Boston Scientific Corp (BSX) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Q3 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.

Instructions will be given at that time.

(Operator Instructions).

As a reminder, this conference is being recorded.

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

Larry Neumann, please go ahead.

Thank you, Kate.

Good morning, everyone and thank you for joining us.

With me on the call today are Ray Elliott, 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 third quarter results.

Key financials are attached to the Press Release and we have support schedules on the web site that you may find useful.

The agenda for this call will include a review of the third quarter financial results, as well as fourth quarter and updated full-year 2009 guidance from Sam, and an update on our business performance in the quarter from Ray, as well as his overall perspective on the quarter.

We will then open it up to questions.

We will be, we will also be joined during the question-and-answer session today by Fred Colen, Head of our CRM business, Hank Kucheman, Head of our Cardiovascular business, Steve Moreci, Head of Endosurgery business, Joe Fitzgerald, the Head of our Peripheral Intervention business, Mike Onuscheck, the Head of Neuromodulation business, David McFaul, the Head of International Group and Dr.

Keith Dawkins, Associate Chief Medical Officer.

Before we begin, I'd like to remind everyone of our 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 plans, our programs to increase shareholder value, new product development and launch, regulatory approvals, litigation, our tax position, 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 the call over to Sam for review of the third quarter financial results.

Thanks, Larry.

Before I review the results of operations for the quarter, I would like to discuss some trends we are seeing across a number of businesses and regions.

The global economy issue remain a challenge.

Increase focus on health care systems here and abroad is resulting in greater price pressures on our business around the world.

This coupled with gradual and general slow down in the growth as some is of our larger served markets is putting pressure on our top line growth opportunities as well as on our gross and operating profit margins.

US Health Care Reform is still being intensely debated and at the medical device innovation tax is passed together with the utilization tax that is proposed to be levied on our customers, changes in the way health care is developed and delivered will place added strain on health care providers, technology investments and advancements as well as suppliers.

Despite these pressures we continue to invest in the growth of our businesses through increases in customer facing positions as well as in strategic R&D initiatives and acquisitions.

We will however, need to be more selective and discriminating with our investment dollars than ever before.

We are also evaluating possible changes in several of our business models, as a direct response to current market conditions, and pending health care reform particularly in the US.

We recognize these are challenging times, but our responsibility is to deliver long-term profitable sales growth while responding to our changing environment.

Turning to the highlights of the quarter we delivered top line growth on a constant currency basis excluding divestitures of 3% with US growth of 4% and international growth of 3%.

This results in year-to-date constant currency consolidated sales growth of 5%, which is at the midpoint of the 2009 full-year guidance that we provided to you at the beginning of this year.

Excluding the impact of product recalls which will be discussed later as well as the revenue deferral associated with launching the LATITUDE remote patient monitoring system in Europe, constant currency growth for the third quarter would have been about 4%.

We continued to see solid growth in our CRM business in the quarter although our growth is slower than we anticipated.

We also delivered solid growth from our worldwide DES business as well as in our endoscopy, urology, gynecology and neuromodulation business.

Our neurovascular division continued to hold the leadership share position despite a delay in our new product launches worldwide, and our peripheral interventions business continued to strengthen with new product launches in the quarter.

There's also noteworthy that 44% of our revenue for the third quarter came from new products, that have been introduced in the last 24 months.

Our gross profit margin declined sequentially as a result of continued pricing pressures in several of our key markets together with product mix.

Our ability to maintain and improve gross profit margin is directly related to the gross profit margin improvements expected in our CRM division, our value improvement programs throughout all of our manufacturing plants, and our ability to manage price pressures and product mix around the world.

Over the next several years, we will look to improve our gross profit margins through favorable product mix driven by new product launches, the continued implementation of our multiyear plant network optimization program as we reduce the number of our manufacturing plants from 17 down to 12 and the launch of our PROMUS element stent in Europe in the fourth quarter of this year, and in the US and Japan in mid 2012.

Our expense in head count controls have been firmly in place for the past eight quarters and as a result of the success of these programs we have continued to reinvest some savings into additional direct sales head count targeted to drive incremental profits sales growth.

Now let's turn to a more detailed review of the operating results for the quarter.

Consolidated revenue for the third quarter was $2.025 billion.

That's within our guidance range of $2 billion to $2.1 billion, and represents a 2% reported increase in the third quarter of last year.

Included in our reported results is a negative 1% contribution from divested businesses.

So excluding the impact of the divested businesses and the negative $11 million effect from foreign currency, third quarter revenue was up 3% in constant currency.

Compared to the contribution assumed in our third quarter guidance range, foreign exchange contributed an additional $21 million to our third quarter sales results and without this additional currency tail wind our sales would have still been within the low end of our range.

Compared to the third quarter of last year excluding divestitures US revenue increased 4%, while international revenue increased 2% or up 3% in constant currency.

Ray will provide a broader overview of our businesses by major product category but I will address our sales results for all of our businesses here at a higher level.

Worldwide drug leading stents came in at $411 million that was at the midpoint of our guidance range of 390 to $430 million, and up 4% from the third quarter of 2008.

