Boston Scientific Corp (BSX) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Q4 Boston Scientific earnings conference call.

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

Later, there will be a question and answer session and instructions will be given at that time.

(Operator Instructions).

As a reminder, today's call is being recorded.

At this time, I would like to turn the conference over to Mr.

Larry Neumann.

Please go ahead, sir.

Thank you, Kent, and good morning, everyone.

Thank you for joining us.

With me on the call today are Jim Tobin, Chief Executive Officer; Sam Leno, Chief Financial Officer; and Jeff Capella, Chief Accounting Officer.

We issued a press release yesterday afternoon announcing our Q4 and full year 2008 results.

Key financials are attached to the release, and we have also posted some support schedules to our website, which you may find useful as well.

The agenda for this call will include a review of the Q4 financial results, as well as Q1 and full year 2009 guidance from Sam, and an update on the CRM,cardiovascular and other businesses from Jim.

Jim will also provide some overall perspective on the quarter and then the year and then we'll open it up to questions.

Before we begin, we will be making some forward-looking statements on the call today, so I would like to remind everyone of the Safe Harbor Statement.

This 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 affected by, among other things, risks associated with our financial performance, our restructuring plan, our programs to increase shareholder value, new product development and launch, regulatory approvals, litigation, our competitive position, our growth strategy, the company's overall business strategy, and other factors described in the company's filings with the Securities and Exchange Commission.

I will now turn it over to Sam for review of the fourth quarter and full year results.

Thanks, Larry.

I'm pleased to report that we finished our fourth quarter with sales and adjusted earnings in line with the guidance that we provided during our third quarter earnings call.

But before I discuss our results of operations, I would like to address the good will impairment charge that we announced in last night's earnings press release.

The recent decline in our stock price created an indication of potential impairment of our good will balances under current SEC accounting guidance.

Consequently, we performed an interim impairment test of our good will.

The US CRM business grew double digits for the third consecutive quarter, on the strength of the new products introduced throughout 2008.

Despite the strong performance, changes in end markets demand relative to our original deal assumptions, coupled with the recent disruption in credit markets, yielded a $2.7 billion write-off of good will.

This is a noncash charge and has no impact on our bank debt covenants.

The amount of this charge is subject to finalization during the first quarter of 2009.

Now let's turn to operating results.

I'll begin the discussion of our fourth quarter results by first addressing revenue.

Consolidated revenue for the fourth quarter was $2.002 billion, and that's within our guidance range of $1.965 billion to $2.080 billion.

This represents a 7% decrease from the fourth quarter of last year and includes a negative 2% contribution from foreign currency, as well as a negative 7% contribution from divested businesses.

Compared to the foreign currency contribution assumed in our fourth quarter guidance range, foreign exchange contributed a negative $23 million in our fourth quarter sales results.

Without this negative impact, we would have finished the quarter near the midpoint of our guidance range.

Overall, the contribution of foreign currency to sales growth for the fourth quarter of 2008 was approximately $46 million or negative 2%.

Compared to the fourth quarter of last year, excluding divestitures, domestic revenue increased 3% while international revenue decreased 5%.

In constant currency, international revenue was flat with prior year.

Jim Tobin will provide a broader overview of our businesses by major product category, but I'll share our revenue results at a higher level here, including the DES and CRM markets, and dynamics of those markets for the quarter.

Worldwide, DES came in at $429 million and that exceeds the midpoint of our guidance range of $400 million to $440 million and down 1% from the fourth quarter 2007, or flat in constant currency.

Our worldwide drug eluting stent revenue includes $279 million for TAXUS and $150 million for PROMUS, which clearly indicates that we are not only continuing to sustain our position, but growing our worldwide DES leadership throughout the fourth quarter.

Geographically, US drug eluting stent revenue was $231 million.

At the midpoint of our guidance range of $220 million to $240 million, and 3% above the fourth quarter of last year.

This includes $116 million for TAXUS and $115 million for PROMUS, and represents a 50/50 mix of TAXUS/PROMUS in the United States.

Our US DES revenue for the quarter was $7 million below what we included in our guidance, as a result of not fully completing the launch of TAXUS Liberte during the quarter.

Therefore we did not fully replenish the TAXUS Express Inventory remaining in the field during the fourth quarter.

We do anticipate the remaining replenishment to occur during the first quarter of this year.

We estimate that our combined US market share for the fourth quarter was 47%, including the impact of replenishment reserves.

This is 2% higher than our share for the third quarter, as we continue to hold and increase share consistent with our stated objective of maximizing total DES market share.

We estimate TAXUS came in at 24% share and PROMUS was 23%.

We are the only company in the industry with a two-drug platform strategy, including a well established and highly regarded paclitaxel product in TAXUS and the leading Everolimus product.

This gives us the unique ability to sell to our customers whatever they want to buy.

Coupled with what we believe to be the best commercial team in the industry, we have demonstrated our strength and the ability necessary to maintain our leadership position in the competitive drug eluting stent market.

Based on our estimate of the US market for the quarter, we estimate that Medtronic had market share during the quarter of approximately 10% with J & J at 14% and Abbott achieving approximately 29%.

TAXUS stent pricing in the US was down approximately 5% compared to prior year and stents per procedure remain consistent.

As we complete the launches of TAXUS Liberte and PROMUS, we anticipate aggregate market share for the major competitors settling in at approximately the current levels with perhaps a few more share points coming our way in 2009, so selling prices should be generally stable going forward.

International drug eluting stent sales were $198 million at the top end of our guidance range of $180 million to $200 million, and represents a 6% decrease versus the fourth quarter of last year.

This includes $163 million for TAXUS and $35 million for PROMUS and represents an 82/18 mix of TAXUS versus PROMUS internationally.

Boston Scientific's market share in EMEA is estimated to be 33% with TAXUS coming in at 24% and PROMUS at 9% representing a TAXUS/PROMUS mix of 72/28.

Our share was also up one point in Japan to 46%, which is 100% TAXUS.

Intercontinental market share, excluding Japan, remained at 26% with TAXUS at 20% and PROMUS at 6% ,representing a TAXUS/PROMUS mix of 78/22.

Combining this with our US market share, we estimate our fourth quarter worldwide market share to be up 1 point at about 40% with TAXUS at 26% and PROMUS at 14%, representing a worldwide TAXUS/PROMUS mix of 65/35.

Now I would like to spend a few minutes on the market dynamics of drug eluting stents during the fourth quarter.

We estimate the worldwide DES market in Q4, including TAXUS Liberte sales, of $13 million recorded to replenish customer-owned TAXUS Express inventory at approximately $1.075 billion.

This is a worldwide DES market increase of about 6% over the third quarter of 2008 and 8% over the fourth quarter 2007, with an approximate 20% increase in unit volume offset by approximately 12% in average selling price declines.

The US market is estimated to be about $486 million, which represents an approximate 6% increase over Q3 and a 17% increase over the fourth quarter of 2007.

This includes an increase of unit volume of about 25%, offset by an 8% decline in US average selling prices for the entire industry.

US PCI volume in the quarter was approximately 257,000 procedures, and that's up 2% over last quarter, and up 4% over the fourth quarter of 2007.

We estimate US DES penetration was 73%, which represents a 3 percentage point increase from last quarter's 70% and an 11% increase over the fourth quarter 2007.

Based on MRG data, the US penetration rate for the month of December was a bit higher at 73.2%.

This is the fourth quarter of increasing US penetration rates and stable to moderately higher PCI volume, both of which continued to demonstrate that the health of the DES market is steadily improving.

Combined with the stability in stented procedure rates and stents per procedure, we estimate that the US stent unit market was approximately 340,600 units for the quarter.

The international DES market remains strong for the quarter, with 323,000 PCI procedures in EMEA, up approximately 13% over last year.

Penetration rates in international markets showed some gains with EMEA increasing 3 points to 52%, Japan holding at 66%, and Intercontinental excluding Japan increasing approximately 2 points to 59%.

With the introduction of PROMUS into the US market early in July of 2008, the total market has become a bit more difficult to define as a result of Abbott's inclusion of its share of the PROMUS profits included in its reported revenue.

Therefore, we will continue to disclose PROMUS and TAXUS separately in order to add clarity for everyone.

Turning to our CRM business, we continued to see good progress supported by the launch of several new products during 2008.

Most notably, we began the launch of our COGNIS and TELIGEN platforms worldwide,excluding Japan during the third quarter.

Reported worldwide Q4 revenue of $571 million, represented a 5% increase, up 8% in constant currency over the $544 million in the fourth quarter of 2007.

US CRM revenue were at $383 million, representing a 10% increase over prior year, the third consecutive quarter with double-digit growth, while international CRM sales were $188 million, a decrease of 4% over prior year, but up 4% in constant currency.

Worldwide ICD sales of $427 million were at the low end of the guidance range of $425 million to $455 million, and 8% over the fourth quarter 2007.

Without the additional impact of the $5 million of negative FX in the quarter versus our previously thought forecast, worldwide ICD sales would have been $432 million.

ICD sales in the US were $299 million and that's a 13% increase over last year and near the bottom of our guidance range of 295 to $315 million, but outpacing St.

Jude's reported 8% growth by 5 percentage points.

Key contributors for this performance include increasing implant volumes in the market and our increasing share offset by price declines that are consistent with historical patterns.

International ICD sales of $128 million were below our guidance range of $130 million to $140 million and represents a 2% decrease from last year.

Key contributors to this performance include the segmenting of the European market.

with remote patient monitoring that we will begin participating in during 2009.

and the number of registries with limited clinical content that we have chosen not to participate in.

Without the additional impact of the $5 million of negative foreign currency in the quarter, international ICD sales would have been $133 million.

and that's at the low end of our guidance.

Excluding sales from our five divested non-core businesses, our non-DES and non-CRM worldwide revenues decreased 3% from prior year to $995 million.

But on a constant currency basis, they increased 1%.

This includes a 5% constant currency increase in endosurgery and an 11% constant currency increase in neuromodulation.

As we continue to develop our new product pipeline, we expect the growth in our non-DES and our non-CRM divisions to continue to strengthen.

I would also like to provide some highlights of the full year 2008.

Reported revenue for the year ended December 31, 2008 were $8.050 billion, which represents a 4% decline from prior year.

Excluding the impact of the divested businesses, full year 2008 revenues were $7.981 billion, or 2% growth over 2007 and the contribution of foreign currency to full year sales growth was a positive 2%, or about $213 million compared to 2007.

Our global cardiology business sustained its worldwide leadership, but was down 4% for the year, principally due to the impact of new competition in the US DES market.

