and, if so, could you tell us what that is?

And then, second, are there any markets that are valid where you've gone up against Driver with bare metal Liberté that we could get a sense of the deliverability battle or the market share battle on that?

And then, just a quick one for Larry.

Could you tell us what part of the advanced planning sales were Cochlear implants?

Thanks.

Well, first of all, on Liberté versus Driver, I'm not sure what you mean by a valid market.

I'm sure all of our customers would feel they are valid in their own right.

But I have a sense that you're looking at, sort of quotable markets.

Here is the bottom line on Liberté versus Driver.

We -- I think because of the power of TAXUS Express performance in Europe, our European sales team has not focused on bare metal stent penetration.

And, as a result, when you look at Liberté performance and why it hasn't taken market share from Driver, you see data that objectively looks as if we have a platform that hasn't really moved the ball forward.

When we do objective surveys, nonidentified surveys about product performance, deliverability, we have a 96% approval rating on Liberté being equal to or superior to Driver.

And I will say the numbers are better yet in comparison to the vision.

So, there is no doubt in our minds that that's the case.

When I speak directly to my country sales managers from around the world that are either selling bare metal stents, Liberté versus Driver, or in the cases where we have TAXUS Liberté available, there is once again no equivocation on their part about the competitiveness of Liberté.

I suspect that we'll start to see more clarity on that as we sell Liberté in the United States.

We clearly recognize that Liberté is entering a diminishing bare metal stent market in the United States.

So our goal with Liberté is not necessarily to put up stunning sales numbers, but rather to clearly demonstrate the viability of Liberté as the next generation stent platform.

Not just the next generation stent platform in contradistinction to the velocity, but rather in the aggregate, which means all comers.

So we're pretty comfortable with what we have.

The only thing we know about Liberté is it is going to get better when we put a new delivery system under it and it is going to get better still when we do other things that are in our pipeline.

But as of today, we have really no doubt about its competitiveness against the product primarily from Medtronic.

In terms of international penetration, our sense is that it continues essentially, Tom, on the same trend.

Europe has been moving forward about a point a month.

Now, actually, if you look at the first quarter, Europe didn't make a lot of progress against the fourth quarter, but that is primarily due to the U.K.

The U.K. ran out of money a little bit there at the end of the year.

And we saw considerable stagnation in U.K. spending on drug-eluting stents.

That is actually contrary to their embrace of DES, and we've seen that through nice over the last couple of years, both with stenting and then with drug-eluting stenting.

So our sense is that Europe is going to actually pick up a good bit of steam here in the second quarter and that their DES penetration is going to accelerate.

International outside of Europe, we see at, as I mentioned, I think 43% and that has made almost a 10-point gain year-over-year in the past year, and we would expect that same kind of trend to continue.

So that will approach 50% by the end of '05.

Thanks.

Larry on Cochlear implants?

Yes, on the Advanced Bionics side, roughly 20 million Cochlear and the rest is IPG.

Thank you.

And thank you very much, sir.

And next representing Merrill Lynch, we go to the line of Timothy Lee.

Please go ahead.

Good morning.

Just part of a follow-up, Larry on your comments regarding that your goal is not to maximize profits in '05 and '06, but to sustain growth thereafter.

But in that time frame is there any minimum threshold for growth on the profitability side that you may cut back on some of the spending to achieve some profitability or minimum level of profitability growth?

Maybe you misunderstood.

I didn't say that our goal wasn't to maximize profitability.

But, it's pretty much to balance the growth opportunities and the need for investment in some of these things offset by just taking a look now that the dusts settles post the first full year of TAXUS and coming off of hypergrowth and balancing where we want to be from - - as a business model, a financial model and then what the spend should be.

I mean, if everything - - I mean if you think about it, if we moderate our spend a bit and be a little less aggressive on the spend side, then we can take some of that that was in our original plan and invest more heavily in our pipeline.

So, it's really attempting to gain some leverage by relooking at the business model and the amount of spend in '05, '06 and maybe be a little less aggressive on some of the spend and not fund everything in terms of expanding here and expanding there, but slowing that spend down a bit in order to finance some of the pipeline.

So, I'm not suggesting that our guidance is going to change on profitability.

All I'm suggesting is that before we confirm the guidance we put out in February or revise it, we've got a little bit of scrubbing down and strategizing and modeling before we do that.