Which represents a 5% constant currency increase.

Our worldwide DES revenue includes $245 million for TAXUS and $166 million for PROMUS and this represents a 60/40 split between TAXUS and PROMUS.

We continue to sustain our worldwide DES leadership during the second quarter with an estimated global market share of 41%, which continues to be about 20 percentage points higher than our nearest competitor.

Geographically US DES revenue was $222 million and that was within our guidance range of 220 to $240 million and 6% higher than the third quarter of last year.

This includes $106 million of TAXUS and $116 million of PROMUS revenue and represents a 48/52 mix of TAXUS and PROMUS in the US compared to a 47/53 mix in Q2 of this year.

Recall that in Q3 of last year we recorded additional sales of TAXUS, as a result of adjusting our sales transition reserves, related to the launch of TAXUS Liberte.

Excluding this impact our US DES revenues increased 9% over the third quarter of last year and during the third quarter we reached the anniversary of the launch of PROMUS in the US.

We estimate that our US DES share was 49% for the quarter with 23 share points of TAXUS and 26 share points of PROMUS.

Our total share is up four points compared to the third quarter of last year and remains consistent with the share during the first half of this year.

The stability of our US DES market share is driven by the fact that Boston Scientific is the only company in the industry with a two drug platform.

Ray will discuss during his remarks our thoughts regarding the data released at the TCT meeting last month in San Francisco.

With our two drug offering coupled with the strength of our commercial team, we have demonstrated our ability to maintain significant leadership in the competitive US drug-eluting stent market, with 22 more market share points or almost twice the market share of our next nearest competitor.

Based on our estimate of the market for the third quarter we believe that Abbott had market share of approximately 27% while J&J and Medtronic achieved approximately 12% each.

International drug-eluting stent sales of $189 million were at the top end of our guidance range of 170 to $190 million and represents an increase from prior year or 1% on a reported basis and 2% in constant currency.

This includes $139 million in TAXUS and $50 million from PROMUS sales and represents a 74/26 mix of TAXUS and PROMUS internationally.

Boston Scientific's DES market share in EMEA is estimated to be 34% which is up 1% sequentially from the second quarter, and up 2% compared to the third quarter of 2008.

TAXUS market share was approximately 20% with revenue of $46 million, and PROMUS market share was 14%, with revenue of $32 million.

Together, this represents a TAXUS PROMUS mix in EMEA of 60/40.

Our drug-eluting stent share in Japan was 47%, up two percentage points from the third quarter of 2008 with revenue of $62 million.

Despite the competitive launch of Endeavor in May, we continue to hold nearly half of the Japanese market.

During the quarter we estimate that Endeavor share reached 19% in Japan, while J&J reached about 34%.

While our sales in Japan today are 100% TAXUS, we still anticipate approval of PROMUS XIENCE during the fourth quarter with the first quarter of 2010 launch expected.

We estimate that our Asia Pacific DES share remains steady at about 19% during the third quarter split 10% TAXUS with $13 million in revenue, and 9% PROMUS with $11 million in revenue or TAXUS PROMUS mix of 54/46.

Drug-eluting stent sales in our Americas International region were $25 million representing approximately 48% market share with 35% or $18 million in TAXUS revenue, and 13% or $7 million in PROMUS revenue.

This represents a 74/26 mix of TAXUS PROMUS.

In summary with our 41% global DES market share, we do remain the clear worldwide drug-eluting stent leader.

Now let's look at DES market dynamics during the third quarter.

We estimate the worldwide DES market in Q3 at approximately $1 billion and that is down about 3% versus the third quarter of 2008, including a negative contribution from foreign currency of about 1%.

This includes a worldwide unit volume increase of approximately 9%, offset by a worldwide market decline in average selling prices, including a shift mix, shift in mix of DES brands to more PROMUS and less TAXUS of approximately 11%.

Global penetration rates have stabilized, however pricing pressures in our markets have not stabilize as quickly as we had anticipated.

As a result, we are beginning to see a negative market growth versus our previous assumption, that the DES market would remain flat.

The US DES market is estimated to be about $453 million representing a decrease of approximately 1% over the third quarter of last year.

This consists of a unit volume increase of approximately 7%, offset by market declines including a shift in the mix of DES platforms, market price declines of about 8%.

During the quarter we saw our US DES ASP reductions consistent with the market declines with PROMUS down 8% and TAXUS down 9%.

US PCI volume in the quarter was approximately 252,000 procedures and that is up 1% compared to the third quarter of 2008, but down 1.5% compared to last quarter.

We estimate that US DES penetration remained at 75% in the quarter representing a five percentage point increase over the third quarter of 2008.

This is the third quarter in a row, with US penetration rates stable at about 75%.

Combined with stinted procedure rates and stents per procedure we estimate that the total unit market share of US stents in the third quarter was approximately 337,000 units including 252,000 units of drug-eluting stents.