However, we have realized increased DES market share in the fourth quarter, exiting December with an estimated 49% US market share, with 25% share in PROMUS and 24% share in TAXUS, almost a 50/50 split between PROMUS and TAXUS.

Our O-US share has proven to be resilient at approximately 34%, resulting in worldwide share of approximately 39% for the year.

Total CRM came in at $2.286 billion, which represents an 8% increase over 2007, or 5% in constant currency.

US CRM revenue increased by 8% with ICD revenue growing 8% and Pacer revenue growing 7%.

O-US CRM revenue grew 7%, up 1% constant currency with ICD revenue growing 10%, or up 5% constant currency and Pacer revenue flat, down 5% constant currency.

The growth of the CRM division during the year was driven by multiple new product launches, highlighted by the launch of COGNIS CRTD and TELIGEN ICD in August.

The rest of the business posted solid results compared to 2007 in the face of limited product pipeline as a result of our engineers staying focused on remediating the corporate warning letter issues throughout 2006, 2007 and the first part of 2008.

Here are some highlights of these businesses.

EndoSurgery continued its solid performance with an 8%, up 6% constant currency, increase over prior year, including 9% reported and 6% constant currency growth in endoscopy and 7% reported, or 6% constant currency growth in the urology/gynecology business.

Our electrophysiology business grew 4% reported and 2% constant currency for the year and we look forward to the launch of new products in 2009 with continuing progress on our CryoAfib program.

We also continued our history of leadership in the neurovascular market, despite having only 2% growth reported, and down 2% in constant currency compared to prior year.

We plan to launch a new line of competitive coil and stent products in both US and EMEA during the second half of 2009, both of which should contribute to share gains in the back half of this year.

And finally, our neuromodulation business grew 20% reported and 20% in constant currency in the face of new product introductions by both of our major competitors.

Now, all three companies have similar sized pulse generators, but we believe that we continue to maintain a technologically superior product.

The common theme among these businesses is our strong market share, terrific brands, and leadership positions in many franchises, including biopsy, biliary, stone management, and neurovascular coils and stents, to name only a few.

And Jim will elaborate more on our strong franchises during his remarks.

Reported gross profit margin for the quarter was 68.5%, adjusted gross profit margin for the quarter excluding acquisition and restructuring related charges was 68.8%, which is 170 basis points higher than last quarter and 180 basis points lower than the fourth quarter of 2007.

Revenue mix continues to be a key contributor to the lower gross profit margin compared to prior year, and the change in the volume and mix of our DES revenues between PROMUS and TAXUS contributed to a gross profit margin reduction of about 300 basis points compared to the fourth quarter of last year.

We expect to earn back this 300 basis points with the launch of PROMUS element that I will comment on in more detail in a few minutes.

The strengthening of the US dollar and the resulting settlement of our foreign currency hedge contracts and cost of sales improved our gross profit margin by about 73 basis points compared to prior year, and during the quarter we also recorded a one-time $24 million CRM inventory reserve for the reduced demand of previous generations of technology as a result of the successful launch of Cognis and Teligen.

This charge contributed to a negative impact on gross profit margin of about 120 basis points.

Adjusted gross profit margin for the quarter would have been 70% without this charge.

With prevailing foreign currency rates, and as a result of our success with TAXUS market share as we enter 2009, we expect gross profit for the full year 2009 to be in the range of 70 to 71%.

We also expect further improvements going into 2010 as we launch PROMUS element in Europe in the fourth quarter of this year.

Our reported SG&A expenses in the third quarter(Sic-see press release) were $640 million and adjusted SG&A expenses, excluding restructuring-related items were $632 million, which was 5% higher than last quarter due to increases in variable costs from higher revenue and $72 million, or 10% lower than the fourth quarter 2007.

We continue to make excellent progress towards completing our restructuring initiatives and I'll provide you with an update on these initiatives a bit later.

Reported research and development was $257 million for the quarter and adjusted R&D was $256 million for the quarter, consistent with the fourth quarter of 2007 and was 12.7% of sales.

As we saw during our third quarter, the majority of the reduced R&D expenses compared to prior year were a direct result of divested businesses.

R&D expenses for the remaining businesses of the company were essentially in the with prior year.

We remain committed to advancing medical technologies and are investing accordingly in both research and development, as well as strategic acquisition opportunities.

We reported a GAAP operating loss of $2.448 billion for the quarter on an adjusted basis excluding the intangible asset impairment charge and also excluding the acquisition and restructuring-related charges and amortization expenses.

Operating income for the quarter was $431 million and 21.5% of sales.

That's up 10 basis points from last quarter and down 210 basis points from the fourth quarter of 2007.

The factors that I mentioned earlier contributing to our reduction of gross profit margins also contributed to our year-over-year reduction of operating profit margins, and were partially offset by stringent operating expense controls.

I would like to highlight the GAAP to adjusted operating profit reconciling items in a bit more detail.

As a result of recent external economic conditions and the related volatility in Boston Scientific stock price, as well as a decline in our market cap, we performed an interim good will impairment test as of December 31, and this resulted in a $2.689 billion pre-tax, or $2.681 billion after-tax noncash charge in the quarter related to the impairment of good will associated with the acquisition of Guidant in 2006.

The amount of this charge is subject to finalization during the first quarter of 2009.

Next, the total amortization expense was $134 million pretax, $126 million after-tax, which was $19 million lower than the fourth quarter of 2007.

Our run rate amortization of $134 million is in line with our expectations for the quarter.

We recorded acquisition-related charges of $22 million pre-tax, $25 million after-tax, to account for purchase, research and development associated primarily with the company's acquisition of Lab Coat, a company that has developed a novel technology for coating drug eluting stents.

We recorded $34 million pretax and $27 million after-tax of restructuring-related charges in the quarter, which are primarily related to retention costs, as well as fixed asset write-offs and third party payments in conjunction with our previously announced expense and head count reduction initiatives.

These charges are in line with our previous estimates.

The cumulative effect of these items was $2.879 billion pretax and $2.859 billion after-tax.

Interest expense was $107 million in the quarter, which was $30 million lower than the fourth quarter of 2007, primarily as a result of our $1.4 billion in debt prepayments in 2008, as well as lower interest rates.

Interest expense was also $5 million lower than the third quarter of 2008 due to our prepayment of $500 million of debt in the third quarter.

Our Q4 2008 average interest expense rate was 5.9% and that compares to 6.3% in the fourth quarter of last year and is consistent with the third quarter of this year.

Full year 2008 interest expense was $468 million, which was $102 million lower than 2007 due to $2.2 billion of debt prepayments over the last 18 months combined with lower interest rates.

Other net expense was $2 million expense in the quarter and included interest income of $8 million in the quarter, which was $10 million lower than the fourth quarter of last year and $3 million lower than the third quarter of 2008, primarily due to lower investment rates.

Full year 2008 interest income was $47 million, which was $32 million lower than 2007, primarily due to lower investment rates.

Other expense also included miscellaneous expenses of about $10 million in the quarter, including $4 million of investment write-downs.

In the fourth quarter of 2007, our other expenses included $48 million of investment write-downs.

The reported GAAP tax rate for the quarter was 5%.

On an adjusted basis, our rate was 0.6% for the quarter.

Our adjusted tax rate excludes the current tax effect of any item excluded from our adjusted earnings, whether excluded in the current or any previous previous period.

In addition to the tax effect of the items affecting operating profit I mentioned earlier, adjusted taxes exclude the following favorable items related to previous periods.

First is the divestiture-related credits of $54 million on both the pretax and the after-tax basis to adjust for the tax impact on the company's previous divested nonstrategic businesses.

And secondarily, discrete tax benefits of $55 million associated with the settlements of certain tax positions.

Our adjusted tax rate for the fourth quarter does reflect additional discrete tax benefits of $13 million, as well as the full annual benefit of the US R&D tax credit.

In addition it, contains a benefit of the reduction to 19.1% of our full year operational rate on the first nine-month results.

The reported GAAP tax rate for the full year was negative 0.5% and the adjusted tax rate was 14%.

Our annual adjusted tax rate includes discrete tax benefits during the year of approximately $73 million.

And on an annual basis, our adjusted effective tax rate excluding discrete items was 19.1%, slightly ahead of our forecasted rate of 21%.

We do expect that our operational tax rate on adjusted earnings in 2009 will be approximately 21%.

GAAP earnings per share for the fourth quarter was a loss of $1.62 compared to a loss of $0.31 per share in the fourth quarter of last year.

GAAP results for the quarter include a good will impairment charge, a charge for in-process research and development primarily related to the company's acquisition of Lab Coat and income tax benefit related to the company's previous divested non-core businesses and income tax benefit related to the certain tax positions taken in prior periods, restructuring related charges and amortization I mentioned earlier.

Our adjusted earnings per share in the fourth quarter excluding these items was $0.21 compared to $0.24 in the fourth quarter of 2007.

As a reminder, the fourth quarter of 2007 adjusted earnings per share excluded $0.11 per share related to amortization, $0.01 per share of acquisition-related charges, $0.13 per share of divestiture losses and $0.09 per share of restructuring related charges, $0.20 per share related to litigation charges and $0.01 per share related to intangible asset impairments.

The $0.21 achieved this quarter falls in the middle of our guidance range of $0.18 to $0.23 and included in this $0.21 is a $0.01 benefit for discrete tax items in the quarter.

Stock compensation was $31 million in the quarter and all per share calculations were computed using 1.5 billion shares outstanding.

Turning to working capital management, the DSO was 64 days at the end of the quarter, while it was two days better than 2004 Q4, slower customer payments and the end of December in the US, as well as in several European countries have recovered quickly in 2009 and contributed to an increase of one day from the third quarter of 2008.

We have also made significant improvements in days payable outstanding during the year, which has resulted in improved cash flow.

Our days payable outstanding of 35 days for the fourth quarter is up by 13 days over the 22 days reported in the fourth quarter of 2007.

As a result, working capital improvement was up $89 million related to accounts payable management during 2008.

Days inventory on hand were 125 days, up 5 days compared to the third quarter of 2008 and up 13 days in the fourth quarter of 2007.

The increase in days over both last quarter and last year were mainly driven by the inventory builds required to support new product launches.

These product launches include COGNIS, TELIGEN for CRM, and PROMUS and TAXUS Liberte in cardiovascular.

Reported operating cash flow was $54 million in the fourth quarter of 2008 compared to $308 million in the fourth quarter 2007.

