Boston Scientific Corp (BSX) 2009 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Q1 2009 Boston Scientific earnings conference call.

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

Later, we will conduct a question-and-answer session with instructions being given at that time.

(Operator Instructions).

As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr.

Larry Neumann.

Please go ahead.

Thank you, Julia.

Good morning, everyone, and thank you for joining us.

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

We issued a press release yesterday afternoon, announcing our Q1 results and attached to the release are key financials.

We've also posted some support schedules to our website which you may find useful as well.

The agenda for the call this morning will be a review of the Q1 financials as well as Q2 and updated full-year 2009 guidance from Sam, an update on our business performance in the quarter from Jim as well as some overall perspective on the quarter.

We'll then open it up to questions.

Before we begin, 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 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 a review of the first-quarter results.

Thanks, Larry.

I'm pleased to report very good results for the quarter on a number of fronts.

In summary, we saw organic top line growth for the quarter on a constant currency basis, excluding divestitures of about 4% compared to the first quarter of 2008.

These results were highlighted by outstanding performances in our CRM division, and our worldwide DES business, as well as solid performances in our endoscopy, gynecology, urology and neuromodulation businesses.

While we continue to monitor the potential negative effects of the external economic conditions around the world, to date, we have seen very little impact on our businesses overall.

We've returned a gross profit margin rate that begins with a 7, and overall, the next several years, we will look to make continued improvements as we begin the implementation of our multi-year plant network optimization program and prepare for the upcoming launch of our PROMUS Element Stent in Europe in the fourth quarter of this year.

Our expense and headcount controls have been firmly in place for the past six quarters, and as a result of the success of these programs, we have redeployed some of our savings into additional direct sales headcount as well as development related positions, both of which are targeted to drive incremental and profitable sales growth.

As a result of our continued focus on improving gross profit and operating profit margins, we were able to deliver first-quarter EPS at the high end of the guidance range that we provided during our fourth-quarter earnings call.

We also continued to improve the strength of our balance sheet by successfully completing an amendment of our credit facility and delivering strong free cash flow.

The success we have had at improving our financial discipline and strengthening our balance sheet have resulted in receiving upgrades from two research analysts that cover Boston Scientific, as well as improvements in the ratings outlook for Moody's and a double improvement jump to positive from Standard and Poor's.

Finally, our General Counsel, Tim Pratt and his team, have been intensely focused on mitigating our legal risk, and as a result, we have successfully negotiated closure to several long-standing legal matters and we have seen a number of key legal decisions during the quarter which continue to lower or remove uncertainty related to litigation risk faced by the Company.

Now let's turn to the operating results for the first quarter.

Consolidated revenue for the first quarter was $2.010 billion, and in the middle of our guidance range of $1.950 billion to $2.070 billion.

This represents a 2% reported decrease from the first quarter of last year, but included in our reported results are a negative 4% contribution from foreign currency and a negative 2% contribution from divested businesses.

Excluding the impact of foreign currency and the divested businesses, first-quarter revenue was up 4%.

Compared to the foreign currency contribution assumed in our first-quarter guidance range, foreign currency contributed an additional negative $30 million to our first-quarter sales results.

Without this additional currency headwind, our sales would have been $2.040 billion and much closer to the top end of our guidance range.

Overall, the contribution of foreign currency to sales growth for the first quarter of 2009 was negative $85 million or negative 4%.

Compared to the first quarter of last year, excluding divestitures, domestic revenue increased 5% while international revenue decreased a reported 7%.

In constant currency, international revenue was up 2% over last year, and this includes a negative 1% contribution from the loss of our JLL distributor in Japan.

All together, our international businesses, excluding the impact of JLL in Japan increased 3% in constant currency.

Jim will provide a broader overview of our businesses by major product category, but I'll address our sales results for all of our businesses in a much higher level here.

Worldwide drug eluting stents came in at $445 million, exceeding the top end of our guidance range of $435 million, and up 4% from the first quarter of 2008, which represents an 8% constant currency increase over prior year.

Our worldwide drug eluting stent revenue includes $294 million for TAXUS and $151 million for PROMUS, and this represents a 66/34 split between TAXUS and PROMUS.

We continue to sustain our worldwide drug eluting stent leadership during the first quarter with an estimated market share of 44% while at the same time we held our mix of TAXUS and PROMUS steady, further reinforcing the strength of our paclitaxel franchise.

Geographically, US drug eluting stent revenue was $246 million, again exceeding the top end of our guidance range of $235 million, and it was 13% higher than the first quarter of last year.

This includes $132 million of TAXUS and $114 million of PROMUS revenue, and represents a 54/46 mix of TAXUS and PROMUS in the US, compared to a 50/50 mix in the fourth quarter of 2008.

This favorable change in the mix of our TAXUS/PROMUS sales demonstrates the strength of our TAXUS franchise, following the launch of TAXUS Liberte late in the fourth quarter of last year, as well as the selling and service abilities of our commercial team, which we believe is the best in the world.

During the quarter, we completed the launch of TAXUS Liberte, and released the remaining $14 million of sales reserves, given the strong sales performance of our TAXUS Liberte stent.

We estimate our combined US market share for the first quarter to be approximately 50%, including the impact of replenishment reserves or 49% excluding them.

This is 3 percentage points higher than our share for the fourth quarter of 2008, and consistent with our stated objective of maximizing total drug eluting stent market share.

We also estimate that TAXUS is commanding 27% of the US market, while PROMUS is at 23%.

We remain the only Company in the industry with a two drug strategy, affording our physicians a greater choice in treating their patients.

Coupled with the best commercial team in the industry, we have demonstrated our commercial strength and the ability necessary to maintain significant leadership in the competitive drug eluting stent market with 23 more share points, or almost twice the market share than our next nearest competitor.

Based on our estimate of the US market for the first quarter, we believe that Abbott had market share of approximately 27%, while J&J and Medtronic achieved approximately 14% and 9%, respectively.

International drug eluting stent sales were $199 million, which is at the top end of our guidance range of $170 million to $200 million, and represents a decrease of 5% compared to the first quarter of last year, but up 2% in constant currency.

This includes $162 million in TAXUS and $37 million from PROMUS sales, and represents an 81/19 mix of TAXUS versus PROMUS internationally.

We've also reorganized our international businesses to provide more direct sales focus in the marketplace.

We now have four international regions, including EMEA, Japan, Asia-Pacific and the Americas.

Last year, our international business was organized around a two region structure.

Boston Scientific's drug eluting stent market share in EMEA is estimated to be 36%, and that's up 2% sequentially from the fourth quarter of last year and up 1% compared to the first quarter of 2008.

TAXUS market share was approximately 25%, with revenue of $57 million, and PROMUS market share was 11% with revenue of $27 million.

Together, this represents a TAXUS/PROMUS mix in EMEA of 68/32.

Our drug eluting stent share in Japan was up 8% to 54%, with revenue of about $70 million and as a direct result of launching our TAXUS Liberte Stent in the beginning of March.

Currently our sales in Japan are 100% TAXUS.

We do expect the market will see the launch of Endeavor in May while the launch of PROMUS and Xience is expected to occur in the fourth quarter of this year.

We estimate that our Asia-Pacific drug eluting stent share was 20% during the fourth quarter, that's up 2 points from 18% in the fourth quarter, and split 13% TAXUS with $16 million in revenue, and 7% PROMUS with $7 million in revenue, or again, a TAXUS/PROMUS mix of 70/30.

Drug eluting stent sales in the America were $21 million, representing approximately 58% market share with 49% TAXUS and 9% PROMUS.

This represents an 81/19 mix of TAXUS/PROMUS.

Combining our international drug eluting stent performance with our US market share, we estimate our first-quarter worldwide market share to be up 4 points from the fourth quarter of last year to 44%, with 29% TAXUS and 15% PROMUS.

This represents a worldwide TAXUS/PROMUS mix of 66/34.

This gives us clear worldwide drug eluting stent leadership with nearly twice the market share of our next nearest competitor.

Now let's look at the drug eluting stent market dynamics during the first quarter.

We estimate the worldwide drug eluting stent market in Q1, including TAXUS Liberte sales of $14 million recorded to replenish customer owned TAXUS Express inventory, at approximately $1.019 billion.

This is a decrease of 2% versus the first quarter of last year with an approximate increase in unit volume of 13%, offset by approximately 10% in ASP declines and a decline of 5% in foreign currency.

Excluding the impact of foreign currency, we estimate the worldwide DES market increased approximately 3%.

The US market is estimated to be about $493 million, and flat with the fourth quarter of 2008, but represents a 13% increase over the first quarter of 2008.

This includes an increase in unit volume of about 21%, offset by an 8% decline in ASPs for the entire industry.

TAXUS stent pricing was down approximately 7% from prior year, and that was in line with our expectations.

US PCI volume in the quarter was approximately 252,000 procedures, that's down 2% from the last quarter, but up 1% compared to the first quarter of 2008.

We estimate that the US drug eluting stent penetration was 75% in the quarter, which represents a 2 percentage point increase from last quarter's 73%, and a 12 percentage point increase over the first quarter of 2008.

Based on MRG data, the US penetration rate for the month of March was also 75%.

So this is a fifth quarter in a row of increasing US penetration rates.