The International drug-eluting stent market remains strong for the quarter with approximately 494,000 PCI procedures including 282,000 procedures in EMEA, 53,000 procedures in Japan, 93,000 procedures in Asia Pac and 65,000 procedures in the Americas.

Penetration rates in international markets trended up in the two largest markets with EMEA up 3 points sequential to 55%, and Japan up one point sequential to 68%.

Asia Pac was down two points to 75% while the international Americas remained flat at about 32%.

Turning to our CRM business, this quarter marks the anniversary of the launch of our COGNIS in TELIGEN platforms in the US.

The global launch is continuing and we expect to launch COGNIS in TELIGEN in Japan in the fourth quarter of this year.

And once we have launched in Japan we will be competing with COGNIS in TELIGEN in all four of our major markets worldwide.

Worldwide Q3 CRM revenue of $608 million represents a reporting increase of 6% and a constant currency increase of 8% over the $572 million reported in the third quarter of 2008.

This performance against more difficult comparable demonstrates the strength of our new products and acceptance by both physicians and patients.

US CRM revenue of $404 million represents a 7% increase over prior year, and for the first nine months we are up 10% over 2008.

International CRM sales of $204 million represent a reported increase of 5% from prior year, and up 9% in constant currency.

Worldwide ICD sales of $445 million were at the low end of our guidance range of 445 to $475 million.

This represents a reported increase of 5% over the third quarter of last year and a constant currency increase of 7%.

ICD sales in the US were $314 million representing an 8% increase over last year, and international ICD sales of $131 million represents a 1% reported decrease from last year, but up 4% in constant currency.

During the quarter we managed a phased launch of LATITUDE in Europe.

As we continue to ramp up this launch, we expect to improve our ability to grow our international revenues.

As a reminder, under the accounting rules for revenue recognition, we are required to defer recognition on a portion of our ICD sales and gross profit related to the patient monitoring services associated with LATITUDE.

As a result we amortize and recognize sales and gross profit, over the expected life of the defibrillator battery which is about seven years.

Excluding sales from our five non-core divested businesses our non-DES and non-CRM worldwide revenues increased 1% compared to this third quarter of last year to $1.4 billion and were flat in constant currency.

This includes constant currency increases of 4% in urology and gynecology, 10% in endoscopy and 21% in neuromodulation.

Our peripheral intervention business remains flat versus last year due to continued pressure in our balloon and stent businesses worldwide, and the impact of a product recall in the quarter.

We estimate the recall temporarily took away about 1% of our PI growth, but should be reestablished in the fourth quarter.

Our neurovascular business was down 2% versus last year as expected as a result of competitive launches, and our softening coil business.

The launch of project Phoenix our new coil and Neuroform EZ, our new stent delivery system will be launched in the US and Europe by the end of the first quarter 2010.

In our non-stent intervention cardiology business, and in our electrophysiology business, we saw constant currency decreases of 8%, and 3% respectively.

As we continue to develop our new product pipelines for these businesses we do expect the growth in these divisions to accelerate, and begin to exceed market growth rates.

We should see these benefit for our non-stent intervention cardiology business in the next 18 months or so and expect our electrophysiology business to benefit from several new product launches including Blazer Prime in the US in the fourth quarter and Blazer DX-20, Blazer Prime and Blazer Open Irrigated Ablation Catheter in Europe in 2010.

Ray 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 68.9% and adjusted gross profit margin for the quarter excluding restructuring related charges was 69.6% which is 60 basis points lower than last quarter, and 250 basis points higher than the third quarter of 2008.

Major contributors to the decline in gross margin from the second quarter include a negative $13 million or 43 basis points of gross profit, associated with product recalls in the quarter in our CV and urology gynecology businesses.

We expect these products to be back on the market in the fourth quarter of this year.

Also includes adverse product mix primarily driven by an increase in PROMUS sales in a smaller market in EMEA due to seasonality and lower overall market share in Japan, all contributed a negative 25 basis points of gross profit.

Major contributors to the 250 basis point improvement from last year include 175 basis points of improvement from fluctuations from foreign currency; 100 basis points of improvement as a result of the favorable sales mix in our CRM division between Defib and Pacers as well as LATITUDE [promise] reserves that were reported in the third quarter of last year; 120 basis points of improvement as a result of $23 million one-time write offs of TAXUS Liberte inventory last year related to a warning letter received by one of our third-party sterilizer; 46 basis points of gross profit reduction is a result of product recalls in the quarter; 46 basis points of gross profit reduction relate to the mix of DES sales in the quarter; and decreases in average selling prices and a few other minor differences make up the additional 50 basis points.

While we are seeing continued pressure on the gross profit margins, we expect a bit of relief when we launch PROMUS Element in Europe in the last quarter of this year, additionally we will realize cost reduction benefits from our continuing value improvement programs in all of our plants throughout 2010 and into 2011, and by the end of 2010, we will begin to see the reduced product costs benefits of our plant network optimization program.

Our reported SG&A expenses in the third quarter were $665 million, adjusted SG&A expenses excluding restructuring related items were $660 million which was 1% lower than last quarter, and 9% higher than the third quarter of 2008.