Q4 2008 operating cash flow includes a $187 million payment related to the previously announced MDL legal settlement and a $66 million tax payment related to the $215 million milestone payment received from Abbott in the third quarter of 2008.

Excluding these two items, Q4 2008 adjusted operating cash flow was $307 million, which is in line with the fourth quarter of 2007.

We currently expect to make an additional MDL payment of approximately $13 million in Q1 2009, including the initial MDL payment of $20 million in the third quarter of 2007 and the Q4 payment, our total MDL payments through Q1 2009 are approximately $220 million.

Capital expenditures were $154 million in the quarter, which was $64 million higher than Q4 2007, and $82 million higher than Q3 2008, primarily due to our purchase of the previously leased manufacturing plant.

2008 reported operating cash flow was $1.2 billion, which is $282 million higher than 2007.

2008 operating cash flow includes $187 million MDL payment, a $189 million tax payment related to the gains on divested businesses, and a $184 million after-tax milestone receipt from Abbott.

Excluding these items, 2008 adjusted operating cash flow was $1.4 billion.

2007 adjusted operating cash flow was $1.3 billion after excluding $388 million of tax payments related to the sale of Guidant's vascular businesses and the initial $20 million MDL settlement payment.

The $66 million increase in 2008 adjusted operating cash flow is primarily due to the net interest payments being lowered and improved working capital management partially offset by higher restructuring and retention payments.

2008 full year capital expenditures were $362 million, which is in line with our expectations and 2008 reported free cash flow was $854 million, which is $283 million higher than 2007 due to higher operating cash flows.

In 2008, we received proceeds of $1.4 billion from the divestment of cardiac surgery, vascular surgery, fluid management, oncology and advanced bionics monitoring businesses, as well as our private and public equity investment portfolios.

We used a portion of the proceeds to pay the first $650 million installment payment for the buyout of the advanced bionics neuromodulation business.

In Q4, we continued the monetization of our nonstrategic investment portfolio under the definitive agreements that we announced in June and received cash proceeds of approximately $40 million.

We continued the sale of our portfolio venture funds and continued to sell our investments in a portfolio privately held and publicly traded companies.

We expect to substantially complete our monetization effort of the remaining nonstrategic portfolio in the first quarter of 2009, which should result in additional cash proceeds of approximately $25 million.

We also expect full repayment of the $23 million note receivable in the first half of the year subject to certain closing and other conditions on the remaining portfolio to be sold.

We closed the year with $6.7 billion of total debt and $1.6 billion in cash on hand resulting in net debt of $5.1 billion.

Net debt is $1.6 billion lower than Q4 2007 as a result of our $1.4 billion in debt prepayments in 2008, and increased cash on hand of $189 million.

In the last 18 months, we prepaid $2.2 billion of total debt and our next debt maturity of $825 million is not due until April of 2010.

In the midst of very turbulent financial markets, we continue to manage our debt portfolio, cash investments, cash flow, and working capital conservatively.

We currently have access to approximately $3.1 billion of liquidity consisting of $1.6 billion of cash on hand and approximately $1.5 billion through our revolving bank facility and our accounts receivable securitization facility.

At the end of the fourth quarter, our debt to EBITDA credit facility covenant ratio was 2.7 times, which is well below the maximum permitted level of 4.5 times, providing us with $1 billion of EBITDA cushion.

Our banking syndicate remains very solid and demonstrated their continued support of Boston Scientific by funding our recent letter of credit.

I am pleased to say that we are ahead of schedule in reducing targeted expenses.

We previously disclosed that we would exit 2008 with a run rate annualized savings and operating expenses in a range of $475 million to $525 million on an operational basis excluding the negative effects of foreign exchange on operating expenses.

We actually achieved $507 million in savings during 2008.

We also announced that we would be eliminating 4300 positions with 2000 associated with the businesses identified for divestiture, and 2300 from our ongoing businesses.

Our divestitures were completed during the first quarter of 2008 and the associated 2000 positions have transitioned out of the company as planned.

With respect to our head count for ongoing businesses, 2300 positions have been eliminated through restructuring head count reductions throughout the fourth quarter of 2008.

And as a result of overachieving our expense reduction targets, we reinvested some of our savings and have added 500 new positions during 2008, primarily in direct sales related positions to deliver additional sales growth.

I would now like to provide guidance for the full year 2009, as well as for the first quarter of 2009.

At the beginning of 2008, we provided full year revenue guidance in a range of $8 billion to $8.2 billion and we finished 2008 within the range at $8.050 billion.

We entered 2009 in a much stronger position than we entered 2008.

We have restored our new product cadence, particularly in our CRM and DES franchises.

The CRM market has begun to grow.

The penetration rates for US DES have surpassed 73%.

Our 2007 restructuring program activities are largely behind us and our management team is excited about our competitive and product strength in the markets that we serve.

Unlike 2008, however, foreign currency has become a head wind as we enter 2009 and that will affect over 40% of our revenue base.

Our active hedging program will serve to largely insulate our planned operating profit from negative effects of the strengthening US dollar, but we estimate the negative effect on our revenue growth to be about $150 million or 2% for the year, with a greater impact on the first half than the second half.

As is the case with all of our competitors, we also face uncertainties from the impact of the volatile economic conditions that exist throughout the world.

These factors all contributed to our expected reported revenue range for 2009 of $8 billion to $8.5 billion, which is a range of negative 1% to positive 6% growth reported or on a constant currency of growth rate of 1% positive to 8% positive for the year.

Now I would like to address full year adjusted earnings per share guidance.

We announced at the start of 2008 that our full year 2008 guidance was a range of $0.79 to $0.80.

At the end of the first quarter, we increased that guidance by $0.04 because of $0.03 favorable contribution from discrete tax items and a $0.01 one-time favorable contribution from divested businesses.

We finished the year at $0.81.

The total one-time benefits of the items mentioned at the end of the first quarter together with the additional $0.02 of discrete tax items benefits realized throughout the year were $0.06 for the year.

Without these items, our operational earnings per share for the year was approximately $0.75.

In 2008, we also saw a decline in our US DES market share as a result of new competitive stents in the US market, and a significant mix shift in our DES business as we launch PROMUS in the third quarter of the year and TAXUS Liberte late in the fourth quarter.

While our total DES market share finished the year very strong, the change in the mix of our DES business with about half being TAXUS and the other half PROMUS negatively effected 2008 earnings by approximately $0.07 to $0.08 per share.

The full year effect is approximately $0.15 per share.

So in 2009, we'll absorb the balance of the full year effect of this mix shift in the first nine months of the year with a more significant effect on the first half.

We expect to launch PROMUS element in the fourth quarter of 2009 in Europe and that will begin to restore some of the lost operating profit that resulted in the TAXUS/PROMUS mix shift that occurred in the last half of 2008.

We also expect to recover the reduced operating profit dollars in the balance of this mix shift by successfully launching PROMUS element in the US and Japan in mid 2012.

The net effect of all of these factors is that our earnings per share for the first half of the year will face more difficult comparables against the first half of 2008 and the second half.

In assuming that prevailing FX rates do not change throughout 2009, as well as a 21% effective tax rate for the full year, including the full year benefit of US R&D tax credit from the start of the year, we are targeting full year 2009 adjusted earnings per share in the range of $0.80 to $0.90 cents per share.

This represents earnings per share growth in a range of 7% to 20% off our adjusted operational 2008 EPS of $0.75.

I discussed earlier.

Before providing first quarter 2009 guidance, I would like to briefly discuss our gross profit margin.

While we don't give line item guidance beyond sales and earnings per share, I thought it would be helpful to provide some context around our gross profit margin for your modeling purposes.

During 2008, our gross profit margin declined significantly during the second half of the year, again, primarily related to the mix shift in our DES business from TAXUS to PROMUS.

In addition, we had a number of inventory write-offs that we do not expect to recur, as well as some impact from foreign currency based on foreign currency exchange rates.

If you analyze our gross profit margin rate in the fourth quarter and assume that inventory write-off related to the CRM business is a one-time event and that settling foreign currency contracts and cost of sales will continue to provide some gross profit margin benefit, our more normalized gross profit rate entering 2009 is in excess of 70%.

In addition, as we exited December, our mix of TAXUS to PROMUS continued to improve and we still haven't reached all of our targeted accounts with TAXUS Liberte yet.

As I mentioned earlier, we plan to launch PROMUS Element in Europe late in 2009 and that should provide additional improvement to our gross profit margin as we exit 2009.

We also expect to see benefits of our manufacturing value improvement programs resulting in a more normal 3% to 5% standard cost reduction benefits as our manufacturing engineers are now once again focused on driving significant manufacturing cost improvement programs.

Finally, a few days ago, we committed to a longer term plant network optimization program that we call a PNO program, that will reduce the number of manufacturing plants in our company from 17 to 12 over the next three years.

And we'll relocate about 15% of today's value production to different plants as we look to optimize network.

This should simplify our plant network and reduce our manufacturing costs substantially and should begin showing up in improved margins in 2010 with the full year effect expected in 2012.

This plan is intended to reduce and simplify our overall manufacturing cost structure and improve our gross profit margins.

Over the next three years, we should be able to remove about $100 million of annual expenses out of our manufacturing cost base as a result of this program.

We expect to incur restructuring charges of approximately $140 million additionally related to this program.

We will spend approximately $100 million in fixed plant capital to complete these initiatives.

In 2009, a major contributor to our expected improvement in operating profit margins will be our CRM business.

We expect this division to deliver an improvement of more than 10 points of operating profit margin on their global revenue base in 2009 over 2008 levels.

Further, CRM gross profit and operating profit margin improvements are expected to take place throughout 2010 and 2011.

Turning to sales guidance for the first quarter of 2009, reported consolidated revenues are expected to be in a range of $1.950 billion to $2.070 billion down 3% to up 3% from the $2.014 billion recorded in the first quarter of 2008 excluding divestitures.

Prior to this earnings call, the research analyst consensus revenue estimates as noted on the First Call were $2.047 billion for the first quarter, but that only included 10 research analysts out of 21 possibly disclosing.

And we believe that many of the individual analysts had not yet incorporated the most recent impact of the negative contribution of foreign currency movements.

If current foreign exchange rates hold constant throughout the first quarter and negative contribution from foreign currency should be approximately $55 million, or 2%.

On a constant currency basis, Q1 consolidated sales growth should be in the range of down 1% to up 5%.

For drug eluting stents, we are targeting worldwide revenue to be in a range of $385 million to $435 million, with US revenue up $215 million to $235 million and O-US revenue of 170 to $200 million.