Combined with the stability in stented procedure rates and stents per procedure, we estimate that the total unit US market stents in Q1 was 337,000 units and that includes 253,000 units of drug eluting stents.

The international DES market remained strong for the quarter with 308,000 PCI procedures in EMEA, 54,000 procedures in Japan, 87,000 procedures in Asia-Pacific and 55,000 procedures in the Americas.

Penetration rates in international markets remain consistent with EMEA flat at 51%, Japan holding at 66%, Asia-Pacific at 69%, and the Americas at 33%.

Turning to our CRM business, we continued to see very good progress, driven 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 of 2008, and are seeing solid growth in all markets where we have launched these new products.

We are targeting to be fully completed with our global launch of these products except for Japan by the end of this year.

We expect to receive approval in Japan for COGNIS and TELIGEN in the fourth quarter of this year, and the full product launch will continue into 2010.

Reported worldwide first-quarter CRM revenues of $589 million represented a 4% increase, but in constant currency it grew 9% over the $565 million reported in the first quarter of last year.

US CRM revenues were $396 million, representing an 11% increase over the prior year.

That's the fourth consecutive quarter with double-digit year-over-year growth while international CRM sales were $193 million, a decrease reported of 8% over prior year but up in constant currency 6%.

While ICD sales of $444 million were at the midpoint of the guidance range of $420 million to $460 million, this does represent a reported increase over the first quarter of 2008 of 8%, but a constant currency increase of 13%.

ICD sales in the US were $312 million, a 14% increase over the last year and at the midpoint of our guidance range of $300 million to $325 million.

International ICD sales of $132 million were near the high end of our guidance range of $120 million to $135 million, and represents a 3% decrease reported from last year but up double digits, 11% constant currency growth.

Excluding sales from our five divested non-core businesses, our non drug eluting stent and non-CRM worldwide revenue decreased 5% compared to the first quarter of last year to $972 million, and on a constant currency basis, they decreased 1%.

This includes constant currency increases of 7% in neurology and gynecology, up 6% in endoscopy, an increase of 9% in neuromodulation with our neurovascular business flat to last year.

In our other cardiology and peripheral intervention businesses, we saw a constant currency decrease of 7%.

With renewed sales focus and our new product pipeline, we do expect the growth in these divisions to accelerate and begin to exceed market growth rates later this year.

Jim will talk more about some of the new product launches in these businesses in just a few minutes.

Reported gross profit margin for the quarter was 69.8%, and adjusted gross profit margin for the quarter, excluding restructuring-related charges was 70.3%, which is 150 basis points higher than the last quarter of last year and a 150 basis points lower than the first quarter of 2008.

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 drug eluting stent revenues between TAXUS and PROMUS contributed to a gross profit margin reduction of about 230 basis points compared to the first quarter of last year.

We expect to earn back this 230 basis points of gross profit margin reduction with the launch of PROMUS Element.

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 140 basis points compared to the first quarter of the prior year.

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

We expect further gross profit margin improvements going into 2010 as we launch PROMUS Element in Europe during the fourth quarter of this year and as we begin to realize some of the benefits of our plant network optimization program in 2010.

Our reported SG&A expense in the first quarter was $651 million, and adjusted SG&A expense excluding restructuring-related items were $648 million, which is 1% lower than the last quarter and $4 million or 1% lower than the first quarter of 2008.

Our expense reduction program, which we announced in the late 2007 time frame, is still running ahead of plan, and we are managing our expenses cautiously to ensure that we stay aligned with our top line performance.

Research and Development was $257 million for the quarter.

Adjusted R&D expenses were $256 million and 12.7% of sales and were consistent with last quarter's spending.

Our research and development investments remain consistent and support our commitment to advancing medical technologies.

We will accomplish this by investing in both Internal Research and Development as well as strategic acquisition opportunities.

We reported GAAP operating income of $11 million for the quarter, but on an adjusted basis, excluding large litigation charges, restructuring-related charges and amortization expense, adjusted operating income for the quarter was $463 million, and 23.1% of sales, and that's up 270 basis points from last quarter and down 280 basis points from the first quarter of 2008.

Factors contributing to our reduction in gross profit margins also contributed to our year-over-year reduction in operating profit margins.

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

We recorded a litigation related charge of $237 million pretax or $197 million after tax, associated with the previously announced decision of the Court of Appeals for the federal court circuit court upholding the district court's decision that some of our stents infringe certain Johnson & Johnson patents.

This charge represents an estimate of the low end of the range of potential outcomes related to this matter and this range is subject to substantial estimation and as a result we cannot reasonably estimate the high end of the range at this time.

We recorded a litigation-related charge of $50 million pretax, $43 million after tax, related to the previously announced settlement agreement with Dr.

Bruce Savron.

We do not plan to record any additional amounts related to this final settlement.

As a reminder, this was a case that originally awarded $500 million to the plaintiff, but we were able to successfully negotiate a better conclusion during our appeal process.

Total amortization expense was $128 million pretax, and $101 million after tax, which is $15 million lower than the first quarter of 2008.

Our run rate amortization of $128 million is in line with our expectations for the quarter.

We also recorded $37 million pretax and $26 million after tax of restructuring related charges in the quarter, which are primarily related to severance and production transfer costs in connection with our previously announced expense and headcount reduction initiatives, as well as our plant network optimization program, and these charges again are also in line with our previous estimates.

The cumulative effect of these items was $452 million pretax, and $367 million after tax.

Operating expenses in total remain well controlled and our headcount management and approval processes provide us with the tools necessary to maintain tight control over expenses in the future.

Based upon our results for the first quarter, combined with our internal forecast for the balance of this year, we still expect to spend approximately $3.6 billion in a combination of SG&A and R&D expenses for the full year.

And this is very consistent with the expectations that we communicated for 2009, when we announced our restructuring program at the end of 2007.

Interest expense was $102 million in the quarter, which was $29 million lower than the first quarter of 2008, and that's primarily as a result of our $1.3 billion in debt prepayments during the last 12 months, together with experiencing lower interest rates.

Interest expense in the quarter was also $5 million lower than the fourth quarter of 2008, due primarily to our $500 million debt prepayment in the quarter, together with lower interest rates.

Our first-quarter 2009 average interest expense rate was 5.9%, and that compares to 6.3% in the first quarter of last year, and consistent with the same 5.9% that we reported in the fourth quarter of 2008.

Other net expense was $9 million in the quarter, and included interest income of $4 million, which was $13 million lower than the first quarter of 2008, and $4 million lower than the fourth quarter of 2008, primarily due to lower rates of return on our investments.

Other expense also included miscellaneous net expense of approximately $10 million in the quarter, including a $6 million foreign currency transaction loss and hedging costs and in the first quarter of 2008, our other expenses included miscellaneous net expenses of approximately $4 million.

The reported GAAP tax rate for the first quarter was 87%.

On an adjusted basis, our tax rate was 18% for the quarter, including discrete tax benefits of about $11 million, which have a 3 point favorable impact on our first-quarter expected federal tax rate.

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

In addition to the tax effect of the items affecting operating profit I mentioned earlier, our adjusted taxes also exclude divestiture related credits of $63 million to adjust for the tax impact on the Company's previous divestiture of non strategic businesses.

We do expect that our operational tax rate on adjusted earnings for the remainder of 2009 will be approximately 21%.

GAAP earnings per share for the first quarter was a loss of $0.01 compared to income of $0.21 per share in the first quarter of last year.

GAAP results for the quarter include an income tax benefit related to certain tax positions taken in prior periods, litigation, divestiture, restructuring related charges and amortization that I mentioned earlier.

Our adjusted earnings per share in the first quarter, excluding these items, was $0.19, compared to $0.24 in the first quarter of 2008.

As a reminder, in the first quarter of 2008 adjusted earnings per share excluded $0.08 per share related to amortization, $0.01 per share of acquisition related charges, and $0.08 per share of divestiture related gains and a $0.02 per share of restructuring related charges.

The adjusted $0.24 per share in the first quarter of 2008 also included $0.03 per share benefit from discrete tax items and a $0.01 per share benefit associated with the divesting of businesses.

The $0.19 achieved this quarter includes $0.01 per share benefit for discrete tax items, and is at the high end of our guidance range of $0.15 to $0.20 per share.

Stock compensation was $45 million in the quarter, and all per share calculations were computed using 1.5 billion shares outstanding.

Turning to the balance sheet, we continued our progress in improving the management of our working capital.

Days sales outstanding was 61 days, that's a three-day reduction from the fourth quarter of 2008 and a six-day reduction from the first quarter of 2008.

In spite of the current economic conditions, cash collections, particularly in the US and Japan were strong, and contributed well to this improvement.

We've also made significant improvements in days payable outstanding during the quarter, which also contributed to our strong cash flow.

Our days payable outstanding of 38 days were three days better than the fourth quarter of last year, and also three days better than the first quarter of 2008.

Days inventory on hand were 126 days, and that's relatively flat with the fourth quarter of 2008 and up three days from March of 2008.

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

These product launches included COGNIS and TELIGEN for CRM, as well as PROMUS and TAXUS Liberte in our cardiovascular division.

Reported operating cash flow was $261 million in the first quarter of 2009, which is $5 million lower than the first quarter of 2008.