Okay.

And we wanted to get through the first quarter.

It was an enormously successful first quarter.

And now we're going to scrub the numbers and relook at our strategic plan for the rest of the nine months, and give you an update.

I'm not saying that the guidance is going to change.

Okay.

Thanks.

Thanks for that clarification.

And just one real quick one to Paul here.

I know you had talked from the market dynamics of where the TAXUS Liberté has been launched.

In those 14 markets, can you just give us some sense of your current market share and relative to the markets where it is not out yet?

Oh, boy, the answer is no.

I can't give you that off the top of my head.

We're dealing with markets like Taiwan where I just don't track those by share by day and - - but, more importantly, where we don't really have validated data.

Suffice it to say, they are probably in line historically with our share internationally, so call it 55 or so.

I'm aware that in some of those cases our share has gone from, let's say, 55 to 75 with the availability of Liberté.

Now I can't project that that will mean a 20% worldwide gain, but I will say that there is a - - the world has become used to two platforms in drug-eluting stents and they're going to see a third one.

A third one with demonstrable data coming from the worldwide leader in interventional cardiology and that performs far superior to the pre-existing platforms.

And it really - - for all of the data, for the massive and high-quality job that Johnson & Johnson and Boston Scientific have done studying the clinical effects of drug-eluting stents, these are cardiologists that still respond quite dramatically when you put a better tool in their hands.

And I think Liberté is going to show that.

Great.

Thank you.

Thank you very much, Mr. Lee.

The next person in the queue is Jason Wittes with Leerink Swann.

Please go ahead.

And Mr. Wittes, your line is now open.

If you are speaking we can't hear you.

Please check your mute key.

And I apologize Mr. Best, Mr. Tobin.

We have no response.

We'll move on then to Matthew Dodds, who is with Smith Barney.

Please go ahead.

Thanks.

Couple questions.

Paul, first on the OUS TAXUS numbers.

It looks like sequentially J & J did gain a little bit.

Can you tell me if that is more Europe or intercontinental, since you didn't break those out?

And did the pending launch of Liberté or maybe a shift over to Liberté have any impact in the quarter that may have helped them gain a little bit of share?

A couple of things.

We, of course, don't have their alignment of sales by region, and it is hard - - and even their definition of Europe is a little different than our definition of Europe, so I can't really give you a breakdown on sort of region by region.

We obviously have taken some sales return reserves and netted down some of our TAXUS Express sales in advance of TAXUS Liberté sales, so those are in our as-reported in this quarter and, of course, as we move the new product out they'll be returned, if you will.

The sales will be restored next quarter, so that's a bit of an artifact that has to be considered.

But more importantly, I think, it is that the shares reflected in Q1 really don't have any kind of material impact from Liberté.

The Liberté launch just started in the end of the first quarter and, of course, in markets that are smaller.

So, what we are having, I think right now, is a very impressive qualitative sense of what TAXUS Liberté is doing and that isn't in these numbers realistically.

And I think we will see that transform into a quantitative sense in Q2 again where we have very high expectations.

So we'll try to give you greater clarity throughout the quarter, including at the PCR update on exactly what the Liberté impact is.

Right now, we're getting a very nice comfort level that is doing as much or more than what we had hoped.

Turning that into quantitation by country right now, we can't really do.

Thanks, Paul, and quick question for Larry.

On some of these recent deals like TriVascular, CryoVascular, maybe if you look at Endo-Tech down the road, they're not giving specifics but can you at least say if there's a decent cash component up front or is this still going to be mostly milestone payments with this change in ownership?

I think - - well let's see.

They are all consistent with our structure of acquiring emerging technology.

So it is - - it's not a major - - I mean most of it is on an earn-out or performance milestone.

So it's - - they're all within the model that we've had for the last decade.

Let me just also add, for CryoVascular I think you're mostly aware that we've had that product in a distribution agreement in our peripheral business for the better part of two years.

We're very pleased with how it's gone.

We had an option that was coming to term, so we've exercised that option.

But it is really about the technology, the sales, the progress that we've made in the market.

We don't think there's any question that the results, the clinical results we're seeing with Cryo seem to be a little bit superior, let's say to some of the atherectomy results that were reported at ACC where they seem to be faring a little bit less well under the scrutiny of clinical trials.

So PTA, peripheral angioplasty, is a growth area.