Included in our US drug eluting stent and total tales estimates for the first quarter are the incremental TAXUS Liberte sales resulting from the replenishment of customer stock to the return of TAXUS express inventory.

In the first quarter 2009, we expect to ship approximately $7 million of TAXUS Liberte product to replace returned TAXUS Express product.

This $7 million will be incremental to our normal run rate.

We estimate the full replenishment of the TAXUS Express product with TAXUS Liberte will be completed throughout the first quarter.

For our defibrillator business, we expect revenue of $420 million to $460 million worldwide, with 300 to $325 million in the US and 120 to $135 million outside the US.

For the first quarter, adjusted earnings per share excluding charges related to acquisitions, divestitures and restructuring and amortization expense are expected to be in a range of $0.15 to $0.20.

This includes an effective tax rate on adjusted earnings of 21% in the first quarter of 2009 compared to 13.3% in the first quarter of 2008.

This range includes the impact of replenishment sales for the TAXUS express returns that I mentioned earlier.

The company expects earnings per share on a GAAP basis in the first quarter of 2009 to be in a range of $0.05 to $0.11 per share.

Included in our GAAP EPS estimate is approximately $0.02 to $0.03 per share of restructuring related costs and $0.07 per share of amortization expense.

Prior to this earnings call, the research analyst consensus adjusted EPS estimates as noted on First Call were $0.21 for Q1 with again, only 12 research analysts of a possible 21 disclosing first quarter estimates.

We believe many did not incorporate the current mix of TAXUS and PROMUS or the effective tax rate differential between the first quarter of last year and the 21% we are forecasting for this year.

2008 was a year of transition in the DES business with two new competitors emerging on the scene in the US, most significantly of which was Xience in July and the shifting of over 25 market share points from TAXUS to PROMUS.

As we have previously disclosed, a profit contribution of a PROMUS stent is 50% of the dollar contribution of selling a TAXUS stent.

So the bad news is that we have an adverse mix of PROMUS and TAXUS compared to our expectations of a year ago, but the good news is we have more total US market share than anyone outside of Boston Scientific ever expected.

While this reduced profit contribution will be restored over time, with the launch of PROMUS Element, it sets up a difficult first half comparison in 2009.

As a result, we believe it is important to share our longer-term financial expectations of our business.

We expect to grow revenue in 2010 and 2011 by an average of 5 to 7% per year in constant currency.

We also expect to improve our adjusted operating profit from the 23.1% reported in 2008 by approximately 150 basis points or more annually each year over the next three years 2009 through 2011.

And finally, we expect to grow adjusted earnings per share in 2011 and 2010 in excess of 15% per year.

During the first quarter, the company expects to make the final payment to former shareholders of advanced bionics of $500 million.

We are also planning approximately $375 million of capital expenditures during 2009.

That's it for guidance.

Our first quarter earnings call will be at 8:00 a.m.

eastern standard time on April 21, 2009.

Now let me turn it over to Jim for more in-depth review of our business.

Thank you, Sam.

It's time for a break.

I'm going to discuss the nonfinancial aspects of our business starting with CRM and then share my overall perspective on the quarter and full year 2008.

In the fourth quarter, we continued to gain momentum from our new product introductions.

As Sam detailed, we delivered steady overall growth in Q4 CRM sales, due mainly to strong US defib sales on the heels of our COGNIS and TELIGEN launches.

Q4 marked the third consecutive quarter of double-digit sales growth in our US CRM business.

We've pulled back into a virtual -- pulled into a virtual tie with St.

Jude in the US and we expect to continue our comeback based on new product momentum.

For the full year, we achieved the highest worldwide defib revenue since 2004, while improving our overall market share position by over 500 basis points.

At this time last year, I said that success in CRM in 2008 would depend largely on our ability to leverage our quality improvements, execute on our product launches, and lead with our latitude strategy.

I'm pleased to be able to say we achieved all of these goals and we begin 2009 with our CRM business in a much stronger position.

We also continue to devote substantial resources to R&D in order to maintain our robust CRM pipeline.

In 2008, we delivered on an impressive pipeline of innovations, including the wireless-enabled CONFIENT and LIVIAN devices, the ALTRUA family of advanced pacemakers, the low profile acuity spiral leads and the next generation COGNIS CRTD intelligent ICDs.

In effect, the CRM business went from virtually no major new products over the past five years to an abundance of new products in 2008.

The highlight was the launch of COGNIS and TELIGEN in Europe and the US.

These products are the smallest, thinnest, high energy devices available today and they represent what the market is demanding: high power, more efficiency, and greater functionality in a smaller can.

While these devices are already the smallest and thinnest on the market, they will soon become even smaller when we launch our new IS 4 header configurations and defib leads later this year in US and Europe.

Also scheduled for this year is an aggressive slate of project launches in Japan as we plan to introduce our CONFIENT, ALTRUA, COGNIS and TELIGEN devices.

In fact, I'm happy to share with you that on Monday, we received approval from the Japanese Ministry of Health for our CONFIENT ICD, and it is interesting and encouraging to note that the approval process took only 8 months, a significant achievement when compared to the 12-plus-month approval times we have traditionally experienced in Japan.

As you know, our latitude patient monitoring system has been a critical part of our strategy.

We are increasingly seeing examples of referring and implanting physicians choosing Boston Scientific devices based on the clinical benefits provided by Latitude.

We now have more than 120,000 patients enrolled on this system, which we recently enhanced through the launch of Latitude version 5.0 and a next generation communicator.

This year, we will begin to offer our European patients the benefits of remote patient monitoring as we roll out Latitude in some European countries starting in Q2.

In addition, we are looking forward to the completion of our landmark MADIT-CRT clinical trial, which is expected in the first half of the year.

MADIT-CRT is designed to see whether CRT therapy can slow the progression of heart failure in high risk, minimally symptomatic patients, and we believe this trial has the potential to significantly expand CRTD indications.

Finally, I would like to update you on our EP business, which is now integrated into our CRM group, and which includes our CryoCor ablation program.

All our product development efforts are on track and we have two important launches scheduled for Q2.

Blazer DX 20, a steerable diagnostic catheter, and the Blazer prime, an improved version of the Blazer ablation catheter.

In the second half of 2009, we expect to begin clinical trials for our redesign of our CryoCor power console, which will be used in conjunction with Boston Scientific's proprietary cryo balloon catheter to treat afib.

This is an important part of our long-term strategy in the afib market and we look forward to the start of this important trial.

After nearly three years of hard work rebuilding our CRM business, I believe we are now poised to take full advantage of our investments in quality, R&D and clinical sciences.

In 2009, new products should account for two-thirds of CRM revenue, which should increase the sales and share growth we've seen over the past few quarters.

Our CRM business has already benefited us greatly in terms of diversifying our product portfolio, and this year, it will emerge as the major growth engine we envisioned when we acquired Guidant.

Now I'll turn to our cardiovascular and other businesses.

I'll start by highlighting our continuing progress in improving quality and resolving the corporate warning letter.

In addition to the approval of TAXUS Liberte and TAXUS Atom that we discussed last quarter, we received additional approvals for three other class-three products in the quarter, including the Apex PTCA balloon catheter, the carotid wall stent and the express SD renal stent.

In addition to these five launches, we have three more new US product launches planned in 2009, including iLab 2.0, iCross and kinetics, as well as 12 launches O-US including TAXUS Liberte and PROMUS in Japan, PROMUS Element and TAXUS element in Europe in late 2009.

As we announced just yesterday, we received approval in Japan to market TAXUS Liberte with reimbursement approval and expected launch to occur by the end of the first quarter.

This is yet another example of accelerated approval time lines in Japan.

While the corporate warning letter remains in place pending final remediation of some MDR filing issues, we continue to actively work with the FDA to resolve the remaining issues.

We are pleased with the progress we've realized in the second half of 2008 and will continue this progress with our new product pipeline in 2009.

In the DES market, we executed the US launches of our TAXUS Liberte and TAXUS Atom stents, while continuing the launch of PROMUS, and maintained our share-leading position in the US with our two drug strategy.

We saw continued positive DES trends over the quarter.

PCI levels grew worldwide year-over-year by nearly 10% in Q4 and penetration rates increased for the third consecutive quarter to approximately 73% in the US.

In fact, this was the sixth consecutive month where MRG has reported US penetration at 70% or better.

So we believe the DES recovery is continuing and the market is strengthening.

We are encouraged by these two important metrics and we are confident that the DES market will continue to move in the right direction.

Since gaining FDA approval for our PROMUS Everolimus eluting coronary stent system on July 2, we have nearly completed our launch execution.

During the quarter, we were able to adjust and increase our PROMUS inventory levels, and continued the PROMUS launch, along with TAXUS Liberte and TAXUS Atom, while providing very high service levels.

Based on the MRG data, we exited the quarter with US DES market share of approximately 49% in December versus our exit rate from September of 44%, or an increase of 5 percentage points.

We gained these 5 share points and estimate that J&J lost 7, Medtronics stayed even and Abbott gained 2.

Our 49% share includes PROMUS at 25 and TAXUS at 24.

Based on this data, we believe that Xience has 28% share, while Cypher and Endeavor are 14 and 9% respectively.

We have 21 share points more than our nearest competitor.

Our commercial team is doing a good job of managing averaging selling price, even with some competitive pricing pressure.

We expect average selling prices to stabilize going forward, as market shares settle within the current ranges.

We are the only company to offer two distinct drug platforms and there's no question that this gives us a considerable advantage in the DES market and that our two drug strategy is working and successful.

Going forward, we are committed to maintaining leadership in this market.

I am confident that our stent pipeline, which continues to deliver exciting new products, positions us very well.

On the DES clinical front, we submitted the PROMUS element IDE and its Japan equivalent in the quarter and named it the Platinum trial.

I'm pleased to announce that we enrolled our first patient this month and plan to complete enrollment in Q4 of 2009.

We expect the FDA regulatory review to be completed in time to launch PROMUS element in the US and Japan in mid-2012 and are currently on track to meet these targets, as well as on target for European launch later this year.

Finally, we acquired Lab Coat Limited in Q4.

Lab Coat has developed a novel technology for coating drug eluting stents that uses precisely metered droplets of a biodegradable polymer and drug formulation to create a thin coating confined to the outer surface of the coronary stent.

This proprietary technology is designed to significantly reduce the amount of polymer and drug to which the vessel is exposed.

By eliminating the polymer and the drug on the inner surface of the stent where endothelial cell growth is required for healing.

Once the drug has been delivered, the biodegradable coating resorbs, leaving behind only the bare metal stent.