The increase over prior year is primarily due to the addition of direct selling expenses and head counts, including the previously discussed targeted increases to our worldwide CRM field force.

We also have elevated legal expenses associated with our on going negotiations.

Finally, we also have CEO transition costs of about $4 million in the quarter.

Reported research and development expenses were $250 million for th quarter, adjusted R&D expenses of $257 million and 12.7% of sales were consistent with our last quarter and represent a 10 basis point increase over the third quarter of 2008.

Our annual R&D investments will remain consistent at about $1 billion to support our commitment to advancing medical technologies.

We our also continue to pursue a strategic acquisition opportunities.

Operating expenses in total continue to reflect the targeted investments in customer facing field force and R&D programs to drive profitable revenue growth.

Our head count management and approval process provide us with the tools necessary to maintain control over expenses in the future.

Based upon our results through September combined with our internal forecast for the fourth quarter of this year we expect to spend approximately $3.65 billion in the combination of SG&A and R&D expense for the full year 2009.

We reported GAAP operating income of $287 million for the quarter, on an adjusted basis excluding restructuring related charges and amortization expense adjusted operating income for the quarter was $441 million at 21.8% of sales.

That's down 30 basis points from last quarter, and up 40 basis points from Q3, 2008.

Our operating income margin in the quarter is lower than expected as a result of sales coming in at the low end of our guidance together with lower than expected gross profit margins driven mainly by lower ASPs, adverse product mix and lower production volumes in several of our manufacturing plants.

Our investments in hiring and training additional additional CRM reps in the US, Europe, and Japan should give us the ability to increase market share in the future as they complete their nine to 12 months of training.

We did, however, underestimate the length of time it would take these newly trained reps to become productive, build important relationship with prospective customers, and win new business by gaining customer confidence.

As a result, in the short-term our selling expenses are not getting the leverage from new sales and gross profit that we expected.

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

First, total amortization expense was $126 million pretax or $107 million after tax and this was $5 million lower than the third quarter of 2008.

Going forward, our quarterly amortization expense should remain at this level.

We also recorded $28 million pretax or $21 million after tax of restructuring related charges in the quarter which are primarily related to the production transfer cost as well as retention and certain other costs in connection with our previously announced plant network optimization program and our expense and head down reduction initiatives as well as charges related to our 2007 restructuring.

These charges are in line with our previous estimates.

Finally, we recorded a $58 million pretax $37 million after tax of credits associated with the reduction of recorded reserves, associated with certain litigation related matters.

The cumulative effect of all of these items was $96 million of pretax, and $91 million of after tax.

Interest expense was $91 million in the quarter which was $21 million lower than the third quarter of 2008 primarily as a result of our $725 million in debt, repayments during the last 12 months, together with lower interest rates.

Interest expense in the third quarter was also $1 million lower than the second quarter of this year due to our $225 million debt prepayment in July, together with slightly lower interest rates.

Our Q3 2009 average interest expense rate was 5.5% compared to 5.9% in the third quarter of 2008 and 5.5% in the second quarter of 2009.

Other net -- other net expense was negative $4 million in the quarter and includes $1 million of interest income and $5 million of other expenses.

Interest income was $10 million lower than Q3 2008, and slightly lower than the second quarter of this year primarily due to a lower rate of return on our cash investments.

And as a reminder our other net expense in Q3 2008 included approximately $15 million of net gains, relate to the monetize of our non-strategic investments process that was completed in the first quarter of 2009, as well as $10 million of other expenses.

Reported GAAP tax rate for the third quarter was 20%, and on an adjusted basis our tax rate was 15.8% for the quarter.

Our operational tax rate at the end of the third quarter was 18.3%, which is consistent with our previous guidance of 18 to 19%, for the remainder of 2009.

But as a result, our adjusted tax rate for the quarter reflected a 250 basis points favorable impact or $8 million as we adjusted our operational tax liability from the previous two quarters down to the 18.3% level for the year.

We expect our full-year operational tax rate will be approximately 18% and as a result we anticipate that our adjusted tax rate for the fourth quarter will be between 17 and 18%, excluding any discreate tax items that may arise during the quarter.

The GAAP earnings per share during the third quarter were $0.13 per share compared to a loss of $0.04 per snare the third quarter of last year.

GAAP results for the quarter include the previously mentioned litigation related credits, restructuring and restructuring related charges and amortization.

Our adjusted earnings per share in the third quarter which excludes these items was $0.19, was at the midpoint of our guidance range of $0.17 to $0.21 per share.

This compares to $0.16 in the third quarter of last year.

As a reminded, the third quarter of 2008 adjusted earnings per share excluded $0.06 per share of related to amortization, $0.02 per share of restructuring related charges, $0.18 per share of litigation related charges and $0.09 per share of intangible asset impairment charges.

These charges were offset by $0.13 per share of acquisition related charges and $0.02 per share of divestiture related gains.

Stock compensation was $33 million in all per share calculations were computed using 1.5 billion shares outstanding.

DSO, days sales out standing were 65 days in the quarter.

