Boston Scientific Corp (BSX) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the third-quarter Boston Scientific earnings results conference call.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session, and instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

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

Please go ahead.

Good morning.

Thank you for tuning in today to our third-quarter results conference call.

With me today as usual is Jim Tobin, our Chief Executive Officer, as well as Paul LaViolette, our Chief Operating Officer.

Our plan today is to go over the results for the third quarter, update you on our revised guidance for the fourth quarter, and therefore for the whole year 2005.

After we do that, Paul LaViolette will present an overview update of the business, including all the businesses of Boston Scientific, with some abbreviation on cardiovascular, in that we will have an analyst meeting at the TCT next week, where Paul and the team will focus on the cardiovascular business and give you a pretty good update on our DES technology as well as the rest of the cardiovascular group both domestic and internationally.

So this is kind of a two-part analyst update today, primarily a financial update, guidance update, and a bit of overview of the other businesses; and then next week at TCT we will provide you a more in-depth update on the cardiovascular business.

We will be making forward-looking comments, and I am sure we will be making forward-looking comments with regards to the Q&A.

So let me ask Paul Donovan, our Head of Corporate Communications at Boston Scientific to read our 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 introduction, clinical trials, regulatory approvals, competitive offerings, intellectual property, litigation, 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 giving the specifics on the third quarter and the guidance for the fourth quarter; then I will provide some more specific details regarding the quarter and our guidance with regards to fourth quarter; and then turn it over to Paul for his comments and then Jim for his comments on the quarter and where we are as we close the year here.

For the third quarter, our net sales for the quarter were 1.511 billion as compared to 1.482 billion for the third quarter of the prior year.

Obviously, a flattish result for the quarter; that is an increase of 2%.

Not exactly what we expected.

We were a bit surprised on two fronts in the DES market, and that is largely what caused the flattishness in the quarter.

First, the size of the market was a bit under what we thought for the third quarter; and also most likely J&J did take some market share in the quarter, but I will leave that, a more broad discussion, in-depth discussion to Paul LaViolette in a few moments.

Our worldwide coronary stent sales for the third quarter were $633 million, as compared to 686 million for the third quarter the prior year.

Our worldwide sales of Taxus came in at 601 for the quarter.

During the quarter, the Company recorded special charges of 616 million net of tax.

The after-tax special charges for the quarter consisted primarily of the 598 million -- again, that is net of tax -- relating to the previously announced settlement with Medinol in the quarter.

The reported net loss for the quarter including net special charges was 269 million or $0.33 per share.

Net income for the quarter excluding net special charges was 347 million or $0.42 per share, as compared to 404 million or $0.47 per share in the third quarter of 2004.

Moving on to the fourth-quarter guidance, we are revising our guidance fourth quarter.

We're now obviously in October, so it is more predictable how the fourth quarter is going to come out.

Right now, we expect worldwide sales to range between 1.550 billion and 1.590 billion.

We expect earnings per share for the fourth quarter, excluding any special charges, to be in the range of $0.40 a share to $0.44 per share.

Our worldwide sales for the full year therefore expected to range somewhere between, call it, 6.3 billion and 6.33 billion.

So the range obviously, given the fact that we are already in the fourth quarter, is pretty narrow.

So somewhere around 6.3 billion looks like where we are going to end up for the year.

Again, earnings per share excluding net special charges are expected to come in in a range of $1.81 per share to $1.85 per share.

That is at the low end of our range that we gave to you earlier in 2005.

So we are going to be close to the range that we predicted earlier in the year, but certainly on the low end of the range.

Again, that is driven almost exclusively by the third-quarter DES result.

Again, Paul will elaborate on that.

We should point out that our DES business is quite healthy.

The standout was our international results for DES, and especially the early response to Liberte that we will get into shortly.

Let me try to give you some additional perspective on the quarter from the financial numbers' standpoint.

If you look at our domestic business in the third quarter, we came in at 926 million in sales, and that was down about 5%.

That has everything to do with what I just outlined with regards to Taxus largely in the U.S.

You dissect it, our DES business, it really was a U.S. phenomenon, where we came in with Taxus sales in the third quarter in the U.S. at $403 million; and that compares to the prior year of $502 million.

So roughly a $100 million difference between last year's Taxus sales in the U.S. and this year's.

Again that is a combination of, one, the third-quarter phenomenon; two, probably a market size a bit lower than we expected; and three, some share loss to J&J.

If you look at our international business, our international sales came in at 585 million compared to 503 million, up a solid 16%.

So we saw strong double-digit growth in our international business.

That pretty much is without any real contribution from Japan, in that we are not in the drug-eluting stent market in Japan yet.

So let's look at Europe and international.

Good news.

Strong performance in both of these regions.

In terms of Europe, we came in with sales of $274 million, up 16% year-over-year.

In intercontinental markets, 171 million in sales, up 39% year-over-year.

So extremely strong growth in those two regions of our international business.

Now let's dissect down to Taxus internationally.

While we saw some setback in Taxus in the U.S., we saw something quite different in the international markets in Europe and intercontinental markets.

We came in Europe with $120 million of Taxus, up significantly compared to 84 million in Taxus in the prior year.

In intercontinental, we recorded $77 million in Taxus in the quarter compared to last year 54 million.

So we saw good solid quarter in our Taxus drug-eluting stent business in both Europe and both intercontinental; and that is obviously on an apples-to-apples basis.

So we were very pleased with the result in international and extremely pleased with the early read on Liberte, which should foretell our market share position sometime in 2006, when that product is approved in the U.S.

So overall, 1.511 billion, up 2% for the quarter.

Now if you take drug-eluting stents out of the quarter on the sales base, we grew roughly 10%.

Rounded up a tad, but roughly 10% considering or encompassing all the businesses that we have.

So we did reach double-digit growth with the exception of the DES market and the Taxus result.

Moving on to a divisional breakdown, a couple points to make.

Our Cardiovascular business was down 4% worldwide.

But the good news is four of our -- five of our other divisions saw very strong double-digit growth -- or at least in some cases, double-digit growth, lower digits.

Our Neurovascular business in the quarter was up 12%.

Our Oncology business was up 13%.

Our Endoscopy business was up 10%.

Our Urology business was up 29%.

And our Neuromodulation business, Advanced Bionics, was up 150%.

So we saw strong double-digit growth in almost all of our other businesses, and the real weight on our growth in the quarter was really all about Taxus, and really all about Taxus in the U.S.

Let me move on to the international markets to give you some highlights in terms of our divisional makeup.

Our Cardiovascular business in international came in at $410 million, up 17%.

So if you look at our Cardiovascular business in the international marketplace, we had a very solid performance, up 17% year-over-year.

We also saw very strong growth in our Endosurgery group, where we saw 16% overall growth in international markets.