We think the Cryo balloon impact on total procedures is now up to 15%.

And we think with - - frankly with drug-eluting stents playing a role in peripheral vascular disease, at least further out than might have been originally expected, if not quite a bit out, that the potential for this kind of technology in peripheral interventions is actually higher than we might have even originally planned.

And the other acquisition that we haven't commented on is Rubicon.

And I think you're all aware that is a very innovative filter delivery system and absolutely viewed as the next technology wave in the field.

So, we're the leaders in that space, without question, through our EPI acquisition and the product line that we've iterated subsequent to that and we're planning a CE Mark-based launch.

We received the CE Mark.

And we're planning a launch around PCR in Europe, ramping up in the third and fourth quarters, and will continue that international expansion through '06.

Our U.S. strategy is probably not going to feature a stand-alone Rubicon device but rather an integrated platform that takes advantage of the filter wire distal end and the Rubicon delivery system.

And that - - the potential of that combined technology is really what led us to accelerate the integration of Rubicon into one company under Boston Scientific so that we can take advantage of international sales next year, probably making the deal sort of earnings neutral in '06.

And then launch into the United States with a combination platform that merges EPI filter effectiveness and Rubicon delivery technology.

So it makes a lot of sense to pull those together.

As to our existing leadership base in embolic protection, all of which is going to grow again, yet again as we enter the carotid space in the U.S. toward the end of this year.

The other thing, Matt, just so you get a magnitude of how we do things, given, for example, TriVascular, the cash it's going to take to bring that in is in the 60 to $70 million range.

And the majority of that is going to be purchased R&D.

Okay.

Thank you, Larry.

Okay.

Thank you very much, Mr. Dodd.

We do have Mr. Wittes back, so let's go back to his line with Leerink Swann.

Please go ahead, sir.

Thank you for getting me back on.

Question about J&J Cypher and its potential share.

A lot of us have put together surveys post-ACC and it seems like the sweet spot was between 10 to 15% share gain back from Cypher, assuming they had the capacity.

Do you feel that that's just a knee-jerk reaction from the docs coming right out of ACC and you think that your canvassing of your docs has sort of reverted back to sort of normality at this point?

Well, we actually don't make a business out of surveys.

We make a business out of selling to the customers.

And as a former market analyst, I can tell you that surveying 100 people that will respond to surveys doesn't necessarily translate into what the real world is doing.

So, I fully appreciate the survey work and the need to do that, and the need to try to gauge what the market thinks.

But I can't help you trying to triangulate exactly what you've learned with what is going on in the real world.

The real world is, I think, different from the survey world in a couple of ways.

Number one, it's more diffuse.

You're talking to a few folks, and they are not necessarily representative of the large install-base of labs and physicians that are practicing with technology and comfortable with it.

I think the second is that people always, whether it is hair spray or drug-eluting stents tell you that they are more willing to shift than they really are.

And when the selling process of a technology like this takes place in the cath lab, it is far more powerful than the influence exerted by a slide campaign.

So, the entrenched nature, I think, of our share has been underestimated.

Yes, the apropos to that comment, Paul, is a year before, or six months before we hit the U.S. market, survey says we're going to get 45 - - 40 to 45% of the market.

Well, I would say that that was material - - materially different than what actually happened.

And there hasn't been a survey that I've read that has even been close to the real world once we actually executed and performed.

So, I think you got to give - - I mean, there's some surveys, one of the analysts has out there a survey that our market share is going to be 25%.

That wasn't mine.

I will just tell you.

I mean, that's how ridiculous these surveys are and they have been wrong almost 100% for the last three years.

I would only suggest that the next survey you do would be a survey among our sales force.

Okay.

Let me just ask though.

It sounds like you said about midway through the quarter you started to sort of fight back with your own Reality campaign and you seemed to imply that did have a fair amount of impact in terms of your share kind of returning back to normal, in fact above normal position.

Yes, but even that, if you look at the range of sort of the upper and lower limits of share, from pre to post and then back, those - - that range of volatility is two-thirds lower than your projected permanent shift.

So I just - - even immediately post ACC, when the only thing out there was the headlines from "USA Today," the impact was, in a completely undefended way, was less than what has been projected, and that probably persisted for 48 hours.

Just one quick follow-up then.

And that is, in terms of the data that came out the ACC, there there was some concern about overlapping stents.