Q1 2009 operating cash flow includes $36 million in payments related to legal settlements and $22 million in restructuring payments, compared to $9 million of legal payments and $83 million of restructuring payments in the first quarter of 2008.

Excluding these two items, Q1 2009 adjusted operating cash flow was $319 million compared to $358 million in the first quarter of last year, reflecting lower operating income driven primarily by the mix of TAXUS/PROMUS sales and related gross profit margin differentials.

Capital expenditures were $60 million in the quarter, which is in line with Q1 2008 and reported free cash flow was $201 million, compared to $209 million last year.

In the first quarter, we completed the monetization of our non-strategic investment portfolios under the definitive agreements that we first announced in June, and received cash proceeds of $50 million, including full repayment of our note receivable.

Pursuant to these definitive agreements, we received total cash proceeds of $144 million, pretax or $228 million after tax.

We closed the quarter with $6.2 billion of total debt and $897 million of cash on hand, resulting in net debt of $5.35 billion.

Net debt is $250 million higher than the fourth quarter of last year, primarily as a result of our $500 million Advance Bionics payment, offset by free cash flow.

We also prepaid $500 million of our bank term loan in the first quarter of 2009, bringing the total debt prepayments to $2.7 billion in the last 24 months.

Our next debt maturity of $325 million is not due until April of 2010, and we have a long 24-month runway to determine the best way to refinance debt that will mature in April of 2011.

In the first quarter 2009 we amended our term loan and revolving credit facility agreement to increase flexibility under our financial covenants.

The amendment provides for an exclusion in the calculation of EBITDA of up to $346 million of restructuring charges, and exclusion for any litigation-related charges until such items are paid and an exclusion of up to $1.1 billion of any cash payments for litigation settlements, as well as all cash payments related to amounts that were previously recorded in the financial statements before January 1st of 2009.

As part of the amendment, we prepaid $500 million of our term loan that was due in April of 2010, and we reduced our revolving credit facility by $250 million, down to $1.75 billion.

The amendment also provides for an increase in interest rates of our term loan borrowings by 75 basis points to LIBOR plus 1.75 basis points, to LIBOR plus 1.75 at our current credit rating.

We currently have access to approximately $2.2 billion of liquidity, consisting of $900 million of cash on hand and approximately $1.3 billion through our revolving bank credit facility and our accounts receivable securitization facility.

At the end of the first quarter our debt to EBITDA credit facility covenant ratio was 2.9 times, which is well below the maximum committed level of 4 times, providing us with $600 million of EBITDA cushion.

This covenant steps down to 3.5 times at the end of the third quarter of this year.

As I mentioned earlier, during the quarter, Standard and Poor's rating services raised the Company's rating outlook two notches to positive from negative, and Moody's investor services raised the Company's rating outlook to stable from negative.

Both rating agencies did reaffirm the Company's corporate credit rating at BB plus and BA-1.

Revised rating outlook reflects maintenance of our leading market share in the drug eluting stent market, our ongoing debt repayment over the past two years and cost cutting measures, prospects for growth in the cardiac rhythm management devices, and improved covenant cushions provided by the recent amendments to our term loan and our revolving credit facility agreement.

I'm pleased to say that we continue to be ahead of schedule in reducing our targeted expenses.

We exited 2008 with expense savings in excess of $500 million annually, and we continued to show good discipline with respect to our expense reduction and our headcount initiatives.

We will continue to selectively invest some of the savings in excess of our planned reductions in areas that contribute directly to driving incremental profitable sales growth as well as increases in shareholder value.

Turning to sales guidance for the second quarter of 2009, reported consolidated revenues are expected to be in a range of $1.960 billion to $2.080 billion, down 2% to up 4% reported from the $2.005 billion reported in the second quarter of 2008, excluding divestitures.

And if current foreign exchange rates hold constant through the second quarter, the negative contribution from FX should be approximately $100 million, or approximately 5% relative to the second quarter of 2008.

So on a constant currency basis, Q2 consolidated sales growth guidance should be in a range of up 3% to up 9%.

For drug eluting stents we are targeting worldwide revenue to be in the range of $400 million to $440 million with US revenue of $220 million to $240 million, and O-US revenue of $180 million to $200 million.

For our defibrillator business, we expect revenue of $445 million, to $480 million worldwide, with $310 million to $330 million in the US and $135 million to $150 million O-US.

We are beginning to see the strength of our renewed product pipeline across all of our businesses, resulting in solid top line performance, even during turbulent economic climates around the world.

The good news for us is that only a small portion of our business is considered elective, and we are seeing only limited effects of the economy on the results of those franchises.

Additionally, the strength across our diversified portfolio of business is more than offset by any broad economic effects.

For the second quarter, adjusted earnings per share, excluding charges related to acquisitions, divestitures, and restructuring, as well as amortization expense are expected to be in a range of $0.16 to $0.21 per share.

This includes an effective tax rate on adjusted earnings of about 21% in the second quarter of 2009, compared to 17.4% in the second quarter of 2008.

The Company expects earnings per share on a GAAP basis in the first quarter of 2009 to be in the range of $0.07 to $0.13 per share.

Included in our GAAP EPS estimate is approximately $0.01 to $0.02 per share of restructuring related charges and $0.07 per share of amortization expense.

During the second quarter, we will continue to see the effect of last year's transition in the drug eluting stent business and the shifting of market share points from TAXUS to PROMUS.

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

So the bad news is we have an adverse mix of PROMUS and TAXUS compared to our expectations of a year ago, but the good news is that 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 continues to contribute to difficult year-over-year comparisons this year and that's especially true during the first half of this year.

The strength of our TAXUS franchise in the first quarter along with our improvement in market share, has helped to offset some of this impact and we anticipate this beneficial mix continuing throughout the balance of this year and into next year.

We're also seeing the benefits of CRM acquisition with significant improvements in operating margin that are helping us to offset the impact of the shift in profitability of our DES franchise.

We're also reaffirming our guidance for the full year, with expected revenues in the range of $8 billion to $8.5 billion, and we also expect to achieve adjusted earnings per share for the full year between $0.80 and $0.90, and that excludes acquisition, divestiture, major litigation, and restructuring-related charges as well as a large discrete tax item and amortization expense.

The Company now expects net income on a GAAP basis between $0.46 and $0.57 per share for the year, as a result of first-quarter litigation-related charges that were partially offset by one large favorable discrete tax item.

So that's it for guidance.

Our second-quarter earnings call will be at 8 a.m.

Eastern daylight time on July 21st, 2009.

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

Thank you, Sam.

I'd like to start by updating everybody on the progress we've made towards resolving the corporate warning letter.

While the corporate warning letter is still in place, pending final remediation of some MBR issues, we continue to work actively with the FDA to resolve those.

We've informed the FDA that we will be ready for reinspection at the impacted sites in early May, and we expect the FDA to begin those reinspections soon thereafter.

We are pleased that we have received approvals for all pending class 3 products, and we look forward to future approvals.

Let me move to the non-financial aspects of the business, starting with CRM, and then share my overall perspective on the quarter.

First-quarter results for CRM showed continued momentum from our new product introductions, particularly COGNIS and TELIGEN.

As Sam detailed, we delivered steady growth in CRM revenues, due mainly to the strength of our US defib sales, which grew at 14%.

This marks the fourth consecutive quarter of double-digit sales growth in our US CRM business.

While international defib sales were down slightly year over year, they were up 11% on a constant currency basis.

While difficult to confirm until all competitors have reported, we believe that the strong sales growth in both the US and international defib markets will ultimately represent continued defib share gains.

Additionally, we anticipate even stronger international performances when we begin to roll out our latitude patient management system in Europe during Q2.

Overall, CRM sales for the quarter, both worldwide and in the US were at their highest levels since we purchased Guidant three years ago today.

We have accomplished a great deal in that time.

We've turned CRM into the major growth engine that we envisioned, while significantly diversifying our product mix.

Much of our future success will depend on our ability to continue to develop and deliver innovative products with industry leading quality.

We are maintaining a consistently high level of R&D spending, and we continue to invest in our global sales force.

As you know, 2008 was a banner year for new product introductions as we delivered on an impressive pipeline of technologies.

The clear evidence of that success is reflected in the fact that new products are expected to generate 67% of CRM's total worldwide sales in 2009, up from an impressive 39% last year.

COGNIS and TELIGEN are the latest examples of how we plan to keep raising the bar on innovation.

We continue to see increases in daily sales.

Just recently we introduced an enhanced version of the set screw design for both COGNIS and TELIGEN and we are receiving positive feedback from physicians.

The full roll-out of this is expected to be completed before HRS, and inventory constraints will be resolved soon thereafter.

These products are already the smallest and thinnest devices on the market, but they will soon become even smaller with the launch of our new IS4 header and defib leads that will combine the current three defib lead connections into a single pin to port connection.

These improvements will be introduced in a measured US and European launch later this year.

Upgrades to the other product lines are also helping drive sales, adoption and physician preference.

We recently launched the ALTRUA EL family of pacemakers.

These advanced devices extend battery life by two years.

In Q2, we will begin to roll out our Latitude patient management system in Europe.