So in the third quarter, our overall Cardiovascular group, which includes Electrophysiology and Neurovascular, that came in at 460 million, up 15% as a group.

Our Endosurgery group came in $117 million overall, up 16%.

So we saw good growth, double-digit growth, both at Cardiovascular and Endosurgery.

Moving on to the P&L for a moment.

To help you understand the income statement for the quarter, the way we build it up is first we take our base business, excluding recent acquisitions.

So that would include excluding Advanced Bionics, TriVascular, and one or two of the others that we have had recently.

So let me go through our base business, and it's as follows.

Our base business came in at 1.476 billion.

On that sales base, we had gross margins of, rounded off, 78%.

We had operating margins or operating income of 35% of sales, and we had net margin on that base business of 26%.

So as you can see, the base business, without the recent investment decisions and acquisitions, is extremely healthy.

Again, 1.476 billion, 78% gross margins, 35% operating margins, 26% net margin, and an EPS of $0.46 per share.

Now you then layer on Advanced Bionics, which we knew for a number of years would be dilutive.

Advanced Bionics for the quarter came in at $35 million top line.

It had a net income loss of 25 million or $0.03 per share.

So that takes your $0.46 per share down to $0.43 per share.

Then you layer on the additional acquisitions we announced earlier in the year, for which there was no revenue contribution, but for which there were a $14 million net income loss for additional dilution of $0.01 per share.

So in the quarter, we saw $0.04 dilution off the 46 base to bring us down to the $0.42 per share that we describe in the press release.

Then, of course, the special charges.

The lion's share of the special charges had to do with the Medinol settlement.

The other -- I think it is roughly 25, $28 million of special charges has to do with some downsizing in terms of headcount and rightsizing in Japan, while we await for our drug-eluting stent to get approved over there.

And also some outsourcing and some restructuring of our HR group, which also had some headcount implications.

So overall, the special charge came down to be a net 616 million or $0.75 a share.

When you take the $0.42 a share positive, you factor in the special charge -- again primarily the Medinol settlement -- it takes you down to the $0.33 per share loss that we are reporting today as a result for the third quarter.

Let me now turn to the fourth quarter and our revised guidance for the fourth quarter.

As I mentioned, in that we are now well into October, the range has narrowed markedly.

For the fourth quarter, we now see sales coming in somewhere in the neighborhood of 1.550 billion to 1.590 billion.

The assumption there on DES, on the low case, is that DES would contribute about 613 million on the low case or low range, and that DES Taxus would contribute 637 million in the high range, 1.590 billion scenario.

Our operating income is expected to come in about somewhere in the range of 30% to 32%; and our net margin somewhere between 22% and 23% of sales.

Our EPS we expect to come in in the range, on the low side $0.40 a share; on the high range, $0.44 a share in the quarter.

Now when you take that revised guidance and factor it into the full year, the year goes something like this.

We now expect to report for the full year sales in the range of, let's call it, 6.3 billion to a little bit over 6.33 billion, up 12% to 13% for the year.

Our operating income should come in at between 33% or 33.5% of sales, so a robust operating income line.

Our net income should come in between 24% and 25% net margin.

That results in an EPS of $1.81 on the low range, to $1.85 on the high range.

So what you have for Boston Scientific reporting for the year 2005 is a top line growing between 12% and 13% and an EPS or bottom line growing somewhere in the 11% to 13% range.

So good double-digit growth.

Obviously the first quarter treated us well.

That was where we had an apples-and-oranges comparison; we had the advantage of Taxus for the first quarter not compared to the prior year.

So we did have -- we do expect to report strong double-digit growth for both sales and earnings for the full year.

In terms of 2006 guidance, we are now heavily involved in the budgeting process for 2006.

We plan to complete our process near year end.

Sometime in probably the third or fourth week of January, we will announce a conference call to take you through our guidance for 2006, both sales and earnings and balance sheet.

We will also then at that time schedule an analyst meeting to go over the full range of businesses and a business update, sometime probably in April of 2006.

So those dates will be coming shortly.

Again, guidance for 2006 sometime in late January from a financial perspective; and then an overall update on the business, all of our businesses and all of our pipeline, sometime in April 2006.

So with that overview, let me turn it over to Paul LaViolette to give his perspective on the quarter and kind of the state of the union.

Paul?

Yes, thanks, Larry; and good morning to everybody.

Just for the first two minutes I would like to set the stage on the DES market and our market share dynamics, not only the past few months but really over the past six months.

I think everybody is aware and really shared with us the ACC time frame in March, where there was a lot of expectation about new data from head-to-head comparisons in the J&J-sponsored REALITY trial.

We had actually favorable expectations from that; and indeed we did see I think favorable outcomes from that trial.

We then, however, faced what I can best describe as an erroneous safety campaign that was raised and then aggressively marketed post-ACC.

We have obviously subsequently seen a number of large-scale comparisons on safety that have since dismissed any claims of thrombosis differences between the two programs.

But it is a factor and it has weighed on us.

We have also fought an efficacy challenge, particularly due to one isolated trial which produced anomalous results compared to virtually all other trials and series of trials.

These data points and their accompanying campaigns hit us pretty hard mid-Q2.

That along with Cypher supply gains cost us some market share points and brought us down from the high 50s to the mid 50s.

There is no question since Q2 we have seen stabilization in our share.

Based on independent audit data that we receive and that I think all other companies subscribe to, in the quarter we held 55% Q3.

That is essentially the same as the post-ACC exit rate of Q2.

We did see also in Q3 sequential monthly sales growth month after month throughout the quarter.

I think that helps reinforce a sense of steadiness in the business.

If you look at other factors, our account base remains constant, our reorder rates remain constant, our ASP trends also remain constant.

I think what we have seen a generally is that Cypher supply has made stents readily available on all shelves, and has allowed them to be pulled an extra percentage point or two more often than they had been before.

Larger scheme of things, that is a minor dynamic; it is part of the overall picture; and I think it is safe to say we have not seen a fundamental dramatic change in the marketplace, just a small erosion and several contributing factors ultimately leading to, today, a stable scenario.

I think we have also seen in the market some important trends that frankly caused softness in the third quarter, somewhat greater than the second quarter and over these past six months, more so than we had forecasted.

We think the market has slowed in these past two quarters primarily due to 12 to 24-month efficacy gains, which is to say, the durability, the lasting effect of drug-eluting stents and its impact on TLR reduction.

That gap is basically shown to widen over time between drug-eluting stents and bare-metal stents.

If you look at the history, the SIRIUS or the Taxus IV trials would have shown us that after nine months something like an 8% gap in TLR would emerge between bare-metal stents and drug-eluting stents.

That has obviously been factored into overall procedure rates.