This approach is intended to provide the same degree of restenosis reduction as a conventional drug eluting stent with faster and more complete vessel healing after stent implantation.

We intend to apply this technology to our next generation platforms, which we believe will set a new standard for DES performance and be a key ingredient to continuing our worldwide DES leadership.

Looking briefly at other CV product lines, our US leadership and PTCA balloon catheters continued with the 62% share, strengthened by the launch of our Apex balloon, which began on a limited basis during Q4.

Overall physician feedback has been quite positive in terms of the pushability and flexibility of this device, as well as the redesigned tip versus the current gold standard maverick catheter.

The 1.5-millimeter push and flex versions of Apex have been exceptionally well received.

In addition, we plan on launching Kinetics, our next generation coronary guide wire, later this year.

Our IVUS platform iLab continues to be readily adopted by cath labs worldwide, as evidenced by approximately 1300 iLab installations and 6% year-over-year revenue growth globally.

IVUS procedural penetration has now increased to approximately 14% of PCI procedures in the US, and remains very strong in Japan at 67%.

We are planning first half '09 launches of iLab software upgrades and the iCross catheter, a new imaging catheter with improved deliverability.

In summary, we believe we are very well positioned as the only company with the two-drug offering, a long list of leading franchises, improving market fundamentals and a robust product launch cadence in 2009.

We believe our relative strength as the overall cath lab leader will increase over the next two years.

In our peripheral interventions business, we hold a strong worldwide position in a growing market and are number one in multiple product categories.

With three launches this quarter, including our newest peripheral balloon, the Sterling ESPTA balloon catheter with an ultra low profile design, the carotid wall stent and our Express Renal SD stent, we are pleased with our ability to continue leadership in serving this market.

We initiated our Cabana registry for the carotid wall stent shortly after US approval.

We have completed most of the work needed to begin launching our Epic stent outside the US and to begin our US IDE sometime in first half 2009.

In the peripheral embolization space, we have successfully trained our worldwide sales force on these products that were transported from our former oncology business and have experienced reinvigorated growth of this high margin product in the second half of 2008.

We remain the market leader in neurovascular, though our growth has flattened recently due to competitive product launches in coils and adjunctive stenting.

Despite this, we maintained 43% coil share, 59% micro catheter, 68% in guide wires and 65% in adjunctive aneurism stents, 47% overall.

This position combined with around 11% market growth in the planned US anemia launches of new coil and adjunctive aneurism stent products during 2009 creates reason for optimism.

We are pleased to have enrolled 400 of 630 planned patients in the global maps post-market clinical trial.

This is a ground breaking trial that will establish clinically relevant aneurism recurrence rates that result in aneurysm rupture or rerupture, intervention or neurologic death.

These rates will be correlated with angiographic endpoints to assess our predictive value and provide a clinically meaningful framework that can be applied to all future clinical trials.

In addition, Boston Scientific is a supporter of the NIH-funded SAMPRAS trial.

This trial tests Boston Scientific's Wingspan stent and gateway PTCA balloon catheter against intensive medical therapy alone to determine which is superior in preventing ischemic stroke or death in patients with 70% to 99% stenosis of a major intracranial artery.

Let me turn now to Endosurgery.

Endosurgery growth was 3% in the fourth quarter, helped -- but it helped contribute to another strong year by the division, growing 8% for the year, including endoscopy at 9 and urology/gynecology at 7.

As the endoscopy division approaches $1 billion in annual global revenue, the strong performance of this division continues.

We saw double-digit growth in our biliary and hemostasis franchises as we bring new technologies to GI physicians worldwide.

These include the spy glass system for direct visualization of biliary procedures and the resolution clip device, which is finding wide usage in a variety of applications requiring stoppage of bleeding in the GI tract.

Our metal stents franchise is also growing at double-digit rates and we continue to maintain our leadership position across the range of devices we sell.

Urology/gynecology maintained its leadership in stone management devices, growing this segment faster than the market at 5%.

We continue to accelerate our women's health business, which grew 13% in the quarter.

This growth was led by our line of sling-based devices and kits, which are used in the treatment of variety of stress and age-related disorders of the lower female anatomy.

While 2008 was a solid year for Endosurgery, I'm excited about our prospects for these businesses in 2009, as our reemphasis on product development will result in a number of product launches in both divisions later this year.

These launches will reinvigorate growth and we're looking forward to overall growth rates increasing from mid single digits to high single digits as the year progresses.

Finally, our neuromodulation business continues its double-digit growth of 10% worldwide for the quarter, up 9% in the US.

For the year, sales growth was an impressive 20% on a global basis.

Despite new product launches during the year by both SCS competitors, we continue to maintain our strong number 2 market position in the US.

While the size differential of implanted devices between the three competitors has narrowed, we still maintain our technology advantage with our multiple independent current control.

In 2009, we intend to improve our technology through enhancements to our lead portfolio, which will allow clinicians to expand the type of patients they can treat.

In addition, during the fourth quarter, neuromodulation achieved a significant regulatory milestone, obtaining approval to move manufacturing into a state of the art facility located in Valencia, California.

We have already completed this move and the new site positions us well for strong growth going forward.

I would like to close by sharing my overall perspective on the quarter and on the year.

As you've heard, there's a lot of good news during the quarter and there's plenty of reason for optimism.

The two markets that gave us the most encouragement are CRM and DES.

Both markets continue to recover.

There's no question that these markets have gone from stabilizing to recovering.

They are strengthening and growing, even though a year ago, people were skeptical.

As we continue to gain market share in both, driven by the approvals of new product launches that I spoke to earlier, in CRM, Q4 was the third consecutive quarter of double-digit sales growth in the US.

In DES, we increased our US market leadership with a Q4 share at 47%.

The news in December was even better, as we exited the quarter at 49%, 24% TAXUS, 25% PROMUS.

This more or less 50/50 split of TAXUS and PROMUS provides a healthy foundation for additional potential share gains in 2009.

Neuromodulation also grew double digits with 20% growth for the year, which was even more evident that they are growing under new management.

As Sam said a few minutes ago, we wrote down the good will balances associated with the Guidant acquisition.

I want to make a few points here.

First, taking a good will charge isn't all that unusual these days.

Second, this in no way diminishes our confidence in our CRM business.

CRM is growing, it is taking share, and it will be the key driver of our growth, both sales and earnings going forward.

Third, the write-down has no impact on day-to-day operations and performance of the CRM business.

CRM had a great year in 2008 and we expect them to have an even better one this year.

Turning to the full year, we made progress in critical areas throughout the company and we positioned ourselves for the future.

By the end of 2008, we had successfully addressed five issues that essentially resulted in an overhaul of our profile retooling who we are and what we do.

Over the past three years, we have transformed quality, revitalized our pipeline, streamlined the organization, strengthened our financial fundamentals, and diversified our product portfolio.

Any one or two of these would have been a big deal.

Add five up to us being a completely different company than we were four or five years ago.

2008 was when all the various efforts of the past few years came together and created a new foundation.

We have also removed a lot of obstacles from our path.

In the past few weeks, we have seen the two most recent examples, both in the legal field.

We reached an agreement with Medtronic to stop all current litigation between the two of us in interventional cardiology and the Endovascular repair.

In the CRM multidistrict litigation, 95% of the eligible claimants are now participating in the settlement, so it is essentially behind us.

We are now stronger, leaner, more diversified and more focused and we are in a much better position to execute, grow, and accomplish what we know we're capable of doing.

On the diversification point, our portfolio mix has fundamentally shifted.

In 2005 pre-Guidant, coronary stents accounted for 43% of our worldwide revenue.

In 2008, that number was down to only 23%.

I believe that Boston Scientific is at an inflection flex point, where we are transitioning to a future market by more profitable and sustainable growth.

I'm confident that a combination of topline growth and expanded profit margins will lead to improved bottom line growth in the years ahead.

Our SG&A restructuring activities are largely behind us and we're now focusing on opportunities and cost of goods.

And a revitalized pipeline is beginning to deliver on its enormous potential.

All this bodes very well for the future.

One metric that symbolizes the progress we've made and highlights why we're so optimistic about our future is the percentage of our total revenue represented by new products.

In 2009, we expect more than a third of our revenue, actually 38% of our revenue, to come from new products.

That's a big number.

And it speaks to the accomplishments we've made over the past several years and the promise we see in every one of our businesses as we enter 2009.

It's also a credit to the entire organization.

I want to thank every one of our employees for their hard work and dedication to make this possible.

As we begin a new year, we've positioned ourselves to lead, drive profitable sales growth and increase shareholder value.

And with that, I'll turn it back to Larry who will moderate the Q&A.

Thanks, Jim.

Kent, we would now like to open it up to questions.

But in an effort to enable us to field as many questions as possible, I would request that each person ask only two questions and then return to the queue if you have further questions.

So that will open it up.

Thank you.

(Operator Instructions) Our first question comes from the line of Bob Hopkins with Banc of America - Merrill Lynch.

Please go ahead.

Thank you, and good morning.

I have one quick housekeeping question, and then I'll get to my two.

Sam, can you translate your guidance for us into GAAP numbers for 2009?

GAAP EPS for 2009?

Didn't I do that?

I'm sorry.

I was hopping between calls.

I'm sorry if I didn't get that.

Looks like I have it handy here.

GAAP on the low end will be $0.56, and the high end, $0.68.

Okay, great.

Then for Jim, two things, one, can you help us understand what kind of Cardiac Rhythm Management market growth assumptions you're assuming for 2009 and then also if you wouldn't mind providing us with any incremental data points that you might have to give us confidence in your ability to get the necessary stent approval in Europe by the end of the year to assume a smooth transition with Abbott?

Thank you.

We're looking at same market everybody else is.

We see sort of 5 to 8% overall market growth.

That's a little less than I would have said maybe a year ago.

I think I was talking about, 7 to 9, so it's probably moderated a little bit, but it's still healthy growth.

And most importantly, worldwide we're starting from a share -- overall share point of 21% or something like that.

And so we don't have to gain tons of share to see double-digit sales growth, particularly on on top of even a 5% market growth.

So, net-net, we look for our CRM business to grow double digits on the basis of all these products for a while.

As far as how we're doing on the introduction of PROMUS Element, we're actually I think ahead of schedule.

I'm very confident that we're going to accomplish that in Europe by the end of this year.

I know we're ahead of schedule on the 2012 time lines for US and Japan, and so I'm not going to go into any detail.

But if we -- if I weren't confident, I would tell you, and I am confident that we are on or ahead worldwide.