That's a two-day increase over both last year as well as the third quarter of last quarter, as well as the third quarter of last year.

Continued strong cash collections in Japan, and the United States were partially offset by a deterioration related to slower collections in Europe which are being addressed operationally.

Our days payable outstanding for the quarter were 33 days which is a two day higher than second quarter 2009 and one day higher than the third quarter of last year.

This improvement generally related to better performance in both the US, and EMEA.

Days inventory on hand were 138 days, up 11 days from the second quarter of this year, and up 18 days from September 30th, 2008.

The increase in days over last year was mainly driven by the inventory builds in support of the launch of TAXUS Liberte launches and product transfers related to the plant network optimization strategy.

The increase over last quarter is due to increase builds to support second half 2009 new product launches, and the DES, CRM and endosurgery franchises.

Reported operating cash flow in the quarter was $484 million which was $154 million lower than the third quarter of 2008.

Q3 2008 included a $250 million milestone receipt related to the FDA approval of Abbott Xience drug-eluting stent and $22 million of restructuring payments while Q3 this year including $2 million in payments related to the MDL litigation and $16 million of restructuring payments.

Excluding these items, Q3 2009 adjusted operating cash flow was $502 million which was $92 million higher than the third quarter of last year primarily due to lower tax payments and higher adjusted operating income.

Capital expenditures were $91 million in the quarter which was $19 million higher than the third quarter of last year and $17 million higher than the second quarter of this year.

Capital expenditures for the full year are expected to be between 325 and $350 million.

Reported free cash flow was $393 million in the quarter, compared to $565 million in Q3 2008, and $345 million in the second quarter of this year.

We closed the quarter with $6 billion of total debt and $1.4 billion of cash on hand, resulting in net debt of $4.6 billion.

Total debt is $744 million lower than the third quarter of 2008 as a result of our debt prepayments within the last 12 months including a $225 million prepayment in the third quarter of this year.

Net debt is approximately $391 million lower than the third quarter of 2008, reflecting positive net cash flow.

In early October, this quarter we prepaid an additional $250 million of debt reducing total debt to $5.8 billion.

In October, we also paid from cash on hand, $716 million related to the previously announced settlement of patent disputes with Johnson and Johnson.

We intend to continue using our strong free cash flow to prepay debt and expect to refinance our 2011 debt maturities by approximately mid year 2010.

At the end of the third quarter our debt to EBITDA credit facility covenant ratio was 2.6 times which is well below the maximum permitted level of 3.5 times, providing us with just under $600 million of EBITDA cushion.

We currently have access to approximately $2.5 billion of liquidity consisting of $460 million of cash on hand, and $2.1 billion under our revolving credit and accounts receivable securitization facilities.

We also expect to receive a $250 million check from Abbott in the fourth quarter of this year, when they receive approval for XIENCE in Japan.

Now let's turn to guidance.

We we began 2009, we expected our sales and earnings in the last half of 2009 would be substantially higher than the first half.

We performed well throughout the first six months of this year but the following issues some of which began to show up in our third quarter will cause us to fall short of the original expectations in the last half of this year.

Beginning in the last half of 2008 and throughout 2009, we planned to add many CRM reps, that we expected would drive significant incremental revenue in the back part of this year.

We have indeed added these reps in the US, Europe, and Japan, and most have completed training, but they're effectiveness in the field will take longer than we had originally envisioned.

We are very pleased and still are, with our total US DES market share position, that we were able to carry into 2009, from 2008.

Our marker share has been stable throughout the year, but we have a higher mix of PROMUS versus TAXUS than we had expected.

The rate of DES pricing declines has stabilized with out a more adverse reduction levels than we anticipated .

New product delays in our global business, such as our new Neurovascular Coil, Neurovascular Stent, new Cardiovascular Guidewires and Balloons and additional international delays including TAXUS Element PROMUS in Japan and the phased launch of LATITUDE in EMEA are having a negative effect on our growth rates in the last half of this year compared to our expectations that we set coming into this year.

We expected more recovery in our non-DES IC businesses than we are seeing.

Non-DES pricing pressures including pricing trends in CRM are also greater than forecasting, health care reform discussions and agreements reached with hospitals are showing second order affects on our businesses.

A rapidly changing FDA environment has increased the burden on current products in the field as well as on approval times for bringing new products to the market.

We have tried our best to incorporate all of these issues and trends into our fourth quarter sales and earnings guidance.

Turning to sales guidance for the fourth quarter of 2009, reported consolidated revenues are expected to be in the range of $2.025 billion to $2.125 billion, and that's a range that would be an increase of 2 to 6% from the $1.995 billion recorded in the fourth quarter of 2008 excluding divestitures.

If current foreign currency exchange rates hold constant throughout the fourth quarter, the positive contribution from FX should be approximately $80 million or roughly 4% relative to Q4 2008.

On a constant currency basis, Q4 consolidated sales growth should be in a range of down 2%, to up 2%.

For DES we are targeted worldwide revenue to be in a range of 400 to $440 million with the US revenue of 205 to $225 million, and OUS revenue of 195 to $215 million.