In addition, we plan to launch the ACUITY breakaway Lead Delivery System during the third quarter, which will significantly add to our already strong portfolio of left ventricular leads and lead delivery systems.

On the clinical side, I want to highlight progress towards the completion of the MADIT CRT trial.

This is an 1800-patient trial, the largest device trial for asymptomatic and mildly symptomatic heart failure patients.

Trial completion is expected in the near future and findings will be presented later this year.

They may come as early as Heart Rhythm Society conference next month.

Let me take a moment to give you some perspective on what a positive MADIT CRT outcome would mean.

We believe a positive outcome has the potential to significantly expand CRT indications.

This population is a subset of the historically underpenetrated ICD primary prevention population.

We anticipate that the added value of heart failure therapy will drive this population's penetration up.

We are blinded to the trial data, but we are optimistic about the results.

We are pleased to be the sole sponsor of this landmark trial, which we hope will bring this life enhancing and life saving therapy to a much broader group of patients.

Let me provide a quick update on our EP business.

Our product development efforts remain on track.

The Blazer DX-20, a steerable diagnostic catheter, received FDA approval in Q1 and is scheduled for launch in Q2.

Additionally, the Blazer Prime, an improved version of the Blazer Ablation Catheter, is also on target for launch this quarter.

We look forward to both these products being available to EPs and anticipate they will help grow our share of the market this year.

The integration of CryoCor is progressing well, and we plan to begin clinical studies on our proprietary cryo energy technology next year.

We believe that over time we will be one of only two players in this exciting technology.

As I said, today marks the three year anniversary of the Guidant acquisition.

Our two biggest objectives with this purchase were diversion and growth, and we have achieved both.

We now have a much more balanced product portfolio, and CRM is expected to be the primary driver of our growth this year.

It was not easy getting here.

This is a renewed and revitalized business.

In the process, we kept the best of what Guidant offered: its people, its ability to innovate, and its clinical science, but we completely transformed other areas, like quality, our ability to deliver a pipeline, and our latitude strategy.

2009 will be the first full year we benefit from these significant investments.

This market is still underpenetrated.

I believe we are now the best positioned company to take advantage of the improving dynamics of the CRM market.

Our actions prove we are deeply committed to this business and we will continue to work hard toward our long-term goal of market leadership.

Now let me turn to the cardiovascular business.

We reported excellent DES results for the quarter.

In the US, our ongoing rollout of TAXUS Liberte and TAXUS Atom, complemented by our PROMUS position, resulted in 50% market share.

This includes TAXUS with 27 and PROMUS with 23.

This performance demonstrates the strength of our TAXUS franchise as well as the selling and service abilities of our world class commercial organization.

We have a long tenured commercial organization able to offer physicians their choice of two drugs and the significant breadth of our other cardiology products with a strong history of continuous innovation that is unmatched in the industry.

We also saw continued strengthening of the market.

PCI growth year over year was approximately 1% while penetration increased for the fifth consecutive quarter to an estimated 75%.

Based on this data, we believe that Xience also has a 27% share for the quarter, matching TAXUS, while Cypher and Endeavor are at 14 and 9, respectively, giving us a 23 share point lead in the US over our nearest competitor.

Those strong DES results in the US were achieved concurrent with the launches of the Apex PTCA balloon catheter and Icross Ibis catheter, continuing our robust series of new product launches over the past three quarters.

In Europe, DES penetration is up to approximately 51% and our DES share is estimated at 36, split approximately 25 TAXUS and 11 PROMUS.

In Japan, the launch of Liberte has gone very well, with Q1 share estimated at 54%.

On a world-wide basis, this brings our Q1 share to an estimated 44% and clearly demonstrates the value of our two-drug strategy and solid, sustained commercial execution.

Looking forward, our pipeline includes the DES launches of TAXUS Liberte Atom 225, and TAXUS Liberte Long 38 in the US in the second half of this year.

Our TAXUS Element and PROMUS Element product introductions are progressing as planned.

TAXUS Element has already been launched in unregulated markets with very positive feedback.

Both PROMUS Element and TAXUS Element are on target to launch in Europe in the fourth quarter of '09.

The PROMUS Element US and Japan launches are on target for mid-2012 with the TAXUS Element US and Japan launches on target for mid-2011.

Also slated for launch in Q4 this year is PROMUS in Japan.

In addition, we are pleased with our progress on the integration of Labcoat, which we view as a true next generation DES beyond TAXUS Element and PROMUS Element.

Labcoat has a log less polymer and drug load than our current DES, and the polymer and drug are all on the outside of the stent.

Further, the polymer and drug are gone within six months.

The goal is to provide a level of restenosis that is consistent with current DES, with faster and more consistent healing in terms of tissue coverage as measured by OCT.

Finally, we have a completed European trial with others coming due later this year.

Bottom line, we like the Labcoat approach because the performance of this design is good, and we believe meeting the stated goal of faster and more consistent healing with results comparable to current DES is more likely to actually happen than concepts being pursued by other companies.

On the clinical front, the SYNTAX trial results showed comparable safety between TAXUS Express and Cabbage for left main and multi vessel patients.

Cabbage patients showed a statistically higher rate of stroke and as expected, DES patients had increased rates of revascularization, most of which were successfully treated with another PCI.

What we have come to appreciate is that in the simpler subsets of three vessel disease, and in left mains, TAXUS Express appears to be a better choice than Cabbage.

This will be highlighted by the official launch of the SYNTAX 4 website at Euro PCR, which will be the beginning of a worldwide educational effort to inform physicians and patients as to the best treatment options for left main and three vessel disease.

Coupled with the very positive SYNTAX cost effectiveness data and quality of life data, these efforts could have a positive impact on PCI volume worldwide in the years to come.

Looking briefly at other CV product lines, our US leadership in PTCA balloon catheters continued with a 59% share, including the launch of Apex.

Overall, physician feedback from Apex has been quite positive.

The same is true for our iCross catheter, a new imaging catheter with improved deliverability, which was recently launched in the US.

In our peripheral intervention business, we hold a strong worldwide position in a growing market with number one multiple product category positions.

The recent US launches of the Sterling ESPTA balloon catheter, the carotid wall stent and the Express Renal SD, as well as the international launch of the epic vascular stent, have created positive momentum for this business.

With these launches, we expect to continue to grow our leadership position.

In summary, we continue to be well positioned as the only Company with a two drug offering, a long list of leading franchises, improving market fundamentals, and a robust product launch cadence in '09 and beyond.

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

Moving on, our neurovascular business experienced solid performance in nearly all of its franchises, remaining the overall market leader with 46% market share.

Despite new competitive launches in coils and adjunctive stenting, Matrix 2, which launched in Japan in August of last year, continues to do well, representing 62% of the Japanese coated coil market.

We continue to be optimistic about the prospects of the neurovascular market and our position should improve in the back half of this year as we launch new products in both the coil and stent markets.

We are also developing new technologies for the treatment of hemorrhagic stroke, intracranial atherodisease and acute ischemic stroke.

On the clinical front, we have now enrolled approximately 75% of the patients in the global maps post market clinical trial.

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

Enrollment has also begun in the NIH funded SAMPRAS trial.

This trial tests Boston Scientific's Wingspan stent system and Gateway PTA balloon 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.

Turning to endo.

Endosurgery continued its solid performance, up 7% in constant currency for the quarter, with endoscopy growing 6% and urology and gynecology growing 7%.

Global endoscopy growth was driven by our biliary and hemostasis franchises.

We continue to see strong adoption of our Spyglass direct visualization system and increased utilization of our resolution clip.

In addition, the introduction of the wall flex esophageal stent added momentum to our market leading GI stent franchise.

Urology gynecology maintained its leadership in the endourology business, growing this segment in line with the market at 3%.

Our women's health business continues to accelerate and grew 19% in the quarter on the strength of several new product launches.

This growth was led by our line of sling-based devices and kits, including our recently-launched Solex Single incision sling system and Pinnacle pelvic floor repair kit.

These devices are used in the treatment of a variety of stress and age-related disorders.

Endosurgery's pipeline is beginning to return the business to its historic growth rates.

Looking forward to the rest of the year, endoscopy will continue to roll out more codes of our wall flex biliary stent line, expanded indications for our spy glass direct visualization system, and new RX biliary catheters.

Within urology and gynecology, we will continue to launch new products, including additional pelvic floor repair kits, as well as several other women's health and endourology products.

Finally, our worldwide neuromodulation business constant currency sales growth was 9%.

We experienced some softening of permanent implant procedure volumes, primarily related to the economic environment; however, trial implants, a significant leading indicator for permanent implant procedures, were up 20% in the quarter and were especially strong in March.

During the second quarter, we are beginning the launch of our lead adapter, the M1, which allows a precision plus system to connect to the leads of a competitive primary cell non rechargeable system.

This will allow us to enter an otherwise captive replacement market, as well as offer additional alternatives to physicians and patients without the need to remove or replace the previously implanted leads.

Let me close with some overall perspective on the quarter.

We're off to a good start.

I see Q1 as a solid foundation on which we can build a very strong 2009.

A lot of the elements needed for a strong year were present in the quarter.

Our performance in CRM and CV was impressive, with double-digit US growth in both businesses, and it was another standout quarter for defib sales, which grew 14% in the US and 13% worldwide on a constant currency basis.