Great, fair enough.

Thanks so much.

I'll get back in queue.

Thank you.

The next question comes from the line of Mike Weinstein from JPMorgan.

Please go ahead.

Thank you, good morning.

I'm going to apologize in advance because I may have missed some of the discussion earlier, but I do want to congratulate you on the hour and 10-minute coverage there.

That was ample.

Let me start with the fourth quarter because I just wanted to understand.

Your revenues were relatively in line with your guidance and expectations.

It would look like your operating income or your EBIT was short of your expectations, but you made up for with where the tax rate could have come in, so I was hoping maybe you could help us understand where your spending in the quarter differed or where your margins differed versus your internal expectations.

Thanks.

The two biggest issues, Mike, are both affecting gross profit and operating profit.

I wouldn't say -- by the way, I wouldn't say it came in outside of our expectations, because the performance of EPS was still within the range on end of range sales.

We got there a bit different, but even if you take out the benefit we got from tax, we still had a pretty solid operating profit quarter.

But having said that, in the, in the quarter, we had a $24 million charge from CRM inventory reserves, which came about as a result of a pretty successful launch of COGNIS and TELIGEN, and therefore we had more of the older product that we needed to write off and reserve for.

That was 120 basis points of gross profit and operating profit margin.

In addition to that, as a result of selling more, the variable expenses and operating expenses went up as well compared to third quarter of 2008, but as we said earlier, too, we have been investing in more direct selling effort as a result of having overachieved our expense reduction targets that we set for ourselves.

So if you were to look behind the scenes, you would see that the majority of that increase came in direct selling expenses.

We're trying to get a jump on not only good finish for 2008, but also a jump on 2009.

Okay, appreciate that.

You gave pretty wide ranges for 2009 on revenue growth, on EPS growth.

The top end of the range has -- if I look just first at the top line, would seem to be above my distribution curve, unless something happens to a competitor, so forth.

So I was hoping maybe you could help me understand a little bit about the -- getting up towards 6, 7, 8% constant currency revenue growth.

Under what scenarios would that be possible?

What would that require to happen, either market growth or market shares?

Because we're right now at about 2% organic growth in our model.

Thanks.

Let me first of all just talk about the markets and Jim and I touched on this sort of throughout the, our conversation.

Only 23% of our business today, of the market today is -- of our revenue today is in stents.

And that that's growing 0 to 2%, so that's not growing much, but compared to last year, first half will be stronger than the second half.

And the CRM market, 5 to 6, maybe as much as 7% as the year progresses.

And that's 28% of our business.

And the other half of our business is growing at -- the markets are growing 8 to 10%.

Given the--

Just to step back, do you think that the peripheral vascular and non-stent interventional cardiology markets are growing 8 to 10%?

They are not growing that much, but other markets make up for it.

The Endosurgery market is high single digits, maybe even low double digits.

The neuromod market is growing very strongly, and so the -- sort of the rest of IC gets diluted out by all other.

Yeah, we are expecting outstanding performance from the CRM business as a result of the launch of their new products, which are just building up steam coming into 2009, and as we said, I think on our call, that a good bit of the sales growth and earnings growth that we expect to take place throughout all 2009 is that business coming on strong now that we have so many of the historic issues behind us, both from an internal point of view and external point of view, so that's going to be a big contributor for us.

And we sort of hinted at even though we have roughly a 50% market share exiting 2008 in December for drug eluting stents, we believe that we're -- because we're still rolling out TAXUS Liberte to all of our accounts and we're continuing to do well on the PROMUS front, there may be a couple more share points to take in that business.

Okay.

Last follow-up question, and Jim, this is something that we talked about at the conference a couple weeks ago.

But you commented that right now the company is spending roughly 80%, close to 80% of its R&D budget on CRM and drug eluting stents.

And I was hoping you could give us a better sense as we move through 2009 and into '10 at what point do you start to increase your investment in non-CRM and DES areas?

Thanks.

Yeah, actually we already have.

We're spending significantly more money in the neuro modspace than we were, and the EndoSurgery business is different from the rest and it doesn't require 20% of sales for R&D.

But we have dialed up our investments in dollar terms in that business as well.

So the -- you never have enough.

We could spend $2 billion on R&D if we tried, but the businesses are all being adequately funded at this point.

One of the other pieces where we had -- well, two other pieces where we had significantly underinvested in the past in order to feed and water coated stents were the EP business where we now have this cryo program that involves significant investment.

And the peripheral space, where we have renewed our focus and increased our cadence and spend in that space significantly as well.

So as the clinical spend begins to wind down, as some of these things kind of grandfather out, some of the five-year follow-ups get behind us and that sort of thing, we're able to reallocate those dollars to those other spaces without increasing the total.

One more point I would add as well, Mike, as you recall, may recall at the, at your conference a few weeks ago, one of the slides we showed was a demonstration to how well we're doing and expect to continue to do by having revitalized the pipeline.

And we define new products as products issued to the marketplace for launch within the past 24 months.

In 2008, 19% of cardiovascular group sales were from new products and 2009 is going to be 31.

2008, 39% of CRM sales were from new products and 2009, it's going to be twice that, 67%.

And for the company overall, I don't have the '08 numbers.

I think it's mid-20s, 25, 26% was from new products and overall, it's 38%.

If you look at each of our businesses, none are as extreme as the two big ones, but every one of our businesses has more sales from new products as a percent of the total in 2009 and 2008.

So, so we're feeling good about the trajectory that we enter 2009 with in sales.

Great.

Thanks for taking the questions, guys.

You're welcome.

Thank you, and our next question comes from the line of Joanne Wuensch with BMO Capital markets.

Please go ahead.

Thank you very much.

Could we please talk a little bit about the economy and the impact on your business.

Seems to be the topic of this quarterly round.

Specifically stocking and inventorying at the hospital levels, are there really elective ICD procedures, and if you could also talk about what the pattern in your CRM business looked like throughout the quarter?

Thank you.

Let me see if I can remember all of those.

We have not seen any noticeable change in hospital buying patterns as a result of all this dislocation.

Remember that in both DES and CRM, most of our sales, like 80% of our sales are off consignment, so literally the billing occurs after the implant, not before.

And so it's only the 20% of our business in those spaces that is even subject to stocking or not.

So it's just not a big factor for us.

We haven't seen any change there.

And in terms of elective ICD procedures that's -- maybe there are some, but, boy, it's hard to find.

It's hard to find in the overall -- all the other things that influence CRT and ICD market growth, the influence of elective procedures lost -- I couldn't even begin to tell you what it is.

And what did I miss?

Trends throughout the quarter in sales in ICDs.

Well, the implant -- particularly in the fourth quarter, it dies at the end of the quarter because there's just not much happening or right before and after Christmas.

But the pattern of implants, and there's the pattern of billing.

What happens is we spend a lot of time at the end of every quarter catching up the purchase orders to implants that already occurred the week before, two weeks before, a month before, so we see a rush of invoices that is disconnected with the actual implant pattern.

But anything that we put into inventory -- I mean the other guys in the CRM space like to put inventory in at the end of the quarter.

There are -- we as an industry have taught our customers to buy that way if they want to save money, so if we're going to compete, we have to do that.

We don't like it, but we have to do it.

All right, but if we do do it, we defer everything over 30 days, so it isn't in our numbers.

That gets smoothed out with accounting adjustments.

So it's really not a factor for us.

Okay.

One other question.

You've had a fair amount of insider selling.

Could you give us an idea of w where it is and how much more, if any, we can expect to come, if you have an idea?

Thank you.

There's a 10 B 5 in place now.

The involuntary selling seems to have stopped.

It could start again theoretically, but I don't think anybody expects it will.

The voluntary selling is roughly 1 million shares a week, and that 10 B 5 ends in a few days, and I don't know what happens after that.

But I mean I think we traded 21 million shares yesterday, yesterday, so we're trading close to, let's say 60 to 80 million shares a week and one of those is insider selling.

So it's really kind of lost in rounding at this point.

I don't know whether that will continue or not.

I haven't had that discussion with either Peter or John.

Thank you very much.

Thank you.

Our next question comes from the line of Tim Lee with Piper Jaffray.

Please go ahead.

Good morning.

Just a clarification.

In terms of Bob's question of the CRM market growth, the number you gave, was that constant currency or was that a reported number that you're targeting.

No, that's constant currency because nobody knows where the hell currency is going at this point.

And just a couple on the drug eluting stent side.

Any qualitative comments on just the impact of atom, how that's doing in the marketplace and does that allow you to get into new accounts?

Yeah this is one that frankly we missed, but we missed on the, on the good side.

We had talked about maybe it would be worth 2% share, something like that.

It's worth more like 4 or 5.

So it's doing extremely well.

And I mean that -- it was a surprise to us.

We did better with that product than I think anybody inside or outside the company expected we would.

Okay, and then just in terms of your PROMUS supply here, I mean now that you're kind of outside your initial window of your supply agreement, I mean what is -- are you constrained at this point and how should we see the revenue mix here?

And when can we see a stabilization between PROMUS and TAXUS?

The last couple of months of ratio between the two has been fairly steady, so I think we are seeing at the end of Q4 and certainly the beginning of Q1 here, we're seeing that more or less even split persist.

As far as inventory goes, we're feeling very comfortable with the inventory levels we have, they certainly support the PROMUS business we have now, plus a little bit.

We're feeling comfortable on the inventory side of PROMUS for the first time in a while.

If I can just sneak one last one in, any impact from FAME for the multivessel patients?

From--

The functional flow reserve in terms of you using FFR to potentially have decreased stents per patient?

Yeah, short answer, no.

Okay, fantastic.

Thank you.

Great, thank you.

And our next question comes from the line of Rick Wise with Leerink Swann.

Please go ahead.

Hi, guys.

It's actually Miroslava for Rick today.

Couple of questions.

First of all on the gross margin front, you are expecting gross margins to expand year-over-year.

I was wondering if you could sort of talk a little bit about how much from that is actually from hedging gains and how much is the base business?

And my second question is on ICDs, pretty respectable performance, pretty good performance here, but I was wondering, you still fell sort of at the lower end of your guidance range.

What changed throughout the quarter?

Did you see any change in market dynamics, especially in the US market?

Or was this mostly a comparison issue?

I know there was some distortions last year in the fourth quarter both in yours and (your sages') fourth quarter.

Yeah, let me start with the ICDPs first.

Yes, we were at the low end, and yet the -- so the -- we gained share.

So -- and we gained share maybe a little better than we thought we did.

Or would.