For our defibrillator business we expect revenue of 445 to $475 million worldwide with 310 to $330 million in the US and 135 to $145 million OUS.

For the fourth quarter adjusted earnings per share excluding charges related to acquisition, divestitures, restructuring, and amortization expense, are expected to be in a range of $0.17 to $0.21 per share.

This includes an effective tax rate on adjusted earnings of between 17 and 18%, as I discussed earlier.

The Company expects earnings per share on a GAAP basis in the fourth quarter of 2009, to be in a range of $0.20 to $0.25 included in our GAAP EPS is approximately $0.01 to $0.02 per share of restructuring related charges, $0.07 per share of amortization expense, and a credit of $0.12 per share related to our planned receipt of $250 million from Abbott on the approval of XIENCE in Japan.

With our actual results through the third quarter, and current guidance for the fourth quarter we are now expecting full year 2009 revenues to be in the range of $8.134 billion to $8.234 billion.

We are also now expecting to achieve adjusted earnings per share for the full year of $0.75 to $0.79 excluding litigation related credits, the credit related to payments from Abbott acquisitions, divestitures, major litigations and restructuring related charges as well as amortization expense from large discreate tax items.

Included in this estimate is an adjusted effective tax rate of approximately 17.3% for the full-year including all discrete tax items previously mentioned.

The Company now expected full-year 2009 GAAP earnings per share between $0.43 and $0.48.

That's it for guidance.

Now let me turn it over to Ray for a more in depth review of our

Thanks, Sam.

If last quarter taught me that Boston Scientific is the only institution where you don't get to rest on the seventh day.

This quarter taught me that rest is completely overrated.

I have said previously we remain very much an unfulfilled promise.

These are challenging times admittedly but not without aggressive plans redemption.

Let me begin with a more qualitative review of our business, starting with CRM, and then as usual I will share some brief thoughts on likes, dislikes and hot topics for the quarter overall.

We delivered steady overall constant currency CRM product growth of 8% in third quarter revenues with US defib sales up 8% driven by our COGNIS intelligent products.

This marks nine straight quarters of CRM growth both US and worldwide.

We saw strong growth of 9% constant currency in international pacer revenues supported by the growing adoption of our ALTRUA platform and excluding a large contract for Brady leads in Japan that swelled the total growth to 19%.

International defib which was up 4% constant currency over prior year, slowed to a lower growth than we had anticipated for the quarter.

However, as Sam mentioned earlier, the deferred revenue accounting associated with our LATITUDE patient monitoring system launched in Europe during the quarter had a negative impact of 4% on our growth, which otherwise would have matched the domestic total of 8%.

We anticipate international defib performance to strengthen over time as we complete our roll out in Europe and continue new introductions in Japan.

While all of our competitors have not formally reported results for the quarter we believe we continue to take share the US market, recent public comments have suggested a possible slow down in market growth.

Our most recent estimates for over all market growth rates in the 5 to 6% range, and US defib growth of about 3% should be considered too high at this point.

With the likely rates at 4% in total and 2% domestically.

We are confident we will continue our above-market performance in the CRM market and therefore, take share along the way albeit from a lower rate of market growth.

We are looking forward to a steady cadence of product launches worldwide in Japan we recently launched [Compute] and last month we received approval for ALTRUA, our most advanced pacemaker more importantly, we were granted the top tier or category four reimbursement level for ALTRUA, which opens access to the vast majority of the pacer market in Japan.

As we continue to rebuild our Japanese distribution network we believe that the ICD segment will accelerate once reimbursement for primary prevention is approved.

We plan to launch COGNIS in TELIGEN in Japan by the end of year and we expect that the worlds smallest and thinnest energy devices will be well received.

In Europe, we are in the early phases of our LATITUDE launch and we are pleased with our progress to date.

The international version of LATITUDE is compatible we both COGNIS in TELIGEN and builds on our experience with more than 130,000 domestic patients.

In parts of northern Europe we are actually selling the hardware.

In the US, we are on track to launch the ACUITY Break-Away Lead delivery system early next year, which will add to our strong portfolio of lead delivery systems.

Looking further ahead we anticipate a phased US launch of our new IS-4 Header and defibrillator lead system next year.

The new lead system reduces the required implant area within the body making COGNIS in TELIGEN even smaller.

This new lead system began a phase introduction in CE marked countries last quarter.

Over the past 18 to 24 months, we have clearly restored our CRM new product flow and we expect to strengthen it with investments in new invasions although devices like COGNIS, TELIGEN and ALTRUA will be tough acts to follow we are already gearing up to launch our next generation line of defibrillator by the end of next year.

These devices will include new features assigned to improve functionality, diagnostic capability and ease of use.

By early 2011, we expect to launch in the US and Europe a new wireless pacemaker built on the same platform as the high voltage devices.

Turning to clinical updates, final results from the landmark MADIT-CRT trial were published in the New England Journal of Medicine and presented at the European Society of Cardiology, and Heart Failure Society of America meetings.