It is clear now from longer-term data on both programs that there is an increasing reintervention gap between bare-metal and drug-eluting stents that grows from 8% up to 11% over a 12 to 24-month period.

So when you have to factor that in, we think it has driven the third quarter market down sequentially in dollar value, by about 5% versus Q2, from 784 to something closer to 744.

This same phenomenon impacted Q2 a little bit less, probably 2% versus the first quarter.

So it is a larger gap in Q3 than previously, and that has accelerated a little bit because penetration at the end of last year was increasing fairly significantly.

That bolus of patients is obviously coming due, if you will, at the nine-month follow-up period where clinical results or clinical manifestations of restenosis would occur.

So you really see a drag on the market in these last few months, and we think that is rather explainable when you dive into the model a little bit.

We actually forecast this to reverse in the fourth quarter.

We think the fourth quarter is going to start to grow again.

We think it will grow 3% sequentially over Q3 to something north of $760 million.

That will create a full-year market in the U.S. of close to 3.1 billion, about 12% larger than last year, and ending at very robust penetration, probably 89% for the year.

So a fairly clear market assessment, not accurate to what our original forecast had been, explainable based primarily on the extraordinary benefit of drug-eluting stents.

But importantly, we think the drag on the market is behind us, and we think we will see sequential growth from this point forward.

So let me turn to international Taxus for a minute.

I think it is safe to say we have a different story there for several reasons.

Importantly, and as Larry has already said, one that foretells our U.S. position about 12 months from now; and that of course obviously relates to Taxus Liberte.

We had pretty good market strength evident in Europe and intercontinental, evidenced with DES penetration increasing in both markets, I think to 44% and 48% respectively or thereabouts.

Our shares held steady or increased in most markets, due to the launch of what is clearly viewed now as the first second-generation drug-eluting stent, Taxus Liberte, which as you are aware received CE Mark September 8 and was launched basically over those last three weeks of the quarter.

It is good to report that Europe and intercontinental both had drug-eluting stent growth of 43% or 44% over last year.

But it is also safe to say that with so little market time we have yet quantified the Liberte impact.

We will spend more time trying to detail that at the analyst meeting next week.

But that said, Taxus Liberte launch execution, its product performance, and its overall market reaction have all matched or exceeded our expectations.

We have had an unconstrained launch.

In 15 days, we sold 29,000 units of Taxus Liberte and we shipped 77,000 Taxus Liberte product.

We are being told by clinicians -- and we listen carefully to this -- rather consistently the Taxus Liberte is at least equal, if not superior, to any other drug-eluting stent available outside the United States on deliverability and on trackability.

We have, as a result of this rapid uptake somewhat accelerated our launch; and we will see, I think, continuous improvement in our results in these early stages of Q4.

Again I will try to update you real-time next week.

Suffice it to say, we have with Taxus Express, internationally and domestically, we have previously been through some launch success with drug-eluting stents.

Despite that, and in light of that, I'd have to say we are very, very pleased with the rapid assimilation of Taxus Liberte and testimonies of superiority that we are hearing essentially around the world.

A few other comments on Taxus and TCT.

As you know, we have been expanding our capabilities as a world-leading drug-eluting stent and frankly drug marketer.

We have made a series of new sales and marketing program investments, and I think they are gaining traction.

We have expanded our sales force.

We have created a new speakers bureau on drug-eluting stent results.

We have a newly staffed medical affairs organization, both in the office generating new data and in the field disseminating that data to our customers.

The primary purpose of all of these initiatives and other initiatives is to create and disseminate clearer, stronger messages about the strength of our data and, quite frankly, to counter some creative competitive data.

This is a competency we did not have.

This is a battlefront that emerged after the ACC and caught us -- in the presence of what we had expected to be quite favorable REALITY efficacy data -- caught us less well prepared than we needed to be at that time.

We have corrected that, as you would expect we would.

We will now use these new teams, not to mention our fairly competent sales force and marketing team, to work with a series of new data points that we us expect to continuously flow starting at the TCT.

And honestly, we expect a pretty strong showing at TCT next week.

We expect safety data on Taxus that will continuously reinforce our claims.

We expect safety data on other programs that will show that those other programs do not have a basis to claim superiority to Taxus.

Our longer-term data sets out to three years will reinforce the durability of Taxus efficacy results.

And I think we will continue to see fantastic data, quite frankly, in complex subsets.

There will be data from new studies presented that we remain blinded to but which we believe will reinforce parity at a minimum on safety and efficacy between Taxus and Cypher.

So we have a lot to look forward to in the strong showing at TCT in both data and in live cases; and we will hope to see you all most of the way or part of the way through TCT Tuesday afternoon.

Let me just spend a few minutes on other businesses, CV and beyond CV for the third quarter.

In CV, a lot of other areas of strength outside drug-eluting stents.

Balloons continued to grow this quarter, despite Guidant's return after their Voyager recall.

IVUS catheter sales grew double digit.

The coronary cutting balloon grew sequentially based on some new product launches.

Peripheral stents grew 9% sequentially, and cryovascular technology increased 27% over last year.

So a lot of core franchise areas of strength.

In all, in the cath labs, we held 54% of the domestic market.

That is about a third larger than the next two companies, shall we say, combined.

That is where we stand.

On top of that, pretty solid foundation, we intend to add Taxus Liberte to the mix within about 12 months.

So I think we have a lot of reasons to be optimistic.

Let me switch gears to markets outside the coronaries.

Neurovascular business was very strong.

We went through a bit of a lull last year.

We intended to restore that.

Again, it has been restored to healthy global double-digit growth at 12% over last year.

Our goal was to accelerate this business back to historical growth rates using new technologies.

We have done that.

We launched two new coils in the U.S., GDC 360 and the Matrix2 platform, and we will be launching them internationally in this fourth quarter.

As you are aware, we received HDE approval on Wingspan, which is the first and only self-expanding stent for ischemic stroke; and we will launch that in this fourth quarter.

We're also preparing a series of launches emanating from our Precision Vascular acquisition in wires and microcatheters over the next couple of months.

So we have a lot of pipeline activity in neurovascular.

That market is expanding.

It is only 50% penetrated.

We are the historic leader.

There are a lot of concentrated competitors in that space, and despite that, roughly 10 years after the Target Therapeutics acquisition we hold 60% of the worldwide market and frankly would expect to see accelerating growth going into next year.

The Endosurgery business also had a number of very impressive third-quarter highlights.

Most importantly, global and domestic growth of 15%.

We saw extremely strong performance in urology and gynecology, almost at 30% growth; 29% worldwide.

Obviously a lot of things have to go well to do that, but I will just highlight that our BPH technology platform, the Prolieve, continues to do very well, outgrowing the market, clearly gaining share, and sequentially 20% over Q2.