So the market was a little bit less robust than we expected it to be.

The other piece from the way we cut the numbers for you that we just don't see, is that we did really well in ICDs in Europe and we did really well with ICDs in the US, and we really didn't do well with ICDs in Japan.

And -- but we don't have COGNIS and TELIGEN yet in Japan.

Where we had the new products, we knocked the cover off the ball.

In Japan, we lost our distributor back in April.

So we have yet one more quarter after the one we just reported of very difficult comparisons and Japan is going backwards by 20 to 30% depending on what product line you talk about.

So net-net, I think that our -- the numbers we reported actually mask somewhat even stronger performance than you see there.

Okay, and any color on the weakness?

What's driving sort of a little bit weaker than expected quarter?

It seems to come and go.

There really didn't seem to be anything real on the marketplace in Q4.

I think and certainly haven't felt it at the beginning of Q1.

So I think, I think it's just sort of normal.

Okay, thanks.

Let me address your gross profit question.

The answer isn't quite as straightforward as the question because there are a lot of moving parts in gross profit.

Clearly in terms of the things that push gross profit margin down, the full year effect of the drug eluting stent mix that will show up in the first quarter of 2009, first half of 2009 versus first half of 2008 is significant.

So that's going to be depressing year on year margins as we experience the full year effect of that mix shift.

Also, average selling prices in general around the world, tend to go down each year offset in part by new products where we can.

But average selling prices tend to depress gross profit margins.

On the upside, however, we have -- we target every year 3 to 5% of our product costs, standard costs going down as a result of value improvement programs that our manufacturing engineers focus on every year.

We had a number of fairly sizable write-offs of inventory that took place in 2008 for drug eluting stents and CRM, we're not expecting those to increase.

We're doing a good job now launching new products in Japan.

Those are higher margin geographies for us, so to the degree which we can, we can recover the loss of the JLL distributorship, as well as launch new products in Japan, those would be margin enhancing activities.

And finally, for now, because foreign currency is a head wind, there will be some modest effect on gross profit margin in the year 2009.

If the dollar swings the other way that could evaporate just as easily, but for now, there's modest contribution of that.

But in general, those are the large moving parts that affect gross profit margin.

Thanks for the color.

I appreciate it.

You're welcome.

Thank you.

And our next question comes from the line of Tao Levy with Deutsche Bank.

Please go ahead.

Hi, good morning.

Good morning, Tao.

So just a couple questions here.

Debt paydown, and I'm sorry if you've -- someone's asked this before.

Any plans or the ability to pay down debt in '09 where you have some one-time outflows?

We're still evaluating that.

We have a couple of big outflows, so we have a $500 million payment to Advanced Bionics in March of this year and we'll have the $700 million payment late in the year to Johnson & Johnson, hopefully less if we win on appeal, the size of that.

But if we don't, that's about $1.2 billion in outflows.

We generate about $100 million a month in cash flow, so one way to look at it is we're going to generate as much cash flow in those items as we're going to pay out.

And on top of that, if, if Abbott's successful in Japan of introducing Xience in the 2009, that's a $0.25 billion of cash inflow for us.

So net-net, we're -- we'll continue in a very strong cash position and we're going to continue to hold that cash position and see what happens with the credit markets.

We want to be pretty conservative.

Okay, great.

And on endosurgery, I felt like even on a constant currency basis it was a tad slower than we have seen in the past.

Is that elective surgery type procedure slowdown that you might be seeing in the marketplace?

Not really.

There's probably some subtle effect, but with -- I mean most of what we do, you need it when you need it.

You can postpone a stent procedure from today till tomorrow, but that's about it.

And ICDs get scheduled, but they get scheduled typically within a few weeks.

So we're really not seeing much--

I'm sorry, Jim, but I was actually specifically going after the endosurgery, like the -- because I feel like the GI and neurology at 5% constant currency generally become used to maybe upper single digit growth in those areas?

Yeah, we had tough comparisons.

Okay.

In the endosurgery business this time around.

And the -- the new product flow, the timing of -- there's a number of factors that play into this whole thing.

But the net of it all is the business is healthy and 3% this quarter doesn't say anything about what happens next quarter.

Okay, and just lastly, ICD pricing trends, any updates there?

And are you finding hospitals trying to negotiate a little bit harder, just given the environment?

They have always negotiated hard.

Honestly we haven't seen any change.

The rate of price change is the same now as it was a year ago and a year before that.

So we haven't seen any accelerated decline.

There's no indication of weakness.

We have seen an uplift in COGNIS and TELIGEN as a result of their embodying new technology.

People are willing to pay for that.

And that's historically been the case as well.

So there doesn't seem to be any detectable difference in pricing in the marketplace.

Okay, great.

Thanks a lot.

Thank you.

And our next question comes from the line of Larry Biegelsen with Wachovia.

Please go ahead.

Good morning, and thanks for taking my question.

First, the 24% share for TAXUS exiting the quarter, that assumes $13 million in stocking.

I just wanted to confirm that, which would put your share at I think about 21%.

And how, how sustainable is that share going forward?

What are you guys assuming, for example, from the Spirit 4 results in September and secondly, at JPMorgan, you said PROMUS's share at the JPMorgan conference, that PROMUS's share in October and November was 27%.

Your press release today says 25%.

What are your share expectations over the next few months for TAXUS and PROMUS?

Thanks.

I think the difference in those percents are average quarter versus end-quarter kind of thing, and as far as what -- what's happening there is that we, through the rollout of Liberte, Liberte has been better accepted than I think anybody expected it would be outside the company and as a result, our TAXUS share that had dipped into the 19% kind of range has moved back up into the 25% kind of range.

And as a result -- and that's based on basically having both Liberte and TAXUS Atom, new products out there to put into people's hands.

So what we're selling today -- the other point is that Liberte hunts with Xience PROMUS almost equally.

The feedback from the customers boils down to, we really can't tell a difference between the Liberte delivery and conformability and Xience PROMUS deliverability and conformability.

So combination of all of those things, we're pretty comfortable that we're going to keep our sort of -- our overall market share right around where it is.

The high 40s, 50, maybe even just a tad over.

And the $13 million we had in the quarter took place ratably throughout the quarter as we continued to launch the product and as I mentioned before, we'll have the remaining estimate of $7 million will take place in the first quarter of 2009.

But I would also say that we had been supply, somewhat supply constrained with PROMUS.

We have more inventory to sell going into the year and we also are still in the full launch mode and not quite to the end yet for TAXUS Liberte and TAXUS Atom.

So even though those trade-offs go away a bit, as a result of the $13 million, going to 7, going to zero later, we saw the opportunity to get more share.

So just so I understand, Sam, the $13 million, shouldn't assume that was just that.

I shouldn't subtract that from the 24% exiting the quarter for TAXUS to get to 21%?

Oh, no.

That took place throughout the course of the quarter.

And lastly, Jim, where do you see drug eluting stent penetration exiting '09 in the US?

Thanks.

That's a good question.

The people's forecast said that it would never return -- having started at 88, drop to 60, 61, that it would never be more than 70.

Well, it's been over 70 for months now.

So now people are saying, well, it will never be over 75.

And maybe that's a better guess.

But nobody's been right on any of this for how many years now, so I'm reluctant to give you a clear answer because I don't think anybody knows.

Thanks.

Thank you.

We have a question from Bruce Nudell from UBS.

Please go ahead.

Good morning.

Thanks for taking the question.

Jim, one of the things that I think's surprising people is the resilience of the TAXUS family of products.

Could you comment at all on the TAXUS Element and perhaps the addition of Lab Coat to TAXUS element on periprocedural MI and likelihood of clinical restenosis, kind of in the context of the spirit family of trials?

Yeah, that's a complex one, but really good question.

Fundamentally, Liberte is more deliverable, more conformable.

It's a better stent, okay?

And the -- where that shows -- the thin struts matter.

It's a thinner strut stent.

Where that shows up is in small vessels.

Where TAXUS Express loses to Xience is in small vessels.

So to the extent the data is flowing out now comparing, comparing Xience to TAXUS express, you're basically talking about our first generation product and Liberte's a second generation product.

And so we, we have in small vessels, Liberte performance twice as well as Express, cuts the restenosis rate in small vessels in half.

And people notice that.

Okay.

So it's way more competitive than people have given it credit for and that shows up in usage patterns.

So that's one thing.

Second thing is that when you, when you look at the data in the PROMUS package insert, there's one thing that stands out, and that is that diabetic data looks different from all the other data in the subset analysis.

And people have noticed that.

Last, but not least, when you get to Element, we have taken the stent design yet another step forward in two ways.

One is the pattern.

So it's more deliverable, more conformable from that point of view.

Even thinner struts, but it's also a platinum alloy and what that let's you do is have a stronger stent with thinner struts and still be able to see it, which matters.

Okay.

So the original elements late this year and into next year will be with what we call the conformal version, which is the same as Express and Liberte But the Lab Coat version is abluminal only, just the vessel side, and that will be -- I mean the plan right now is that that will be an element pattern as well.

So A, we have a pipeline.

B, it keeps getting better.

C, the, the thinner and thinner struts address the apparent weakness that TAXUS Express had.

Combination of all this means that TAXUS is going to be more competitive, have more legs, so to speak, than anybody has given it credit for outside the company.

But just specifically the one glaring -- the one noticeable weakness that probably even clinicians care about is TAXUS had high, relatively high Perry procedural MI.

Is that issue resolved, even with Liberte, TAXUS element or TAXUS element with lab coat?

Element make as big dent in that.

I'm sorry, Liberte makes a big dent in that.

Element will probably make an even bigger dent.

We haven't seen the data yet, so we don't know.

But all the design features of element would tend to indicate that that would move in the right direction.

So the, the apparent weaknesses of TAXUS in its Express iteration, we've addressed through design and we expect paclitaxel because fundamentally all the aggregation of data says it's a better way to treat diabetics because of mechanism issues, paclitaxel versus olimuses, and you improve the designs.

That's going to be a product for a very long time.

And, Sam, just one follow-up.

What are the cash consequences in '09 of the restructuring programs?

I guess there are two now, and does that create any covenant headaches at all?

Thank you.

As you know, we had as a result of an amendment that we had done in 2007 in August, we negotiated $300 million exclusion from the computation at EBITDA for restructuring and restructuring-related charges.

And we have less than $100 million of that remaining.

So we're going to spend more than that.

But we have right now a $1 billion cushion on our covenant, so if we go over that, it shouldn't be a big deal at all to us.

And we're going to have restructuring charges in 2009 estimated to be -- what in total, Jim?