Can I assume that the IBIS data that you guys are going to present, I'm assuming that's at PCR, is going to address some of those issues or talk about it more?

Well, if you're referring to the non-Q-wave MI issue, we may have some updates on that.

But I think more important to me is the relative importance of non-Q-wave MI learnings subsequent to our announcement on TAXUS 5, where we have seen virtually identical, in some cases maybe more challenging, performance on multiple overlapping stents using Cypher.

As an example coming out of the Washington hospital center.

So I think what is more important is that we understand how drug-eluting stents work as a class.

And whether or not there is clarity on understanding explicit root cause, if it's a function of thicker struts or, frankly, the fact that the drug-eluting stents are used in smaller vessels, longer diabetic segments, where small side-branches are more prone to be impacted, those sorts of learnings will come out.

But we're not looking to change the outcome.

The outcome is something we need to understand and that we need to change clinical practice in accordance.

The - - what I think will be clear is that there is no distinction in performance on that element between Cypher and TAXUS.

Okay.

Thank you.

Thank you very much, sir.

And next in queue is Larry Keusch with Goldman Sachs.

Please go ahead.

Yes.

Hi, good morning.

Just a couple of quick ones and I will just tick them off.

First, Paul, I'm wondering if you can give us any clarity on sort of what has been happening with either daily sales rates or market share, however you look at it, as we moved into April.

I'm wondering if they're consistent with kind of where you said we ended the quarter.

Secondly, just quick question for Steve Moreci.

Is there any data yet, at this point, that you can share relative to the quality of the image under the Endovations scope versus a conventional scope.

And lastly, Larry, any comments just on how you feel the Precision launch has started?

I know it is early but just where do you think that is going?

Okay.

Let me take two out of the three.

First, the Precision launch is going extremely well.

Advanced Bionics has done what we think is a remarkable job so far.

Their expectations on sales is substantially above what the expectations in sales for Precision was back in June of last year when we went through the acquisition.

I think we really believe that Precision has the capability of making a big dent in the IPG market because its just advanced technology.

So we couldn't be more pleased.

The Advanced Bionics team is focused on execution.

And the key thing to understand in the Precision launch is this is an entrenched - - it's an under-penetrated market but it's entrenched by some competitive - - good competitors but we're getting - - we started off getting the cases that were not being done.

That's how hard they were.

And Precision is working in this new population, if you will, of patients for which were not treated before.

And so because of that, we are getting a real good uptake by the market that's existed pre-Precision.

So, so far, so good.

We'll keep you up-to-date on that.

On the other question regarding first couple of weeks of April.

The first week or two of any quarter is never as strong as the last two weeks of the last quarter of a quarter.

Or last two weeks of a quarter.

So you can go across all of our businesses and you always have the last two weeks of a quarter being strong relative to the first two weeks.

So we're not even going to address that question.

But we'll be glad to address it come PCR, as to what the strengths of our DES program is.

So that one we will leave.

With Steve, why don't you focus on the other question.

Yes, the Endovations question.

Yes, there is quite a bit of bench top data available to us around the image quality.

I cannot reveal any of it for competitive reasons.

Suffice it to say that our objective is to be equal to or greater than in terms of charity and image quality for Endovations and that is on target and we feel very comfortable with that.

So, as we get closer to commercialization, we will be revealing more of that data.

Hey, Larry, the other thing, I'm not evading your question on the first week or two of April.

It is just that you can't predict - - we never try to predict off the first week or two, because, you don't know what was in the minds of the sales, sometimes they want to push into the end of the quarter or they push into the next quarter and it is not predictable.

But I will tell you last Friday, our U.S. sales rate I think was $9 million in a day.

Yes, just to add to Larry's comment.

We are, obviously, we're aware that sometimes sales reps like to have strong quarter ends.

So we have a smoothing, sort of rolling commission plan that, let's just say it puts more incentive on sustained leadership, bridging across quarters, than it does at a quarter end.

So we don't have any difference between the quarter starting trends with drug-eluting stents in these first two weeks of April than we would across the entire list of, as we call it, level two franchise activities in cardiovascular.

They're all performing essentially in line with one another.

But I do recall, Paul, I think Friday was $9 million --

That's right.

So I mean, nobody should think that we're at $5 million a day or something.

The business is very strong.

It continues to -- leadership continues to prevail here.

Yes, 9.3 to be exact.