We also saw excellent gynecology growth driven by in our Sling products and our endometrial ablation franchises.

Oncology also maintained solid growth, up 13% worldwide, with venous access strength -- really their core product line -- growing 21%.

Endoscopy of course is the biggest of the Endosurgery businesses.

We've seen an increase in growth rates in that business and it has hit 10% worldwide.

That is despite the impact of our decision to exit the small GERD franchise we had established with the Enteryx device.

Without going into details, Endovations, which of course will ultimately be a strong complement to endoscopy, had some very big milestones in the third quarter.

I am delighted to report that we now have a system.

We have an end-to-end scope, software, hardware, integrated technology platform that is not only working component by component but is working end-to-end.

We now have just a few final component refinements to work out before embarking on our first human use trial.

We will keep you updated on that key progress.

But excellent progress by that team.

If you step back and take a look at the Endosurgery group in its entirety, there is no question momentum is building.

We will have an even, I think, more favorable outlook to unveil for next year.

Let me spend the last minute closing with some comments on our newest business in neuromodulation, the pain management and cochlear implant franchises of Advanced Bionics.

This business is making very favorable progress, and we're very pleased by their results.

Spinal cord stimulator sales were 17 million in the third quarter.

That is 11% higher than the second quarter.

On top of that sequential growth, we also saw faster sequential growth in patient trials and evaluations, which as you are aware in that implant space is a leading indicator of likely implant sales going forward.

Those evaluations increased 20% in the third quarter versus the second quarter.

So we think we have some accelerating growth ahead.

We also are launching in this fourth quarter our surgical leads.

So effectively we have been competing only in the percutaneous market; and despite that, our Q3 sales results would have given us 24% of the percutaneous segment.

So we think we are gaining a lot of momentum.

Our lead strategy will expand the space that we play in.

Overall we feel very good about our pain management performance.

The cochlear implant business is regaining a lot of momentum after its recall and reliability problems of last year.

We are seeing a resolution to those reliability challenges, and we are seeing accelerating sales as the market restores confidence in our position.

We did 15 million in the third quarter, which was double last year.

And we have an impressive pipeline in that space, which I think we will spend more time on when we have an analyst meeting in Q1 of next year.

So in sum, Larry covered the financials.

If you look at our qualitative position, we had double-digit growth in nearly every Boston Scientific business outside coronary stents.

Inside coronary stents, our U.S. drug-eluting stent market share was 55%; it looks solid overall; and we're expecting a positive TCT.

Taxus Liberte is doing extremely well in international markets, and it is entirely on track for our launch in the United States next year where, in all likelihood, it will launch not only as the first second-generation drug-eluting stent, but it is likely not to be followed by any other new technology launch for at least a year or more after its unveiling here in the U.S.

So we have a lot going for us now and a lot to look forward to.

With that, I will turn it over to Jim for some comments.

Yes, just very briefly, nobody likes to miss a number, but the story basically is U.S. Taxus.

So there, although we're not doing as well as we would like, I think it is fair to say that we're doing better than most people expected us to do.

So it is sort of a good news, bad news kind of situation.

The real story, though, is the strength in international Taxus; and part of that, but not all of it, is the surprising strength in Liberte.

I think we really have something here, and we have been saying that for some time.

I think it has been met with some skepticism.

But I believe the near-term success we are seeing in Europe and intercontinental markets bodes very well for the longer-term future.

We're also making progress on the pipeline.

If you go back to the things that Larry said about sort of what our base business looks like, and then what the reported numbers look like after you back out acquisitions, essentially what we're doing here is spending about 10% of our pretax earnings on bringing these growth engines for the future into the family, and then investing in them as they continue to grow and as they move their pipeline forward.

If you think about it that way, that is probably a pretty good balance for what we're trying to achieve.

We're spending 10%, 11% on R&D, and then after -- with the earnings that are left after that, we're spending another 10% of earnings on driving Advanced Bionics and other acquisitions forward.

That is to preserve and to enhance growth in the future.

It is probably what we should be doing, it is balanced, and it is looking like it's going to be successful.

It hasn't happened yet, although even that is a little bit of an overstatement, because Advanced Bionics is growing more than double from where they were a year ago.

So we are already seeing some of the benefit there.

So bottom line is, nobody likes to miss a number; but on balance, I think we are in better shape than most people would give us credit for.

Last but not least, we've had some developments on the legal front.

Getting Medinol behind us is a good thing, and there are some recent things that are favorable.

So here we go, Q4.

Thank you.

Okay.

Thanks, Paul; and thanks, Jim.

I think we're ready to take any questions you may have regarding the quarter or the guidance we put forth.

(OPERATOR INSTRUCTIONS) Mike Weinstein of JP Morgan.

I think we lost Mike.

Mr. Weinstein, your line is open.

We will go on to the next one.

Katherine Martinelli of Merrill Lynch.

I just had a quick follow-up on, Paul, some of your comment.

It seemed that you were indicating you felt that whatever impact post-ACC has been addressed in terms of beefing up some of your sales force and having more coordinated effort against some of the safety concerns.

Should we take that to mean, based on your prior comments where you thought your U.S.

Taxus share would be back to 60 to low 60s by the end of this year, into '06, to be still accurate?

Looking at it in another way, are you now assuming you will start to see sequential increases in your market share?

Katherine, that is our goal.

We are probably 2 points below where we would have liked to be when we said our goal for the end of the year was to exit at 60.

I will tell you our expectations internally are to see share growth in the fourth quarter over the third; and we think that can accelerate through the fourth quarter.

So we're going to run some new plays.

We think they will provide us some new momentum, and our goal is to get back to 60.

So we will see, and you will hear.

But that is our intent.

One follow-up if I may.

Is most of the issues you're facing tied more to safety with respect to concerns for Taxus versus Cypher?

If that is the case, I would just like get a little bit better feel of how Liberte would address that, since obviously it is the same drug.

Well, in the marketing world, I don't think there is as clear a delineation in the messaging in the marketplace between safety and efficacy.

It is really just one large, clouded, sort of fast-paced, high-volume messaging arena, and there is a lot of confusion.

Our job is to clarify on several core messages.

Obviously, first and foremost is safety.

Because I think if a physician is concerned about safety, regardless of all other factors, be it efficacy or acute performance, they are going to shy away from the technology.

I think we have an absolutely slam the door shut argument on safety.

Efficacy is next, and we can talk about a lot of endpoints, primary and secondary.

But when you look at the aggregate experience in our data set, in reality, in the Colombo experience, in large-scale registries -- you name it -- we have a ton of information to clarify efficacy and, frankly, take a high ground, especially in complex subsets.

Then from there we focus on acute performance, where I think the world generally recognizes we have an advantage.

So we're very focused on all of those.