The results provide the first indisputable clinical evidence that cardiac Resynchronization therapy significantly slows heart failure progression in Class I and II patients, further delaying the onset of more sever and life limiting conditions.

We believe the strong MADIT-CRT results will allow us to work with the FDA to expand Boston Scientific CRTD indications creating additional opportunities for the market as a whole and for Boston Scientific specifically.

Our more immediate goal is to complete our FDA filing by the end of the year.

With this timetable we can reasonably expect approval as early as mid 2010.

US reimbursement for CRTDs in patients who fit the MADIT-CRT criteria is already in place which should allow a more straight forward path to expand penetration for this patient population.

The key area of focus following an indication expansion will be removing barriers among referring physicians to increase patient penetration.

We estimate that over the next several years a new indication should expand defibrillator market by as much as 250 million the United States and 400 million to 500 million worldwide.

Additional details were provided on the September 1, analyst call and we continue to support the incremental market benefits presented at that time.

Let me give you a quick update on the EP business.

We launched our Blazer DX-20 Steerable diagnostic catheter in the US in May and both revenue and market share are exceeding targets.

Although we are still in the rollout phase, we estimate the product has achieved 20% market share for the third quarter with momentum still building.

The Blazer Prime an approved version of the Blazer Ablation Catheter received FDA approval two weeks ago and is on target for launch in the US in the fourth quarter.

We anticipate a European launch of both the Blazer DX 20 to and Blazer Prime in early 2010.

The Blazer Open Irrigated Ablation Catheter should be ready for European launch in mid 2010, with US clinical trials beginning around the same time.

Overall, EP market growth continues to be in the double-digit range.

In short, our strong CRM product portfolio and sales and clinical support team expansion efforts position us well on a going forward basis.

We have made significant investments in the size of CRM sales and clinical support team as noted but we must be able to execute better in terms of the speed with which they produce a viable return on that investment.

While the market growth rates are slower than we had expected coming to the year we continue to out perform the market and take share.

Turning now to cardiovascular, we reported another solid quarter of DES results, up 5% constant currency and you with 41% worldwide market share.

TAXUS drove 24% of the market share with PROMUS at 17%.

In the US, we saw a stable market during the third quarter with US PCI growth up approximately 1% and penetration holding steady at 75% for the third consecutive quarter and up five percentage points from the third quarter of 2008.

We believe in the US, XIENCE had a 27% share for the quarter while CYPHER and Endeavor were at 12% each and therefore maintaining our 22 point share lead over our nearest competitors with Boston Scientific at a 49% share.

Contributing to our TAXUS position in the US, was the on going lunch of our TAXUS Liberte Adam stent which started late in the second quarter.

In addition we successfully managed through a change in labeling, on our bare metal stent in the US, with virtually no lost revenue, changing the name of that product to VeriFLEX in response to feedback from the FDA regarding possible confusion in cath labs amongst TAXUS drug-eluting stent products.

Another significant highlight of the quarter was the early completion of the workhorse portion of the enrollment of the platinum trial.

A key milestone in our plan to launch PROMUS Element in the US, by mid 2012.

In Europe, DS penetration was approximately 55%, the seventh quarter of stable or increasing penetration and up six points from the third quarter 2008.

Our DS share was 34% split approximately 20% TAXUS and 14% PROMUS.

In Japan, DS penetration was up to 68%, an increase of two points from the third quarter 2008 and we had a 47% DS share which was also up two points from the third quarter 2008 with J&J and Medtronic at approximately 34% and 19% respectively.

To be up two share points over year despite the entrance of a new competitor to the market speaks to the strength of both our Japanese sales force and the TAXUS Liberte platform.

Next, let me take a minute to address the studies that were released in September.

Starting with the two year SYNTAX data which reinforced one year results showing impressive outcomes for PCI in patients with complex left main and triple vessel disease, the majority of whom are normally treated with CABG.

The two year data built on the prior data and provide additional support for PCI as a viable treatment option for many of these patients.

We were also very please with the performance of our PROMUS stent as well as our first generation TAXUS express stent based on the spirit three and spirit four results presented at recent TCT conference.

The strong results for both platforms reinforce what physicians already know through the results they see in their patients everyday.

As we have all learned, since DS was first introduced no one can rely on the results of a single centered clinical trial, in this case the compare, it is simply inappropriate to draw any definitive conclusions, let alone instruct the practice of medicine.

The compare results are not consistent with the overall body of TAXUS trial scientific evidence involving more than 46,000 patients, which clearly demonstrate the safety and efficacy of our product.

This type of situation has occurred several times over during the last six years in the DS marketplace.

This trial does not match the real world experience of intervention cardiologist who have used the TAXUS product in more than 2.5 million patients with more than 4.6 million stents implanted worldwide.

Compare results were driven by unusually high rate of early acute stent thrombosis, and you should know that rate is approximately three times what is seen in other multicenter clinical trials and real world registry, using either the TAXUS express or TAXUS Liberte stents.

Unusually compare used a non-hierarchal based calculation to assess the frequency of secondary events which means that some events such as stent thrombosis would have been double or triple counted for the same lesion.