Okay.

Next question.

And thank you very much, Mr. Keusch.

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

Please go ahead sir.

Yes, thank you.

I'm curious to hear any comparisons you might be able to make between the Driver and the TAXUS Liberté in terms of their physical performance, especially with regards to potential for recoil, and other attributes that a person might look at objectively in order to determine which is more likely to have better clinical performance?

Yes, Eli, we probably have a list of 12 or more physical performance attributes that we look for in a stent.

Some of them are subsets of others.

Recoil, as you mentioned, is something that is typically not associated with most balloon expandable stents although it is a particular factor of cobalt-chromium stents and so that's - - it's clearly present in the Driver.

It is not present in the Liberté, as are some other factors such as foreshortening.

But I think when it comes to clinical relevance, the factors that one would look at most notably would be in the stent flexibility area.

Where we think Liberté - - and that, by the way, would relate to both conformability or how well the stent takes on the shape of the vessel, as well as trackability, so how much resistance the stent meets when traversing through tortuosity.

In both of those attributes, as a bare stent, an unmounted stent or as a mounted stent on our delivery system, Liberté performs as well or superior to Driver.

And both of those factors translate into the paramount performance attribute from a physician tactile perspective, which is ultimately deliverability.

I would say from a drug-delivery perspective, we really love the Liberté and its geometric sort of symmetry.

It has the benefits of cells that can be opened fairly wide for side branch access.

It obviously has a cell design that is exceptionally flexible, contributed in part by the thinner struts, down to 3.9 thousandths of an inch.

But more importantly, I think it delivers drug very evenly across the artery surface, which is - - you know a factor that we haven't talked much about with Driver but may in fact be related to the fact that we're seeing dramatically high in-stent late loss with Driver.

That may be a factor of too much drug coming off too soon.

It may be a factor of large open spaces between struts.

So as a bare metal device, I think the Liberté has a series of features from material- to design-related that ultimately stack up very nicely against Driver.

All right.

Thank you very much, Paul.

I think we will take a couple more questions and then we will call it a day.

Very good, sir.

Thank you.

We do have 10 left in queue.

So our next participant is Bob Hopkins with Lehman Brothers.

Go ahead.

Thank you very much.

Can hear me okay?

Sure.

Great.

I have just two questions.

One for each, Paul, that's on the line.

First for Paul LaViolette.

Just looking at your numbers in Q1 and the total market numbers for Q1 versus Q4, in the U.S. for drug-eluting stents, the markets analyzing it at about 3.24 billion in Q1 and 3.24 billion in Q4.

In other words, there wasn't much in the way of sequential growth for the overall market.

So I'm wondering if you can just comment on how you analyze that and what we should expect throughout the rest of this year.

I know Boston Scientific , you guys officially forecast lower drug-eluting stent market numbers than most of the street does, and just some comments on that would be helpful and then I have a follow-up legal question.

Obviously the first quarter is now in the record books so we know what that was.

And I think our sense, first of all, is that penetration on DES was pretty stable at 86% in the first quarter.

And we see that stable for Q2 as well.

We think the drug-eluting usage factor stents per case was pretty stable, once again around 1.55, and that that's not going to change much as well for the near term.

So, you know, when you look at everything, total stenting, stents per case, percent drug-eluting, all those factors are reasonably stable for the next couple of months.

I think the first factor of legitimate market expansion will occur when some additional sizes are made available.

And that's going to happen sometime between now and the end of the year.

I don't know what J & J's latest forecast is there.

That is probably a function of their regulatory flexibility.

And ours will be at the end of the year, subject to the PMA supplement we will make as a derivative of the TAXUS 5 subset data.

So, the market will definitely tick up at least a couple of points when sizes come out.

I think that's, from the outside perspective, the number one thing to look at for a good jump in the market is when will sizes come out.

If you look at full-year '05, it is basically an 86%.

If you look at full-year '06, we think it is an 89% penetrated market.

So that will be a driver for us next year.

We think stents per case will continue to go up to over 1.6 next year, and overall stenting will also go up to over 92%, probably 93, 94% next year.

So everything will drive a little bit of favoritism or favorability, but no one factor is going to create any blow-out upside.

Okay.

Thanks for that color.

That's great.

And then on the - - following up on the legal side.