Taxus Liberte has many things going for it that are better than any other program.

We have seen already early data from Taxus Liberte that shows a fantastic safety profile.

So I don't think marketing Liberte is going to be a problem for us, particularly as we just simply clarify where this aggregate data picture really does settle out with the physicians.

Okay.

So just to be clear, when you do provide guidance in January, it is going to be based on your U.S.

DES market share, at at least 60% starting off in '06?

No, we will see where we are through Q4; and then we will provide guidance accordingly.

Our internal goals are to increase market share Q4 over Q3; and our target eventually will be 60%.

If we don't get there in Q4 and we're showing momentum, then we will have that goal for Q1.

Okay, great.

Thank you.

Dhulsini De Zoysa of SG Cowen.

Good morning, thank you.

Paul, I just wanted to clarify a couple of things.

Some of the comments you made, you talked about the 12 to 24 months efficacy drug-eluting stents and the impact that has had on procedures.

Could you help us just to, if we need to recalibrate our market models, think about procedure rates in the quarter?

Then you also said that you expect to see a sequential increase.

Why would that 12 to 24 months efficacy, why wouldn't that continue, and why shouldn't we expect procedures to continue to soften?

Let me clarify.

First of all, from a data perspective, Q3 our estimates are 254,000 interventions, Q4 260.05.

So what we are looking at is 3% sequential growth in Q4 over Q3.

You have two offsetting factors that create sort of a weighted balance of positive and negative.

The positive, which we haven't really spent a lot of time talking about, is the penetration rate that increased in the second half of '04 going into '05.

We went through a clear uptick in penetration rates at that point, which meant more patients were converting to drug-eluting stents.

So, therefore, that large bolus uptick in drug-eluting stent patients in that Q3-Q4 time frame when penetration was growing by 5% a quarter, those are the patients that have flowed through the system now, and in Q2 and Q3 had lower rate reintervention rates.

The penetration rates in Q1 and Q2 have stabilized and are not changing by more than one point per quarter, and that is why we think there will be stability in overall growth as penetration rates no longer weigh down because they are not infusing large bolus of patients with new, if you will, drug-eluting stents in the overall marketplace.

So the penetration is the other factor to the reduction in TLR.

Reduction in TLR stabilizes; penetration is not increasing.

Therefore, it is not going to have an increasing effect over time.

Okay, thank you.

If you could, ASPs in the U.S. for Taxus, are you still thinking about sort of an 8 to 9% year-over-year decline?

For '05, yes.

For '06, that is slowing.

We have given some indication of that in prior analyst updates, but we had been experiencing roughly 2% a quarter, and that trendline has been consistent.

But we have also seen, I think, a fair amount of quiescence in the marketplace.

It is not as dramatic; prices aren't being thrown around perhaps the way they had been during the early inventory recovery of Cypher, our post recall dynamics.

So I think we're seeing stabilization now, and our forecast for next year is that ASP erosion will be, I think, 4.5%.

Okay, and if I missed this, I apologize.

Did you say really where you think your share was in the third quarter in the U.S.?

Is 57 or 58% share what you implied?

No, what I stated was 55, and that is one data point from our independent audits.

The MRG database shows 55.

That has been historically fairly accurate.

It was reasonably stable through the quarter, and so even if that database isn't particularly accurate month to month, it certainly has been good on sort of a steady trend basis.

Until Johnson & Johnson reports actual sales, of course, we won't be able to triangulate that, but that is our best guess.

Okay, thank you.

Rick Wise of Bear Stearns.

Good morning, everybody.

Perhaps, Paul, you could give us a little more detail on the pipeline, a pipeline update.

On Endovations specifically, I had the sense that you all were hoping for first human implants this month.

Is that still a reasonable time frame?

Maybe you can update us there.

Again, you mentioned at the Bear Stearns conference the 6 billion-plus you all have invested over the last few years.

What do you want us to focus on as the most promising revenue contributors over the next one to two years?

Well, I don't want to steal some of our updates from next week.

But just specifically on your question about Endovations, the critical accomplishment, as I mentioned, was this integration of the full system.

That was -- if our engineering team had one thing they were going to hold their breath over, that was it.

We have achieved that.

We are refining, as I mentioned, one final component.

Honestly, we could go ahead now with first human use.

We completed some additional wet labs in the last few weeks, and those wet labs when extremely well.

I would say, if we went ahead and did our first human use today, we would hit somewhere between a triple and an inside the park home run.

We basically looked at it and said, why don't we upgrade that one component and assure ourselves of a home run?

So we are in the process of doing that.

We have not rescheduled first human use, in an effort to factor that one change into our overall plans.

It is going to take us probably a couple of months to do that.

Then we will be back up and hitting first human use.

So we will give you a refined date when we have it.

I think it will be Q1, not Q4; and it will be because our aspirations are for a clear home run and not for just excellent performance.

Okay.

Just a quick follow-up.

So you would expect Endovations in the market when?

Second, gross margins held well despite these complicated cross issues in stents.

Maybe you could expand on the sustainability there.

Just last, a quick question for Jim.

I don't mean to ambush you in public, Jim, but there continues to be a great deal of concern and confusion over your future tenure plans at Boston.

People view with concern the notion that you might not be there.

Could you clarify that for us, and help us understand your thoughts and future plans?

It would be very helpful.

Thanks so much.

Let me start.

Okay?

After you miss a quarter, I am surprised you still want me.

So that is part of it.

But I am here, I am engaged, and I plan to be here for some time.

There are no definitive plans.

What I have been doing and will continue to do is turn more and more of the business over to Paul.

That is, from my point of view, working well.

So I am in the mode of pulling back from so much of the day-to-day stuff that I did particularly on Taxus, and allowing the organization to pick that up and move that ball forward on a sustainable basis.

That is -- that doesn't reflect a lack of interest on my part.

It reflects a desire to eventually turn the business over in a state that is sustainable.

So that is really what is happening.

If that appears to be me backing away, that is not really what I am doing.

What I am doing is trying to create an environment where we can continue to enjoy the success we have long into the future.

In terms of specifics on Endovations, we will provide you those specifics.

First human use will be scheduled more than likely in Q1; and we are looking forward to it.

We think it is going to be a home run.

We think we're going to have fantastic results.

We think that is going to lead to commercialization probably not much on change from what we had talked about previously.

The commercialization dates will have to be updated when we have final first human use observations.

But our goal here is to go into first human use and to exit first human use without having to change anything in the system.

If that is the case, we have a 510(k) regulatory process; there won't be a regulatory barrier here.

We will be going immediately into scale-up mode, and we will look to have commercialization at the end of '06 and/or the very beginning of '07.

Then one last question I think on gross margins.

Gross margins are holding up extremely well.