In CV, our US drug eluting stent sales grew 13% and exceeded the top end of our guidance range.

Our US DES market share for the quarter was 50%, up from 47% in Q4.

The distance between us and our nearest competitor is greater than it has ever been.

We are not only maintaining leadership, we are increasing it.

This is a result of superb execution by our team, coupled by the fact that we are the only Company to offer two drugs.

Our TAXUS franchise has gained market share since the launch of TAXUS Liberte at the end of last year.

US DES penetration was another bright spot in Q1.

As I said earlier, it was estimated to be at 75%, which is a big jump from the 63% we saw in Q1 '08.

We have also seen DES penetration increase slightly in international markets.

In early March, we launched TAXUS Liberte in Japan to a very enthusiastic reception.

We estimate our share of the market for the quarter was 54%.

So we're off to a good start in Japan, and we're looking to build on this start and reassert leadership in the Japanese DES market.

The combined picture across all businesses looked especially good in the area of gross margins, which were over 70% and that 70% included a healthy contribution from CRM.

It's good to see a gross margin figure that starts with a 7 again.

This has been an area of intense focus for us, and our efforts are bearing fruit.

We are moving in the right direction on gross margins and we are committed to building on our progress.

It was another quarter in which we continued to reduce risk.

We settled additional litigation and won a critical appeals court decision against J&J.

We prepaid $500 million of debt.

We amended our credit facility positively, and we maintained financial discipline and strong cash flow.

The progress we made here and elsewhere won some important recognition during the quarter from Moody's and Standard and Poor's.

Both raised our rating outlook and S&P boosting us two steps from a negative to positive.

I'm going to close by reiterating a point I made earlier.

Today is the third anniversary of our acquisition of Guidant.

Seems more like 10.

The Q1 numbers are the latest indication that this acquisition is providing us the growth and diversification we've always believed it would.

In addition to four consecutive quarters of double-digit CRM growth, we are increasing our lead in the DES market, thanks in part to PROMUS, which also came to us from the Guidant deal.

There is something else in the Q1 numbers that bears calling out.

CRM had a very good quarter, not only in sales but in profitability.

In addition to all that CRM has accomplished in the past three years, they have also significantly improved their profitability.

This has basically filled the hole created by the introduction of PROMUS to our DES mix.

CD has done a magnificent job of maintaining total market share, but PROMUS is less profitable than TAXUS.

CRM has stepped in and picked up the slack, and in doing so they are making a major contribution.

So we're off to a good start in Q1.

We have one more quarter of tough comparisons to last year, but then you're going to see a great Q3 and an even greater Q4.

Our momentum is building and we're optimistic about the growth potential for all our businesses, which are benefiting from our renewed focus on product development and profitable sales growth.

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

Thank you, Jim.

What I'd like to do now, Julie, is open it up to questions.

And so that we can take as many questions as possible, I ask that each person limit their questions to no more than two and then return to the queue if they've got additional questions.

(Operator Instructions).

And our first question comes from the line of Bob Hopkins of Merrill Lynch.

Please go ahead.

Thanks and good morning.

Can you hear me okay?

Yes.

Hi, Bob.

Great.

Good morning.

A question for Sam and then a question for Jim.

Sam, to start out, on gross margins, I think you said on the fourth quarter call that excluding one-time items your gross margin was about 70% and now here on this call excluding one-time items your gross margin is a little bit above that.

And yet it looks like you might have had a slightly improved currency benefit on the gross margin.

So I was just wondering could you talk about the sequential change in gross margin.

Are my numbers correct?

Because it would seem to me that you might have seen or should have seen a little bit greater gross margin benefit given some of the improvement in CRM and DES sequentially.

Thanks.

Yeah.

It's still primarily driven by mix as well as what you don't see going on behind the scenes is manufacturing variances.

So we start the year because we have VIPs programs built into our standards throughout the course of the year, we start the year with some negative manufacturing variances and we finish with positive variances.

So some of it is timing differences for variances.

But most of it, though, is -- while we're very pleased with the TAXUS/PROMUS mix, PROMUS is still a major contributor to the declining or the downward pressure on gross profit margin.

Those numbers are right, right, on an adjusted basis, about 70%, and then a little bit above that for this quarter?

I'd have to go back to my first-quarter script.

I thought it was a little less than 70, Bob, but tenths is not a big difference.

69.8 is the number I remember, but I could be wrong.

Yeah.

And then for Jim, two quick things.

One, on MADIT CRT, what do you think the probabilities are that we do see it at HRS versus later in the year?

And then secondly on COGNIS and TELIGEN, you mentioned the supply constraints, and you talked about that before.

Can you just give us a sense in the US where we are with that roll-out?

Like where were we at the end of the fourth quarter, where are you at the end of the first quarter, and when is that product 100% rolled out in the US?

The 100% roll-out is end of May.

And that's defined as roll-out to all accounts, version 2 header, full inventory in the bags of the reps, that's what I would consider to be full roll-out.

So we're six weeks away from that, maybe, something like that.

As far as the timing of MADIT CRT goes, we don't have any special insight on that, because that trial is measured in Rochester.

But the -- we're not that far from HRS now, so there's only a few weeks to go.

But the trial is -- I mean, it's either going to be at HRS or shortly thereafter.

We're very, very close.

And at the end of the first quarter on COGNIS and TELIGEN, just where were you in terms of the roll-out as a percentage?

Well, in terms of accounts that have the V2 header, it's probably approaching half.

This week will probably be half.

And we've got inventory flowing now of the V2 version, so it's just a matter of a few weeks to finish up the rest of the accounts and pour the right mix of devices into the salesman's bags.

Thanks so much.

Let me go back also, one more thing just occurred to me is because of the timing of when manufacturing of variances actually find their way to the profit and loss statement, as many listeners probably know, but in case they don't, when a manufacturing variance is incurred it's put up on the balance sheet and it finds its way to the P&L in the month that the inventory its related to is sold.

So what we're experiencing in the first quarter this year are negative manufacturing variances that were incurred in the back part of last year, with some ups and downs in the manufacturing cycle for some of our products and that's rolling into this year.

Those complete their transition to the P&L early into the second quarter.

Great.

Thanks, Sam.

Thank you.

Next we'll go to the line of Mike Weinstein of JPMorgan.

Please go ahead.

Good morning.

Thanks for taking the question, guys.

Want to focus, Jim, if we can, just on the non-DES, non-CRM businesses.

You've been giving those businesses some more attention lately, and it looks like the part that's at this point is still really dragging down those businesses is the chorio-vascular business that's not DES and the peripheral vascular business.

If I look at the overall Company I get just over 3% organic sales growth but that coronary vascular business is down 7%, peripheral vascular down 7% constant currency and that's obviously offsetting some of our stronger performances elsewhere.

So if you could focus maybe on those two parts of the business, how those turn and then more broadly, how you take that non-DES, non-CRM from down this quarter to better growth as we go further into the year.

Thanks.

Yeah, the secret, if can you call it that, to the non-DES CV part and peripheral part is the new product flow.

For a host of reasons, we had I think lost focus on these businesses over the last few years.

And so starting mid-last year, we reorganized things, got focus put back on these product lines, kick started the pipeline and basically set some new expectations.

Those are beginning to bear fruit.

We're seeing product start to pop out of the pipeline now that at a rate that we haven't seen in years.

So that will drive the rehabilitation, so-to-speak, of those businesses and we're not talking about three years down the road.

It's sooner rather than later.

And so if we look at the expectations around the non-DES, non-CRM franchises, so if we aggregate that and again, I think the math that we had and it sounds like the math that you guys had was somewhere around 1% constant currency this quarter, can that get to mid-to high single digits by the end of the year because that's basically what you're implying by your commentary relative to market growth.

I think what you'll see is breakeven in Q2 or somewhere along those lines.

You're not going to see that much progress in Q2 but by the time we get to the back half of the year, the numbers will be reasonably strong and accelerating.

So it's just a matter of focus.

Okay.

Jim, I did want to clarify your comment about, you ran through the time lines for your drug eluting stent pipeline.

TAXUS element in the US, it wasn't clear if you were saying 2012 or 2011.

I think previously you said 2012.

TAXUS Element US 2011.

And is that a pull forward?

Not really.

That's what we've been expecting.

There's so many of these things that you may have misheard us somewhere along the line but that's been our expectation all along.

Last question.

Long-term pipeline, do you guys have anything going on at this point in hypertension.

There's a lot of talk about hypertension at ACC.

Thanks.

Not specifically.

We have a lot of eyes on that and there are a number of technologies that show promise and that's -- that could be a big deal but we don't have an internal project.

We have our eyes on some things outside.

Okay.

Thank you.

Thank you.

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

Please go ahead.

Thanks, good morning.

I was looking at your guidance for ICDs.

What would you need to do to get to the upper end of the ICD guidance?

Is that more market growth needs to happen or is it continued share gains, both?

Well, a little more robust market growth would be a really nice thing.

But we're not really counting on that.

We see continued share growth.

That's driven by the Version Two header.

That's driven by full availability of inventory.

That's driven by the roll-out of Latitude in Europe which has the lack of a remote monitoring system, has kept us from bidding on chunks of business in Europe, so now we can be fully competitive there.