I was wondering if we could just walk through what we should expect throughout the rest of this year as it relates to the case with Medinol, and the case with J & J, just in terms of specific timelines that we should be focused on, as well as how to think about, however low the probability, kind of worse case scenarios for Boston Scientific in terms of outcomes.

Can we also give you the best case scenario?

Sure.

You win.

You never focus on our cases against anybody.

Even though we win.

So we will focus on something here, Paul.

Yes, starting with Medinol.

We do have ongoing activity in Europe where they have sued us in The Netherlands and in Germany.

They've lost in The Netherlands and mostly lost in Germany.

There is one utility model on which they prevailed but there's a validity challenge we have brought against that.

And any further activity on that utility model is suspended until the validity challenge is decided and no hearing date has yet been set on that.

I should point out that all of this activity relates to the Express platform and the utility model expires in July.

In the U.S., the case in New York on the contract between Boston Scientific and Medinol is scheduled for trial on June 27.

We are currently engaged in a mediation exercise with Medinol to determine whether there is any ground for settlement.

It is really too early to tell whether that is going to bear any fruit.

In terms of outcomes there, both sides have made claims for damages in the billions of dollars.

The judge has expressed a view that this is a breach of contract case that is not going to yield what he referred to as grandiose damages.

We think it is pretty clear that Medinol breached the contract and breached it repeatedly, and we will be pursuing that theory if the litigation proceeds.

On the J & J side, with regard to the trial that recently concluded in Delaware, we're currently engaged in post-trial proceedings.

We are asking the judge either to overturn the jury verdict or to grant us a new trial.

We think the verdict was clearly contrary to the evidence.

And if we are unsuccessful with the judge, we will appeal and we think we've got solid grounds for appeal.

We have two trials, two additional trials scheduled with Johnson & Johnson this year.

One begins on June 13 in Delaware.

That is the case in which we have sued them on our polymer-coating technology for drug delivery, as well as a stent design patent we have.

And they have sued us on a series of stent design patents they have, including the Palmaz patent.

We are, I would say, reasonably optimistic about that trial.

We think we've got good defenses against their claims and we think we have a strong case on the plaintiff's side.

That trial is scheduled to last for three weeks.

We have an additional trial against Johnson & Johnson that's scheduled also in Delaware in October.

We have sued them on a patent that relates to the pharmacological action of rapamyacin ] and the Cypher, of course, is the accused product there.

So that's the activity for the balance of the year.

Thanks very much for your help.

Okay.

We're running into an hour and a half so we'll take one more question and call it a day.

Very good, sir and thank you very much.

And our next question is Glenn Novarro  with Banc of America Securities.

Please go ahead.

Thank you.

Two questions.

First, if you look at the shares outstanding, it looks like you bought back about 5 million in the quarter.

Will the share buyback continue or does that slow given the upcoming acquisitions, not only that you made in this quarter but going forward?

And then, second question, I guess to all the senior managers there.

Have you had any discussions recently about personally buying back shares given that the stock is sitting here at 52-week lows?

Thank you.

Well, they are both buyback questions.

I mean our attitude on buyback is we went to the Board last quarter.

Our authorization is now probably net about 65 plus million shares that we have authorization to buy.

At the current levels we're buyers and once the window opens, we will continue to buy back shares.

We are generating a lot of cash and our acquisition of emerging technologies, frankly, isn't that significant of a drain on cash the way we do things.

So most likely we will continue to buy shares throughout the year.

And then maybe if anyone wants to comment about the desire or has there been any discussions among senior managers about personally buying back shares given that the stock is currently sitting at a 52-week low?

Let me - - this is Jim Tobin.

Let me chime in on this one.

You know, I bought shares twice now and it didn't do any good.

And my appetite for buying more, I don't care how cheap it is, I've got 6 - - $6 options so buying at 30 is a bunch of [expletive].

So I won't be doing that and I truly believe that since we as a management team are largely paid in options, that the decision of when to avail yourself of the profits on those options is a personal decision.

And so I have, for years now, avoided trying to dictate to the management team what they should do in their personal finance area.

And I intend to stick with that.

Okay.

Thank you.

And thank you very much, Mr. Novarro and with that Mr. Tobin and our host panel, I'll will turn the call back to you for your closing remarks.

No closing remarks.

I appreciate all the interest.

We appreciate all the interest in the call today and we will keep you up-to-date and look forward to May 27 at PCR.

Thank you.

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