I guess the expectation would be that we're probably not going to sustain 77%, 78% gross margins.

Right now, early read on '06, to the extent we're down that road, I am coming -- my gut feel right now is that we're going to see gross margins in '06 to be just a tad above 76%.

So we're still refining that.

But we also, on our scenario building are really looking at perhaps some surprise on the upside on pricing.

This market is a two-horse race.

It looks like a two-horse race for quite some time.

We would like to see prices firm up and surprise us on the high side, which means our gross margins could stay in '06 closer to 77%.

But that really largely depends as what happens post J&J-Guidant merger.

They are our competitor.

We have no other competitors in the U.S.

Probably won't have any competitors in the U.S. for close to two years.

So you have to question why prices would be on the decline.

So the message here is, we are trying firm it up and keep our margins where they are at for (multiple speakers) .

I would also just add that certainly the launch of Taxus Liberte in the United States would give us a chance to firm up pricing.

Yes.

Liberte should be a differentiating factor.

While quite a few people have said, well, gee, it must be -- all it is, is another stent.

What we are hearing from docs is that it is not just another stent.

This system is elegant; it is markedly above what is out there on deliverability.

For some of you that perhaps tuned into the Scripps course, Teirstein's Scripps course just weeks ago, you saw where Liberte did extremely well where others couldn't do quite as well.

So after saying that, new products do help to hold price, if not increase price, but it is really down to the value proposition to the physician and we will see what it looks like.

But right now, 76% gross margins '06; so we don't see any real strong decline or any significant decline in margins for quite some time.

Thanks, Larry.

Jason Wittes, Leerink Swann.

Just in terms of payouts for the acquisitions you made over the past couple of years or so, what are they year-to-date?

What are they expected to be for the rest of 2004?

Well, it is really not that significant yet in 2005.

You have to remember a lot our earnout payments are done on an annualized basis.

So they happen at the end, in fourth quarter typically?

Some of the bigger ones.

For example, Advanced Bionics and some others have not yet been made.

Those will be made next quarter, though?

They will be -- right now, I think we're scheduled for first quarter of '06.

So I think next year in total we are in the range of 300 to $400 million in earnout payments, assuming they hit -- they, meaning the multiple companies that are in earnout with us -- hit their sales goals.

So we actually love to pay earnout payments, because it means we're making the right decisions.

We do have one more medium-sized acquisition coming.

I guess (multiple speakers) small acquisition coming up that we pay for, the upfront for, this year.

So we can expect one more acquisition before year-end?

Well, we have not been bashful about it.

We're going to acquire EndoTex, which we think is going to be the number one carotid stent in the marketplace when it is launched.

Very novel; clinical data excellent.

We plan to acquire that soon.

We're working on it as we speak, and I believe the upfront there is $100 million.

That would also have the earnouts, depending on milestones?

The milestones are sales-based, so we don't pay anything until there is cash coming in.

Okay.

By the way, another company you haven't been bashful about potentially buying has been Cameron Health.

Any update on that?

I don't think we ever said we were going to buy it.

We will provide update on that next week.

We have got a -- we're a strategic investor and partner with them.

But a lot has to be proven out on Cameron Health.

So far so good.

Jay Warren is doing a terrific job.

We just invested more money, not less money.

So that should tell you that we have confidence in the Cameron team.

But we have not said we were going to buy them.

We have the rights to buy them, but a lot has to be proven out on the technology.

Understood.

One last question.

The nonvascular businesses I guess are growing around 10% this year.

That seems to the around the growth rate you guys are anticipating.

What should we be thinking the long-term growth rate for those businesses is going to be?

I think that we're expecting our nonvascular businesses to grow mid double-digits.

Yes, I think a couple quick comments.

One, Endovations of course will play into there.

So to the extent that succeeds and does as well as we hope it will, that will have an uplifting effect on the entire Endosurgery group, number one.

Number two, the Euro gynecology business has been growing not mid-teens but mid-20s.

They have their sights set on growing that business from 300 million to 0.5 billion.

A big part of that will be international penetration as well.

That is a common theme across all of our Endosurgery businesses.

The majority of those businesses resides in the United States.

We have a very powerful international channel; we're working on developing international growth.

So oncology, clipping along at mid-teens.

Urology in the 20s.

Endoscopy worldwide at 10.

Of course if Endovations hits fairly large -- of course that will really have material sales in '07 -- you're going to start to see Endosurgery total growth just leveraged up.

Let me also expand on the question regarding cash.

I mean, in 2006, if everything goes even at the low scenario, we're going to be generating somewhere between 1.2 and $1.5 billion of cash.

Then of course we have got to expend on CapEx and some earnouts.

But our cash flow for the foreseeable future is to die for.

So we have got a lot of opportunity to continue to invest in new pipeline on top of the existing pipeline, which we plan to do.

We have a pretty full chest of new opportunities that we're working on as we speak.

Next question.

Tom Gunderson of Piper Jaffray.

Just to play off that a little bit and a previous comment that Jim made, Jim, should we use as a rule of thumb that maybe 10% of net income goes to these outside investments, number one?

And would that rise as your earnings rise into 2006 and 2007?

I don't think so, Tom.

I think that we are at the high-water mark actually of sort of our, call it, pretax investment in these acquisitions.

Advanced Bionics is the biggest chunk of that.

We spent just a little over 50 million in Q3, and Advanced Bionics is probably -- well, it was most of that.

They are making great progress.

I don't need them to make a lot of money;

I just need them to stop losing money.

That is probably a few quarters out yet.

But they're certainly heading in the right direction.

So I sort of look at as this is the worst part, not the sustainable (multiple speakers).

I think to elaborate, The Advanced Bionics obviously since 1998 -- when we spent 2.1 billion on Schneider, and that has worked out extremely well -- we haven't made a large acquisition other than, you would say, Advanced Bionics at the $700 million-plus mark.

When we made that investment, it was distinguished by the fact that it's our first endeavor into (technical difficulty) microelectronics for us.

So we were prepared to frankly spend $100 million-plus on funding these guys and their pipeline.

So that is a little bit of an anomaly based on the last five to seven years.

Right now, we don't have anything of that size in the hopper that we are thinking of.

So you shouldn't just take that 10% of net income and stream it out.

Because I don't (technical difficulty) that is probably the case.

What we do over the next three years is (technical difficulty).

Paul, just some quick number-crunching here.

For fourth quarter, what is your assumption for increases in J&J capacity?

Could you give us the actual ASPs that you're calculating for Q3 in U.S. and Europe, and any change in stents per case?

Then lastly, just a clarification.

I only heard about Scripps third-hand.

Was that Taxus Liberte that got the ovation, or was it the current Taxus product?

First of all, I was reviewing the J&J capacity charts just the other day.

No;

I don't know.

But you had to make an assumption.