So it's not one thing.

It's a series of things.

But we're a long way from being done with COGNIS and TELIGEN.

Okay.

And on the neuromodulation side F you're seeing 20% increase in trialing, what historically what has that meant in terms of implants?

meant in terms of implants?

Well, we generally get something like two-thirds of the trials, so -- but that's been a fairly constant number for a long time now.

So two-thirds of whatever the number is will be two-thirds -- still be 20% is the point I'm getting to.

You don't get all -- you don't succeed in all your trials but that two-thirds number has been fairly constant for several years.

So the outlook, there seemed to be a pause, a little bit of a pause in the market.

The three areas where we have seen some market weakness, we think driven by the economy and copays and all that sort of stuff, were pain management where people can basically decide to live with it a while longer, abnormal uterine bleeding, same thing, BPH, same thing.

Those together represent less than 5% of sales so it's not been -- the effect has been modest and only on a small portion of our sales, so it really hasn't been a big deal for us to this point.

And if MADIT CRT is not going to be at HRS, are you just going to put the press -- are you going to put the headline release it thereafter sort of when the comes out or are you going to wait until AHA in the fall or the heart failure meeting.

If it were right before one of those, we would wait but I don't think that's going to be the case so when this thing's available, either at or soon after HRS, you'll see it.

Okay.

Thanks.

Thank you.

And next we'll go to the line of Larry Biegelsen of Wachovia.

Please go ahead.

Good morning and thanks for taking my question.

What is the constant currency growth rate embedded in your sales guidance?

I think you said it was 2 to 8% on the last call, but FX has gone against you since then but you maintained your sales guidance so have you raised your constant currency growth outlook for '09?

For the full year?

Yes.

No, we haven't raised it.

The reason we have the range that we have from $8 billion to $8.5 billion is to try to incorporate a number of things.

One is some degree of unpredictability and FX but also differences in market movements and geographic spreads so we try to incorporate a lot of moving parts in that Larry, so I can't say we have intentionally increased our constant currency growth rate.

What did you assume the negative impact from FX was going to be on the last call compared to what it's going to be today for 2009.

I don't have my notes from the last call.

I'd have to go back and look at it, Larry.

It's higher now than it was last quarter; is that fair?

I think the FX effect is higher now than it was last quarter, yes.

Okay.

And the reason we don't -- we try not to change our guidance dramatically every time FX changes because you know it goes up and down, so --

But FX is higher now than it was last quarter.

Yes it is, it's a bigger drag now.

For the full year our best estimate now is somewhere between $250 million and $300 million for the full year in sales growth drag.

You don't have the number for what it was when you gave the guidance last call?

I don't.

I don't want to guess at that.

It was about 150, Larry.

150.

So about $100 million increase basically in constant currencies, sales per your guidance is that fair?

Assume everything else constant and the foreign currency is not going to move any more, yes.

You left the EPS guidance alone so you're basically reinvesting that.

Well, there's very little effect from foreign currency on EPS because of our hedging program.

It's very, very modest.

Okay.

And then one other question.

On drug eluting stents.

Last quarter you gave us your exit rate in the United States.

This quarter you just gave us your full first quarter share.

Could you give us the exit rates, please?

50%.

You exited at 50 and TAXUS was what and PROMUS was what, Jim?

TAXUS is 27 and PROMUS is 23.

So those are the exit rates in the first quarter in the US?

Yeah, and they're pretty close to average too, so --

Thank you very much.

Thank you.

Our next question comes from the line of Kristen Stewart of Credit Suisse.

Please go ahead.

Hi, good morning, thanks for taking my question.

I was just wondering if you could just maybe go through, if there's any additional litigation suits out there that you haven't settled, can you just kind of help us quantify maybe what to expect going forward or just what the next upcoming litigation case is outstanding?

Yeah, we give full disclosure for all litigation cases in the Q and you'll see that again in this Q but you won't learn much new than we haven't already put out in our press releases, publicly, and talked about.

So there's nothing in the short-term that we expect to be new.

Obviously, we can't predict any new cases coming in but we don't expect any short-term resolution to any of the pre-existing cases.

And then just with regards to the tax rate, there's obviously been a lot of talk in Washington just about the future outlook and I know to comment on that would probably be premature but I was just wondering if you have any kind of thoughts on that, and then specifically there's been some companies that have been disclosing some IRS notifications with respect to their Ireland tax positions, can you comment if you have received any specific notifications on that.

I'm not aware that we received any IRS notifications for Ireland at all.

And I paid attention to what other CFOs have said about the same question.

More broadly.

And I have to say that -- give the same answer they have, which is there's been no specific proposals.

A lot of talk and hoopla and we as well as probably every multi-national Company in the country have provided input into the legislators, a lot of it, and we keep on doing that, trying to reinforce the reminder that it's not just about the tax rate, it's the whole balance of trade that's at issue and the strength of our economy isn't just focused on the tax rate.

It's where we source products, where jobs are, what kind of profit margins we all deal with, so the bottom answer though is we don't know anything more than anybody else does.

We're proceeding cautiously.

And then lastly, just on the international ICD market, is it correct if I exclude out the impact from the JLL distributor that your base CRM business would have grown closer to 15% constant currency international?

Just want to make sure that that number is right?

That might be a little high but it's it certainly would add a couple of points of growth so maybe 13, 14.

Are you seeing any slowdown in the overall international market?

It seems to be -- I guess I'd call it spotty.

There is some places where we've seen some weakness.

There are other places where we've seen surprising strength and it nets out to about what you would expect.

Thanks for taking the questions.

Thank you.

And our next question comes from the line of David Lewis of Morgan Stanley.

Please go ahead.

Good morning.

Hey, David.

Jim, in terms of stent penetration and just market share, is it safe to assume that for the next six months that these levels you gave of 44% worldwide and sort of, 54, 46 mix in the US are going to be relatively stable give or take 100 to 200 bips before PROMUS Element in the back half.

I think so.

I don't see anything changing dramatically.

I think the market and the mix has stabilized finally, and so that will persist for a bit here.

The only thing that changes is Japan at towards the end of this year, when PROMUS and are approved in Japan and the roll-out of that will begin.

That will move the overall mix numbers more towards PROMUS.

But that's like a November event.

Okay.

Helpful.

And then Sam, a couple questions here on margins.

First off, can you give us for CRM operating margin on an either absolute or relative basis, some indication of how the first quarter went, so how was that up from the fourth quarter?

It went great.

Okay.

We won't give you numbers but it was very strong quarter, both sequentially from an operating profit margin improvement point of view as well as year-over-year.

Several hundreds basis points of sequential improvement would not be impossible.

It was a very good improvement.

Okay.

Second question.

Sam, you mentioned 230 basis points of GM could be gained back post PROMUS Element.

Over what time period is that likely?

The time period comes in two blocks.

The smaller of the two blocks is when we introduce PROMUS Element in Europe in the fourth quarter of this year, we get all that back immediately.

And then in the middle of 2012 when we launch PROMUS Element in both US and Japan.

Should we assume that's -- is it 50/50, one-thirds, two-thirds.

Oh, it's probably less than a fourth, three-fourths, something like that.

I was looking to the second quarter.

Per Jim's comments, mix is going to be relatively stable, CRM had a relatively strong first quarter.

By your guidance, it looks like the second quarter is going to look very strong as well.

So the second quarter earnings number given those two factors seems conservative to me.

Is there something that I'm missing on margins?

The one major issue that happens, we expect Endeavor to be launched in Japan, it's difficult to predict just how successful that will be so some of our guidance range is around that issue and in general we continue to be a bit cautious about the markets overall.

We don't know what the global economy will mean to us in any one of our major markets, but the reason we have the wide range for the year in both sales and earnings per share is consistent with the reason we have a bit of a wider range than you might expect for the quarter as well.

Okay.

Just last question for Jim and I'll jump back in queue.

One more issue too.

We also had as you recall from our comments, we had a $0.01 contribution from a discrete tax item that was $10 million net income, which is about $0.01 a share.

That goes away in the second quarter.

Tax rate in the first quarter is 18%.

Goes back to 21% in Q2.

So the sequential compare obviously is more challenging.

That's very helpful.

Jim, just lastly here on selective reinvestment.

You've obviously talked about this for the past six months.

Can you kind of tell us where we're spending these dollars.

Is it largely in CRM?

That's the biggest chunk.

It's field force, and the strategy basically boils down to, you've got to have the products.

Check.

You've got to have the people.

Check.

We're adding to the people.

Because the products are there.

Walking it up in a measured way, but you can't take share, which I believe we're doing, without also having more people.

Because in the CRM business, the sales presence is almost like direct labor.

They're there for the procedures.

If you're going to have more procedures, you've got to have more people.

Okay and would you consider at all this year taking some of that selective reinvestment and pulling it away from your non-core businesses to stimulate market share gains?

We've pretty well done that and that's what you see in the non-DES business, the PI business.

We took focus off of those businesses to put focus on to DES and we're paying the price now and so I'm in the process of turning that back.

Great.

Thank you very much.

Thank you.

And next we'll go to the line of Bruce Nudell of UBS.

Thanks for taking the question.

I have a DES question and then a CRM question.