There's about 7 cents to 9 cents in total.

7 cents to 9 cents in total, so about $140 million in restructuring charges.

So we'll have $100 million over and above what's in our exclusion right now, which we don't view as a big deal.

Thanks so much.

Yeah.

Thank you.

We have a question then from the line of Philip Legendy with Thomas Weisel Partners.

Please go ahead.

Hi, good morning, gentlemen.

Good morning, gentlemen.

I thought I would pick up on something interesting you said in ICDs.

You said you have seen implant volume picking up and maybe in that context, I wonder if you would comment on the dynamics you're seeing between de novo implants versus replacements and kind of where the growth has been coming from, how it's been changing.

That's another good question.

What we think we see is that de novo implants have actually gone backwards modestly, low single digits.

So, you know it, went from robust growth to modest growth to no growth to now negative growth, if that's a term.

But, a little bit.

That has been more than offset, though, by the bolus of redos that are trending four to five years behind the initial implants from 4 or 5 years ago.

So four or five years ago, ICDs were based on new data, were on the steep part of the growth curve.

And so we're seeing now steep redos because these things actually work and these patients stay alive.

So the mix of implants has shifted -- the percentage of redos is higher now than it was a year ago.

In the last three years, it has probably gone from roughly 20% to now roughly 33%.

That's over a three-year period.

We would -- I think continue to see that trend for a while.

One of the interesting things that will happen five years from now, though, is that with COGNIS and TELIGEN, one of the things we haven't talked much about is that the batteries in those devices last much longer than the traditional kind of timeframe.

So five years from now, all the redos that you would have expected for Boston Scientific devices aren't going to happen because those devices are still going to have several years of life to them.

It sounds like you're seeing an acceleration in the replacements, which is different from certainly what Medtronic has said publicly.

Why do you suppose you're seeing different results--

Here's -- this is one man's opinion, okay?

I don't have data for this, or not much data.

When -- recall, sadly, that Guidant had a whole bunch of recalls and when traditionally because you -- when you do the initial implant, you put in let's call it a Guidant can and Guidant leads.

And when the redo comes, the leads are going to stay there, so for compatibility, most of the time, almost all of the time, what can was there in the first place is what you do the redo with.

What was happening to us, because of all the recalls, was, we weren't quite getting all of our replacements.

Now we're getting more than all of our replacements.

We're getting other people's replacements, and so our third of the business that is replacement-oriented is actually growing quite nicely, thank you, because maybe we've gone from 95% to 105% and that's a big increase.

That's a noticeable increase.

All right, thank you.

Thank you, and our next question then comes from the line of Kristen Stewart with Credit Suisse.

Please go ahead.

Hi, thanks for taking my questions.

I was wondering, just on the Japan distributor, the ICD business, when do you think we should start to see some level of improvement there that could translate into the gross margin?

Is that more of a 2010 event or should we start to see some improvement towards the end of the year?

There was a one-time stepdown that occurred in April of '08.

The business deteriorated for a couple of quarters there and that deterioration has stopped.

So we're no longer going backwards.

That's good.

We've got new products coming in '09.

That's good.

And plus, comparisons get easier after April.

So we're, we're on the mend, but from a new, call it minus-30 kind of level in Japan.

JLL was about 40% of the business.

We didn't lose all 40.

We only lost 30 of the 40.

That gets annualized in through next April three months from now.

And then we have apples to apples and you'll start to see growth again, but off that new base.

And you're going direct for business that will replace basically the JL?

Yes.

Okay, and then I guess I apologize if this was asked, but I know in the past you talked a little bit about being opportunistic on M&A.

Are you still thinking about that, just given what you're seeing in free cash flow this year and the $1.2 billion of potential outflows?

Or is this more M&A put on the back burner for now and maybe look at it again in 2010?

Yeah, we're feeling pretty comfortable with our cash position and our access to capital and if things crop up like Lab Coat that we know we need to do that for a host of reasons.

It supports our strategies, it supports our R&D direction, it supports our future.

We're capable of doing those kinds of things.

The flip side is we have raised the bar high, and in hindsight, it probably should have been high all along, and even when we have all the cash in the world, it's still going to be high, because that's just a better way to run this business, and so we're not going to be doing as many deals, tuck-in or otherwise, as we historically have, regardless of our cash position.

And then MADIT-CRT, is that still expected to come out sometime in the second quarter and would positive results there just give you greater confidence and is the ICD -- growing on a long-term basis?

It certainly would help.

This is an event-driven trial, so you can't say when the number of events will actually accumulate.

That's that's up to mother nature.

But the betting is that we will have results for HRS.

But that's a guess, okay?

And the betting is that it will be positive based on other people's trials and had they had the same end point we do, their trials would have been positive, too.

So we think it should work and we think that will be a positive.

How big a positive remains to be seen.

I'm, I'm I think it will be a positive, but I'm not -- I don't want to oversell the value of that in the current environment.

There are many factors that will influence growth in this marketplace, of which success in MADIT-CRT is only one.

And last one, real quick, the batteries that you were talking about, the longer life, are you -- I guess how confident are you that you can gain share on longer-lasting batteries enough to offset what will be a longer-term negative of having less of a replacement cycle, particularly if we're looking at de novo implants as being negative at this stage?

No one believes any of us in the industry when we quote battery life, all right?

Because in the past, we've always talked about averages and by definition, I mean these are bell-shaped curves.

By definitions, if you talk averages, that means half the devices are lower than average and that's the half you hear about.

So we're not really talking about this much because it would be wasted effort, all right?

We're going to let nature take its course here and three years from now, four years from now, people are going to be looking at the gas gauge on these things, expecting it to be approaching empty and it's not.

And then they will start to notice that, gee, these batteries really do last longer, and then we will see an impact on market share.

But day one it's just rhetoric in the years of the docs.

You didn't have any data when you launched, to substantiate the longer life?

We, because it took us long do this, real-time battery lives, not just accelerated aging estimates.

Yes, we have data to support this.

I don't think that data will matter to anybody for a while until they have seen these things actually perform.

Okay.

Thanks very much.

Can we limit it to two more questions?

I think what's we've got time for.

Okay, great.

Our next question comes from the line of Sara Michelmore with Cowen.

Please go ahead.

Jim, you talked a lot about ICDs.

Could you just address pacemakers quickly.

You've got a number three market share position, but it's a large market.

What are the opportunities for you in Pacers and could you just remind us where you are in terms of the pipeline in that product area?

Thanks.

Yeah when Fred and I arrived on the scene, we had names for Pacer programs and we didn't have any Pacer programs.

And that was something that had always been sort of -- didn't make the cut in R&D.

We've reversed that direction and Altrua is rolling out now and there's a product called Ingenio that is in the pipeline that is the pacemaker equivalent of COGNIS and TELIGEN.

And so we have -- and our next pacer devices will be Latitude compatible.

So we have -- we have dialed up the dedication to Pacers, even though we're at sort of number three in the marketplace, by by a fair distance, we believe Pacers are important.

Just to give you sort of an idea of magnitude here the coated stent market, the DES market that all of us have spent all these millions of hours obsessing over, that's a $4 billion market worldwide today.

The pacer market that nobody talks about very much is a $4 billion market today.

And so we would like -- we got a lot of upside in Pacers and we would like to do much better in that space and we're spending R&D money accordingly.

Okay, and can you just talk about your latest thoughts on afib, I know you've been a little more active there with some of the recent acquisitions.

When should we think about that being a product growth driver for you?

Thanks.

Yeah, it's a couple of years away for us yet.

We will begin -- I mean we've done the development.

We have the console.

We have the catheter.

We have the coat formula for how to run this thing.

So that part -- that part's done.

The trial will begin mid to late this year and so we're probably from here let's say two years from market.

But what we're talking about here, first of all, the patient population is there.

Second of all, we believe that this will work and the cryo approach will work, and we believe that it will be much less time intensive than current approaches, which will mean you can treat a lot more patients, get a lot more reimbursements, and that the success rate, while it will never be 100%, will be high enough that cryo approaches will be the first thing you try and then if that fails, then you go to RF with long, long procedure times.

If all that is true, this is a major market in the making and right now looks like us and Medtronic.

All right, thank you so much.

Great, thank you.

And our last question then today comes from the line of Matthew Dodds with Citigroup.

Please go ahead.

Quickly, Jim, on the PROMUS element in Europe, do you have a small clinical trial?

Matt, can you get closer to the phone?

We can't hear you.

Yeah, hold on.

How's that?

Oh, much better.

All right.

I know the subject was PROMUS element.

Didn't get anything other than that.

Sorry.

So PROMUS element in Europe, do you have a small clinical trial you're still doing, or is the US taking over for that?

That's the first question.

Yeah, we haven't talked about our strategy there, and I'm not going to talk about our strategy there, and I'm sorry.

I just am not going to do it.

I don't want to tell the competition what I'm doing so that they have an opportunity to put a stick in the spokes.

And that's the way it is.

Okay, and then for neuro stem, growth has continued to accelerate for you there.

I know one you said was competition.

I assume that's St.

Jude with the mini.

But I also thought Medtronic had some trouble in their quarter in the US because of their pump business hurting this.

So do you feel that you're going to recover there pretty soon now that the mini is already kind of out, or it might take a quarter or two more?

Yeah, we're feeling pretty good about our position in this marketplace because we think that although the size issue has been addressed by the competition, the real guts of the benefit of our device, they haven't come close and won't for sometime.

And so we've kind of absorbed their best shot in Q4.

It was a mere 10% growth, and now we're thinking we'll see growth accelerate again.

The other point that you bring up there is international.

The Advanced Bionics pain business didn't have the reach to be able to get into international as a stand-alone business.

Now that we own them and control them, we can -- we can take steps in international distribution that will let us grow very aggressively overseas, off a very small base.

So it's not -- you're not going to notice it in our overall results right away, but as we dedicate ourselves to international expansion in the neuro mod space, you're going to see that become a growth engine for us down the road.

Thanks, Jim.

Great, and with that, we're going to conclude the call for today.

I would like to thank everybody for joining us and obviously we continue to appreciate your interest in Boston Scientific.

Thank you.

Great, and thank you.

And ladies and gentlemen, this conference will be available for replay starting today, Thursday, January 29, at 10:30 a.m.

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Those numbers once again are 1-800-475-6701 from within the US or Canada.

Or 320-365-3844 from outside the US or Canada, and again, enter the access code of 977773.

And that does conclude our conference for today.

Thank you for your participation and for using AT&T's executive teleconference.

You may now disconnect.