We get those e-mailed to us daily.

They are very nice guys over there.

I will tell you what my assumption is.

My assumption is J&J is an unbelievably strong company, and whatever capacity limitations they have they're going to solve right around the corner.

So they have been working on it.

They have done a great job of supplying more, and I fully expect that any issue they have they will resolve.

So we plan for that.

There is relatively little sort of leftover demand where labs don't have a ready supply.

So I think the issue is frankly much less an issue to even talk about than it has been in the past.

But whatever issue they have had I think they will resolve quickly.

On an ASP basis for the quarter in the U.S., it was a little over 23.25; 23 and a quarter.

Prices outside the United States, again, a very broad basket of countries that comprise this, but it is between 17.25 and 17.50.

So the Scripps clinic, I personally did not attend their meeting, so I don't know what was used there.

Stents per case unchanged?

Basically unchanged at 1.53 in the third quarter and marginal changes quarter-to-quarter.

Thanks.

Eli Kammerman of Cathay Financial.

Can you all shed a little bit of additional light on the 11 million adjustment in SG&A in the quarter, and also the 7 million adjustment in R&D?

When you say adjustment, --?

Yes, the exclusion or onetime nature of those amounts.

I don't have it in front of me, but the one charge had to do with headcount reduction or you could call a restructuring of Japan.

That really has to do with two things.

One, we have a new head of international, Jeff Goodman, and Jeff just felt that given the environment in Japan and the -- over the next five-plus years, that we had too much headcount invested.

Not that we don't value Japan; it is just that we had too much headcount invested.

So he downsized Japan.

This is the same guy that is at the same moment increasing headcount in Europe and intercontinental.

So what Jeff is doing to the international business is investing where the return is quite attractive and doing a little backtracking where the return probably could be better with less invested in headcount.

So it is a little bit of that.

The second is we decided in the HR area to outsource more of the back-office type technology.

When we basically decided to outsource, we had some restructuring in the HR functions.

So those are the two primary drivers of those amounts.

Also, after yesterday's Netherlands decision on the Maverick patent, do you have similar patent actions pending in other European countries or in the U.S.?

Or have there been similar decisions already issued on that patent?

The decision in the Netherlands that was completed yesterday, which basically upheld our position against Cypher and a number of other products on the balloon technology used, is similar to the initiatives that we have for the entire European front.

It is just the first one that has surfaced.

We have -- we expect to apply the same patent arguments in defense in Europe; and hopefully will get the same outcome.

So far, we have sued J&J on three different patents or three different areas of patents, balloon, polymer, and stents; and so far we have won three out of three.

That will be prosecuted in the U.S. as well?

And it will be prosecuted in the U.S. as well.

When would the next soonest decision be likely to be issued?

The next data point will be over in Europe, and that will be -- will we have the opportunity of injunction against Cypher in Europe based on the balloon technology and the balloon IP that we just won in Netherlands.

That decision would come down probably some time in the second half of '06.

All right, thanks very much.

Tao Levy of Deutsche Bank.

If you could just quickly update us on share buyback, what you did in the quarter, what your plans are over the next couple quarters?

Also, there certainly was some chatter last couple of months about some Taxus shelves -- or Taxus coming off the shelves at some of the prominent U.S. hospitals.

Do you -- you know, potentially safety concerns.

And now they have been evaluated and put back on the show.

Can you just clarify what happened, for example, at Beaumont Hospital?

Well, that is the only one I am aware of, and I am aware of all of them.

So let's be clear that Beaumont is a very large lab in the United States.

Great set of physicians.

They experienced a clinical case that didn't go as well as they wanted to.

They stopped, took a quick look at what happened, worked with us to understand what happened, and over what might have been two to three weeks restored Taxus to full unconstrained use.

So that was a one out of 1,000.

It happens to be a large institution, and so it was somewhat noteworthy.

But it was a one out of 1,000.

I think they felt comfortable, took prudent action.

We worked very very closely with them.

I probably spoke to them half a dozen times personally through that time frame, and the issue is fully resolved.

So I am pleased that -- I just hope everybody pays as much attention to the accounts that have nothing happen in them as to those that have something happen in them.

Thanks.

On the stock buyback situation, we were aggressive on stock buybacks at around $28, $29 a share.

Year-to-date, we acquired just under $750 million in buyback of our stock.

In the third quarter, I think we acquired around $70 million in our own stock.

So when you take the, we will call it, 750 in buyback during the year, year-to-date; and then you add the Medinol settlement, which was a bit of a surprise in terms of managing cash flow, that is 1.5 billion.

So in line of that, we have slowed down the buyback program.

We expect next year in '06 to be at about net debt of zero if everything goes well.

So we are in pretty good, extremely good financial position.

Whether we continue to buy back stock or not really depends on some of the acquisition strategy and investment strategies we have, and what comes of those over the next three or four months.

Because we will be spending cash on additional acquisitions in the months ahead.

Next question.

Bob Hopkins of Lehman Brothers.

A question for Larry and a question for Paul.

First, for Larry, I know you mentioned that you will be talking about '06 guidance in January.

But I was wondering if you might comment generally on whether you have given, what you know today, feel that the consensus number of just over $2.00 is in the ballpark?

Is it too high?

Is it too low?

Then I have one for Paul.

I would say that it is pretty clear that we are going to revise the existing guidance.

Well, it wasn't really guidance, it was goals.

If you recall last year, we basically provide guidance on a 12-month-out basis; then 24, 36 on a goal-setting basis.

So we will be providing for the first time guidance for 2006.

But as a reference point will be the goals that were established earlier this year.

It is safe to say that we will be revising our guidance, establishing our guidance for '06 at points lower than the goals that we set out in early 2006.

That largely, almost entirely, is due to this huge market called drug-eluting stents and the dynamics of it.

But again, we feel pretty good about 2006 and the predictability of it from a top-line standpoint.

The issue that we have to make final decisions about is how much do we spend, where do we spend, and what will be the EPS range.

So we have not completed that process yet, so I can't give you guidance and should not give you guidance regarding whether it is north of $2.0 or south of $2.00, because frankly, we just haven't decided where the EPS number is going to come in, what the range is reasonable.

And that has everything to do or primarily everything to do with our strategic outlook.

Otherwise, I think you have seen in recent quarters we believe that the drug-eluting stent market is obviously a very rewarding place to be.

On the other hand, it does have high penetration rates in the U.S.

So, it is what it's going to be, that as a market for the next five years.

So we have to demonstrate growth through all the other businesses we have including Cardiovascular, with new markets like carotid stents, bifurcated stents, AAA devices, Endovations, and on and on and on.

The good news, we have a solid pipeline.

Now as a management team, we have to decide, do we try to maximize EPS for '06?