So on the DES front, Jim, you have 50% share of the dual platform strategy in the US, 36%, I'm sorry, in Europe.

With your new family of products.

First of all, what's the reason for the difference, EMEA versus US?

Secondly, with your new family of products, what sort of share do you think you could attain and thirdly, with regards to DES, can you get a price reset with these new products and do you feel that there will be the vicious price erosion continuing in the future?

And then I have a follow-up on CRM.

Let me start here.

We -- the place where we have the best metrics on price are the US and according to MRG, our prices for both PROMUS and TAXUS are $100 above the competition.

And that has persisted now for quite some time.

So that's real.

And so there is -- with two drugs you have the ability, two drugs and a full pack of everything else, you have the ability to provide whole solutions to hospitals and that lets us not have to compete on price as directly as the guy that has one.

All right?

So we've I think been very responsible on the price side and have -- and you're seeing that in the results and so, I mean, having a premium and having 50% share, I don't think anybody would have predicted that.

As far as the difference between US and Europe, there's -- depending on how you count, four or five competitors in the US, if you count Xience and PROMUS separately.

There are 19 in Europe.

So let's start there.

The other call them 14 have about on average about 1 share point each so the available market for us starts at 85, not at 100.

And you see some of that reflected in the share difference.

The other piece of that is we launched in Europe under a different strategy than we launched in the US and we're not going to be able to fix that until we launch PROMUS Element which is a hell of a product, and when that happens, which is soon, that will give you an opportunity to reset share expectations.

So basically 40% -- putting words in your mouth, 40% worldwide share when everybody's in the game and all geographies is attainable in your mind?

Yeah.

I don't see why not.

I think we will do -- I mean, the biggest chunk that has to kind of settle out is Japan and that's TBD and that game will be played in Q4 and Q1 of next year, so a year from now you're going to know the answer to the question.

But I don't see any reason, given our pipeline, and given our commercial heft, why we cannot maintain a worldwide market share that starts with a 4.

And turning to CRM, you've talked about MADIT CRT and since 2005, the US market's been give or take $4 billion.

How much of an impact in dollars do you think MADIT CRT could have and when we looked at reverse, I mean, really looked as though the benefit was centered in very wide QRS patients with very low ejection fractions.

To what extent do you think that group is already preferentially receiving therapy.

I know asymptomatic patients at the higher end end of the ejection fraction spectrum are not touched but do you think that there's any risk of already having been penetration of that low ejection fraction, very wide QRS complex group?

What you paint is a picture of what happens is instead of getting an ICD, they get a CRTD so you get a price uplift when that happens.

There's about a $5000 difference in selling price for an ICD and a CRTD.

At a minimum, that's what you get.

If the market's already penetrated the way you describe, you still get that uplift.

At a maximum, people see that there is a mortality benefit to the delay, the reduction in the number of decompensations, results in a slower slide towards the end with heart failure and people start putting these things in as a way to actually extend life.

That's at the other lunatic fringe.

The truth is probably going to be somewhere in between.

Very hard to predict and I couldn't put a dollar on it if my life depended on it but it's hard to imagine that it's going to be negative.

A negative impact.

It's likely to be positive.

The only question is how much.

The trial itself, first of all, the reverse trial actually I think met its end point at two years.

It just didn't meet it at one.

In terms of patients, it's a, I don't know, little more than a third the number of patients.

So we should see a positive impact just from the N factor alone and the end point we chose is I think more likely to be a positive end point, had reverse used this end point they would have been positive in the first year, too.

So the net of all of this is this is going to turn out to be a good investment.

May turn out to be a great investment.

What is the end point in MADIT CRT?

Death and MI is one, and hospitalizations are the other piece, so it's keeping people out of the hospital, which that's another point here.

That's going to have a big economic impact so a lot of -- I mean, because a decompensation episode can be tens of thousands of dollars that somebody's got to pay for.

So if the economic -- if the reduction in the number of hospitalizations is great enough, the economic impact is going to make the implant of the CRTD look like a really good investment for somebody that expect to have a patient for more than about 18 months.

So all of that stuff is going to take a while to play out.

It won't be strictly an issue for Boston Scientific, it will be an issue for the industry, and all of us will have an incentive to make sure that this kind of positive data, if that's the way it turns out, will be understood and appreciated by a wide range of audiences.

Just one final.

Is IPPS going to be a non event?

Must be, because I don't each know what you're talking pout.

The Medicare prospective payment system.

Yeah, I don't see any huge impact of that in the short term.

That may change over time.

Okay?

But in the short term, I don't think it's going to have any impact.

Thanks so much.

Thank you.

And next we'll go to the line of Timothy Lee of Piper Jaffray.

Good morning, guys.

Thanks for taking the question.

Just a couple on the drug eluting stent side.

Just in terms of TAXUS Liberte share in the US, how sticky is that market share?

Is some of the uptake tied to physician trialing and could we see some of it wane or are you seeing some of the utilization rates here in April hold up?

Seems to be holding up.

I mean, it's been well, four months now, four, five months, and if we were going to see a trend away from the product, it would have started already.

We have not seen that.

Okay.

Thank you.

And then just in Japan, very strong showing of 54% share for TAXUS Liberte.

Again, was there anything unusual going on there in terms of field inventory stocking or should we think about that 54% as kind of a run rate basis?

No, you know, TAXUS Liberte is a hell of a product.

It has been underappreciated by you guys for years now, and when we had the opportunity to launch this thing right in Japan, we blew the doors off.

Okay.

Fair enough.

And then just one last one.

Are you seeing any impact from FFR in terms of decrease in stents per procedure or is FFR still not widely adopted enough to have any impact on extent usage?

No impact whatsoever.

Perfect.

Get back in line.

Thank you.

Thank you.

And next we'll go to the line of Rick Wise from Leerink Swann.

Good morning, everybody.

First maybe a P&L question.

Sam, amortization royalties, amortization was below last year's run rates, I assume because of the write-off of goodwill.

Where do we go from here?

And royalties also down sequentially sharply.

Maybe I'm forgetting why but again, where do we go from here with those two lines?

Yeah, the first one, the write-off of goodwill did not affect the amortization because there goodwill was not amortized but as a result of writing down some of our assets, as we're obligated to do under GAAP, that also lowers the -- when we write them down, it also lowers the amortization of what remains.

So we're staying with the 128 rate, is a good quarterly run rate.

Yeah, for now it's a good quarterly run rate.

We're not forecasting or expecting to write any more assets down.

What was the second --?

Royalties.

Royalties.

I think they're pretty -- well, we paid the last of the ICD royalties in CRM and that's round numbers, $30 million a year, $40 million a year, something like that.

So that goes away after this quarter, I believe.

And so you'll -- that goes away and won't come back.

So again, that first quarter run rate looks reasonable quarterly run rate from here or -- ?

Yeah, I think so.

Okay.

And turning to -- back to DES, Jim, you highlighted the US volumes up 13% and price down 10%.

Appreciating that new products are going to have a big impact on the volume side but most of the docs we talked to suggest that DES penetration at 75%, that's about where we are until we get to truly next generation stents.

So two-part question.

One, does that penetration sort of glass ceiling, if you will, temporarily slow your US volumes, and does Spirit 2 three year data have any breaking impact on TAXUS for the rest of the year now that it's sort of out in the market, if you will?

As far as penetration goes, it's very interesting, because we and everybody else, bottomed out at 61% and we were thinking about 65 as kind of where it was going to get back to.

Then we were thinking about 70 where it was going to get back to.

Then we were thinking about 75 is where it was going to get back to.

Well, it's there.

So far, we've always been conservative.

We includes the docs.

All right?

So the trajectory it's on, it seems to be headed towards the high 70s, but I think if you use 75 in your model you would be safe.

As far as Spirit 2 and 3, there's been absolutely no impact that I can detect.

I mean, Spirit 2 was going to be the thing that trashed TAXUS and then it was going to be Spirit 3 that trashed TAXUS and now it's going to be Spirit 4 that trashed TAXUS.

What that ignores is that everybody has used TAXUS, they know the results they get from TAXUS.

They've run their own trial.

And so there's a big chunk of the market out there that's quite happy with TAXUS, feels comfortable with it, understands the data and Liberte is a definite step forward in terms of deliverability and Element will be a further step forward in terms of performance, acute performance and people love this product.

J&J said ASPs were down 5%, you were saying down 10% in the US.

Can you help us reconcile the differences?

I know there's no perfect answer here but --

I couldn't tell you.

I have no idea.

I look at the MRG data.

It says what it says.

We're down.

We're down 7-ish, and I think they were down 8-ish, and that's the same number.

And that's what DRG or MRG says too, so

Just I'll sneak in one last one.

You highlighted the multi-year plant restructuring.

Maybe if you could remind us at all what the dollar impact and/or gross margin impact could be over the next couple of years just as you proceed through that.

What's left, essentially?

Thanks.

What we indicated in our fourth quarter call was that the benefit that would -- the full year run rate benefit that would accrue to us is a little over $100 million in improved gross profit.

Thanks.

Thank you.

And next we'll go to the line of Joanne Wuensch of BMO Capital Markets.

Please go ahead.

Thank you for taking the question.

Briefly, can you comment on the ICD pricing environment in the market and second of all, over time what do you think your top line growth can look like?

Thank you.

ICD pricing, we've gotten a little bit of an uplift with COGNIS and TELIGEN.

The kinds of pricing sort of trends we see are the same that the other guys described, there's no mystery there.

Couple of percent a year of decline but you get some of that back when you introduce a new product.

As far as top line growth, looking out, our growth is accelerating and we'll continue to accelerate through the rest of this year.

We haven't got to the planning yet for outyears but we're thinking mid to high single digits as we look forward and that's what we're kind of shooting for, trying to angle things so that's where we end up.

So it's hard to call what could change in the economic environment, all those kinds of things could impact all of this.

But we're pretty confident that we can get into the high single digit range.

We also said on the last call that on a constant currency basis, we thought just take two years, 2010, 2011, we're estimating 5 to 7% constant currency growth.

We also thought that over this year and each of those next two years or three years that we would be able to expand our operating profit margins on average by about 150 basis points a year for a three-year period.

So that would give us operating profit growth on that sort of revenue growth in excess of 15% a year.

Thank you.

Thank you.

And next we'll go to the line of Brooks West from Craig-Hallum Capital.

Please go ahead.

Hi, nice quarter.

Thanks.

Hey, just a quick one on DES mix.

We have heard about some success that you guys have had taking share in the PROMUS versus Xience battle.

Could you give a little more color there and Jim, maybe relate that back to your comments on mix for the rest of the year?

We win some and we lose some.

It's a battle out there, and we're winning our fair share, I would say.

They're at, call it 26, 27% share now.

We're at call it 23.

I'm comfortable with that success rate and we're doing well with TAXUS.

I like the dynamic right now, I guess is the bottom line.

Okay.

I mean, is there upside there or you're saying you're comfortable with where it is right now for the rest of the year?

I think this is where it ought to land.

I think things looking forward are going to be pretty stable in the US, and the only thing that will change dramatically will be Japan when Xience and PROMUS are launched and then we'll see movement at the end of this year when PROMUS Element is launched as well.

So -- but those are November events.

We're a long way from there.

Great.

Thank you.

Thank you.

And next we'll go to the line of Sara Michelmore of Cowen.

Please go ahead.

Thanks for taking a question.

Jim, could you just talk a little bit about the significance of this version 2 header release and maybe just as backdrop, kind of talk through, has to the prior version of the product been a constraint in terms of your ability to take share of people to try the product?

The way I characterize this, Sara, is that Version 1 was just -- we just made it too hard.

It works fine if you put the time into it to do it right.

Version 2 takes those elements of the procedure away.

It works.

It works beautifully.

People have noticed.

We will see an acceleration of our share gains with COGNIS and TELIGEN with the V2 header.

I have personally talked to docs who said, when you've got that V2, it works as advertised, let me know because that's when I'm going to start using this product.

So that's happening and I think we're going to do well.

Okay.

And when might we see some data on PROMUS Element, Jim?

Not for a while.

Okay.

And then if you could give us an update on MRI compliant product development, either for pacemakers or ICDs that would be helpful also.

Thanks.

That's a good question.

You have heard a lot about some of the competition's MRI compatible products, that's been more hype than reality.

It's really a pacer lead that they're talking about.

What we're doing is a comprehensive offering of both pacer and ICD leads, CRT leads as well.

Looking forward, everything we're going to do will be MRI compatible.

It will take a couple of years to start that roll-out, but this is something that is a good idea conceptually.

We're going to make it real.

Okay.

Thanks.

Thank you.

And next we'll go to the line of Glenn Navarro of RBC.

Please go ahead.

Thanks.

Good morning.

Two quick DES questions.

One, you mentioned on the call PROMUS and Xience in Japan being launched in November.

I think Abbott is saying they expect approval in November and then it takes a couple months just to work through pricing and reimbursement.

So are you saying approval and launch in November, or approval in November and then launch a few months later such as the first quarter of 2010 in Japan for PROMUS?

That's question one.

And two, just Jim, I know you don't want to go into too much specifics on the pathway of PROMUS Element in Europe.

Can you at least tell us whether or not your discussion with the European regulatory bodies, are they going smoothly as planned?

Do you feel incrementally better about a November launch of PROMUS Element in Europe at this stage?

You're right, I'm not going to tell you what I'm doing but we're on track, have been on track, remain on track, things are on track for PROMUS Element in Europe.

You're just as confident today as you were two months ago, three months ago?

Well, we're three months closer so I'm more confident.

Okay.

Good.

I mean -- that's what we want to hear.

As far as the timing of PROMUS and Xience in Japan, it's hard to call.

We have been very successful lately with approvals in Japan, and that we would hope would continue.

So it's possible that you would see even an earlier approval.

There's on average a 30 day delay between approval and reimbursement.

Depends on what day of the month you get approval, whether it's three weeks or six weeks.

But bottom line is we expect to launch this product in the fourth quarter in Japan and we expect it will be well received.

Okay.

Hey, just one quick follow-up.

Do you have any sense of when the insiders will stop selling?

No.

They don't ask me if they want to sell.

Okay.

It's just like every single day we continue to see the headlines roll across the tape about insider selling, and I was just wondering if we're any closer to that.

I know that's not something you can control.

I know they're not selling because they're worried about the outlook.

They have their own personal issues.

I'm just wondering if you had any conversation with Pete, say, hey, when are you going to stop selling shares?

We had dinner last night and we did not address this subject.

Next time you talk to him can you ask him for us.

He still owns a lot of shares so this could go on a while.

We do have a follow-up question from Mike Weinstein of JPMorgan.

Please go ahead.

Great.

Thanks for taking the follow-up.

Just a quick question was last night Striker announced that they had an IRS tax question relative to their Ireland.

You guys have a large presence in Ireland.

Just wondering if you received a similar letter?

Thanks.

We have not.

Okay.

Great.

Thanks, Sam.

Thank you.

Next we'll go to the line of Spencer Nam of Summer Street Research.

Please go ahead.

Couple of quick questions for Jim.

First of all, with this PROMUS Element launch expected in Europe at the end of this year, do you expect -- is there a possibility of some supply issue with the PROMUS, with Abbott here, how does the PROMUS relationship play out once the Element hits the market?

Well, the contract, their obligation to supply us ends in November of this year.

And we expect to have PROMUS Element available, approved and ready to ship by then.

And so we are ordering under the contract up to that point and they continue to supply, and we have to order well in advance.

So we give them forecasts out for six months, first three months of those six are firm, so we're out into -- with firm forecasts, out into mid-summer already.

And I don't expect that there will be any interruption, any gap, any of that sort of thing.

I just don't see that.

If the contract ends in November of this year, how does the supply -- are you going to manufacture it directly, in 2010 and 2011 until you come to the US market with PROMUS Element?

We are making PROMUS Element today for trials.

Okay?

This isn't a mystery.

We can make this stuff and when we launch the product at the end of this year, it will be self-manufactured product, and we'll be continuing to make product out from there forward.

The clarification to that point is that the contract with Abbott on supply has different expiration dates for each of the countries and, therefore, even though it expires in Europe, it continues in the US and Japan, and they will continue to supply the product for those countries going forward until it expires.

When do the US and Japan contracts expire?

They expire in the middle of 2012.

Okay.

Good.

Great.

One quick question back to Jim.

The US ICD competitive dynamics, are you guys taking share from Medtronic or St.

Jude or both at this point?

Well, we won't know until they report and so we're -- we believe we're taking share because we don't believe the market's growing 15%.

But where it comes from we get some from here, we get some from there.

I think overall, Medtronic seems to be the net giver, and we and St.

Jude seem to be the net taker of share.

But those trends have been in place for a while now and I don't think they have shifted noticeably in Q1.

Great.

Thanks very much.

Very helpful.

Julia, I think we'll take one more question and then we'll end the call for now.

Our last question is a follow-up from Kristen Stewart of Credit Suisse.

Please go ahead.

Hi, thanks for taking it.

Sorry if I missed this earlier, but Jim are you still seeing in the US kind of flat to declining primary implant volumes for ICDs?

Yeah.

It hasn't shifted much.

The data I've seen basically say that the implant growth rate has been diminishing for some time now.

But it seems like it is not getting worse.

It had been getting worse.

Now it seems to have bottomed out at a modest single digit negative number.

But that's a trend over the last few quarters from a modest positive single digit number to a modest negative single digit number.

It feels, though, like it stopped getting worse.

And can you just comment a little bit about the mix of the CRTD versus maybe a dual chamber, because anecdotally we're hearing that some EPs were a little hesitant to put in the CRTD because of the actual lead with all the lead issues out there.

How is the mix shift changed recently, or over the last year for CRTDs versus the dual chambers or even single chambers?

We've seen more growth on the ICD side than we have on the CRTD side, so there has been some shift.

What's driving that is hard to call.

I'm hopeful that maybe CRT when that pops will turn that dynamic around.

Remains to be seen.

I don't understand it, I guess is what I'm saying, and so if I don't understand it, I can't figure out what the fix is.

Okay.

So CRTD as a percentage of unit mix has decreased over the last year or so?

Modestly, it's really lost in the rounding.

Thanks very much.

Nice quarter.

Thanks.

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