Or do we look forward over the long term, and with the keen eye on shareholder value creation?

And are we better off investing heavy in 2006 to make sure that 2007, 2008, and 2009 create some real shareholder value here.

So we are being obviously driven by shareholder value over the long term not the short term.

So that hopefully gives you some guidelines as to probably where we are going to come out on spending for 2006 on the pipeline.

Great, thank you, Larry.

Quickly for Paul.

For what it is worth, the feedback I get from contacts in Europe is consistent with what you are articulating here today.

Therefore I am keenly interested in some of the upcoming legal issues.

So I was wondering if you could just give us an update on Ding, and when we expect to hear back from the judge on J&J's request to overturn the ruling.

Then also real quickly if you wouldn't mind, when should we expect the EndoTex stent to get approval here in the U.S.?

And maybe any update on Vascular Closure too that we should expect from TCT?

Thank you.

Let me try to take the Ding first.

We don't know what the judge's schedule is.

Obviously, J&J has requested that the decision be changed.

We thank that that frankly was kind of a desperate move to try to get the judge to change, override the jury.

I can tell you that we feel very good about Ding.

There is no one in this Company that doesn't believe Ding is going to survive appeal when it is appealed.

Now we could be surprised, but we feel very strong about Ding.

We have expected it to be successful and we continue to expect it to be successful.

The judge has her own timeline.

This is probably not a top priority.

We don't have a specific time or guidance of time from the judge at this point.

Then Bob, regarding the other two parts of your question, EndoTex, we have filed our PMA.

We actually have two PMAs pending, and they were filed reasonably close to one another.

One on the neck stent from EndoTex and then one on the wall stent.

We think both of those will pop out somewhere around the end of this year.

So we're looking to be commercial with at least one if not both of our carotid platforms by the middle of Q1.

TCT and Vascular Closure, I don't think there will be -- I am not aware of any significant updates.

Certainly the platform we're working on will not be shown in cases or anything at TCT.

I will provide some technology and program updates at TCT.

So I will just go ahead and hold my comments until then.

But we will give you an update on the Therus platform next Tuesday.

Great, thanks very much.

I think we have time for maybe one more question, then we will wrap it up.

We have been on for an hour and a half.

Thank you.

Glenn Reicin of Morgan Stanley.

Thanks.

One housekeeping question and two sort of technical questions on the DES market.

Just for housekeeping, say, Paul, can give your us your estimated size for the drug-eluting stent market?

And the total size of the stent market both domestically and internationally in the third quarter?

And maybe you can also break down your bare-metal stent sales between U.S. and international.

Then just sort of conceptually, you announced this money back guarantee in the quarter.

You didn't really talk about it, but what I thought was interesting is you're essentially giving a money back guarantee for in-stent restenosis.

But I don't think you have approval for placing the stent in stent for in-stent restenosis.

So how does that work without getting into trouble with regulators?

Lastly, Paul, you were on the tape yesterday making some comments about safety concerns on Cypher.

What are you referring to, so we know what to look for at TCT?

Thanks.

I will take the last one first.

I am not in any way saying there are safety concerns with Cypher.

All I am saying is that there will likely be data at TCT that follows the major trials as they age, if you will.

That is true for our trials.

Because you're now looking at some of the major trials going into their 12 to 24-month time frame or their 24 to 36-month time frame.

So the real question is, does Cypher have the ability to claim that its late thrombosis rates, or any attribute of late thrombosis, is superior to Taxus?

I am suspecting that we will see some evidence of some thrombotic events in out years.

If that is the case, that is unfortunate.

It speaks to an issue with stenting in general, not just drug-eluting stents; and it simply highlights the fact that each of the platforms may be susceptible to a very low rate of late thrombotic events.

It is certainly not a point of distinction nor a point of advantage between Cypher and Taxus.

So that is point number one.

Point number two, on the program that we offered, let me make it very clear, Glenn, and I am actually pleased that you asked the question.

We're not advocating that a patient that returns with in-stent restenosis be treated with another stent.

Nor are the mechanics of our program to replace a stent at that institution for the purpose of its use in that patient at that time.

What we're saying is that the evidence that was used to receive approval for the stents demonstrated very low intervention rates.

As you recall from Taxus IV, the intervention rate was 3.0%.

What we have seen in the marketplace, in real-world experience, would indicate to us that the reintervention rates are actually lower than that.

Physicians believe that.

If you really say, what is the pulse?

What is the perception of the marketplace?

It is that when a physician in his or her practice places 100 or 500 or 1,000 stents, they would generally tell you, I can't remember any Taxus patients coming back needing reintervention.

It's an extremely rare occurrence.

Not to say it doesn't happen.

It is going to happen; these stents are not perfect.

Our goal with the assurance program is simply to reinforce with solid backing, with an expression of confidence, that our stents are not only going to work well in the procedure; they're going to actually provide confident care for the patient over time.

They're going to do what that procedure is intended to do.

If, if, the patient incurs a restenosis and ultimately requires a reintervention, what we're saying is we're going to back the original stent by replacing it at the hospital.

We're not advocating that a stent be reinserted in the patient to treat in-stent restenosis.

So I think there is a very clear message.

It's a very unique program.

It's a statement of confidence and squarely backing our technology and the perception in the marketplace.

But it is also extremely clear that there is no linkage between this program and the therapeutic recommendations for in-stent.

So it is just a rebate program?

It is basically economics, and not clinical.

Okay.

Yes.

Then you had a question about the specific sales.

I don't have the U.S. and international.

I should say I don't have the international market size in front of me.

The domestic market size -- and we can get you the international market size -- but the domestic market size for 2005 is basically 1,038,000 procedures; and translate that into roughly 1,321,000 stents and $3.09 billion.

We can get you the international market numbers.

Then on a bare versus drug-eluting stent basis, the worldwide stent sales for drug-eluting stents in the third quarter were 640; and in the quarter, the bare stents were 43, 45.

I am sorry; that was last year. 601 for this year for drug-eluting and 32 for bare.

What was the breakdown on the bare between U.S. and international?

Maybe 10 million or so U.S.?

Let me give you -- the domestic bare was 8 and the international was obviously the rest.

Okay.

So if we take the 411 or the 403, we are supposed to divide that by 0.55; and you are saying that would be the size of the DES market, roughly?

That's right.

Then there shouldn't be much difference obviously between that and the total market share.

Yes.

Okay, thank you.

Glenn, it sounds like you're getting ready for that other, next conference call.

Maybe.

All right.

Thank you very much.

We will keep you up-to-date.

Again, we have an analyst meeting next Tuesday at 5:00, 5:30.

We will begin 5:00.

If you would like to, I am sure we will have iced tea or something available.

In the meantime, we look forward to seeing you next week.

Good morning.

Thank you.

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