These results were not seen in Spirit 2 through Spirit 4.

Not in TAXUS 4 or 5, not the ARRIVE, not in ATLAS, not in ATLAS LL, not in ATLAS SV and not in ATLAS DS.

We should all remember both the [Scar] in Syntax history.

Compare was not powered for stent thrombosis, period.

We would reasonably expect clinical behavior to be governed by their entire body of scientific evidence so should competitive behavior.

For our CV clinical marketing and sales teams have effectively dealt with this marketing tactic before, and will do so again.

They have a solid plan to insure that the data coming out of TCT are understood by our customers within the proper clinical context, for example, last week we completed a 23 site educational event with more than 300 physicians and tenants to provide our perspective on the TCT data and our DES pipeline plans.

The TAXUS franchise may very well decline in the near-term as a result of post TCT competitive practices.

Our guidance, in fact, assumes so, but TAXUS resilience has surprised many over the years when data has been questioned, the product, and have been successful in regaining our position time and time again.

Many have been wrong before in the future market share waiting within their models.

This time is no different.

We will vigorously defend our share throughout 2010 and look to grow our position in 2011 with the launch of TAXUS Element.

We are able to offer customers a choice between the two best DES stents that are on the market today from one supplier.

This is a point of differentiation between us and our competition, and it represents one of the key reasons we continue to be the worldwide DES leader.

Looking ahead to the fourth quarter we launched TAXUS Liberte long stent in the US earlier this month for which we expect to garner a price premium and in Europe we remain on schedule to launch PROMUS Element later this quarter.

Finally we expect to launch PROMUS in Japan during the the first quarter of 2010.

The European launch of TAXUS Element stent, I repeat TAXUS Element not PROMUS Element which has already been launched in unregulated markets with extremely positive feedback will take place in the second quarter 2010 based on current regulatory feedback.

The European sales and marking team has recent completed launched training on PROMUS Element and TAXUS Element.

The PROMUS Element US and Japan launches remain on target for mid 2012.

The TAXUS Element US launch on target for mid 2011 and a Japan launch late 2011 or early 2012.

The Element platform which uses a new platinum chromium stent alloy will provide a noticeable improvement in deliverability, including thinner stronger struts, lower stent recoil and enhance radio paucity.

Perhaps most important, we are confident our Element launch cadence will be highly competitive with XIENCE prime on a world wide basis.

We are pleased with our progress on the integration of lab coat technology which we have decided to apply to our element platform as next generation DES biodegradable technological offering.

Turning to our other CD product line, our US leadership in PTCA balloon catheters remains at 54% share.

We continue the launch of our new imaging Catheter iCross and are planning a number of new additional product launches over the next four quarters including the APEX Platinum Dilatation Balloon Catheter for improved radio paucity, the NC Quantum Apex Post Dilatation Balloon Catheter and [Connetix] Guidewire.

Each of these products should overtime be market share takers.

In the meantime we continue to struggle with non-DES core product sales due to both the age of our offerings and persistent pricing threats.

In our peripheral interventions business we maintain a strong worldwide position in a growing market.

We hold the number one position, in multiple product categories, the US launches of the sterling ESPT balloon catheter, the corroded WALLSTENT and the Express Renal SD stent as well as the international launch of EPIC vascular stent continue to drive positive momentum for the business.

The OUS EPIC stent launch also garnered momentum with increases in account penetration, reorder rates, and market share gains.

We have substantially completed all filings associated with our Express LD, [iliac] indication PMA.

We expect to receive PMA approval in the fourth quarter.

This approval is one of the keys to our US performance in 2010.

With these launches we expect to expand our PI leadership.

Overall our cardiovascular business continues to be very well positioned with the unique two-drug offering, a long list of leading franchises, stable market fundamentals and a robust product launch cadence.

We absolutely believe our overall cath lab leadership will be strong over the next two years, but we are realistic enough to also recognize the post TCT and pricing headwinds that we face near-term.

Our neurovascular business continues to maintain its global leadership position, recording another quarter of strong sales in spite of new competitive product offerings.

We saw growth across nearly all franchises with the exception of coils and adjunctive stenting.

New product launches especially the Phoenix coil expect in the near future should allow us to quickly turn this into a positive trend.

Our Access business, Catheters and Guidewires continue to do well.

Our Guidewire segment grew 14% as our customer base continued to expand and convert to our Synchro2 Guidewire technology.

Our ICAD, Intracranial Atherosclerotic stent business grew 14% worldwide and we are experiencing a record 72% growth in China, and 24% in Europe largely in Germany and France.

Korea received approval for both the Wingspan and Gateway balloon and Japan kicked off needed clinical trials for PMDA approval for both Wingspan and Neuroform.

Despite softening as a result of competitive launches in both coils and adjunctive stenting we maintained approximately 40% and 55% market shares respectively.

The Matrix and Platinum Science MAPS trial is nearing enrollment completion and the NIH sponsored Wingspan stent and Gateway balloon system SAMPRAS trail continues to aggressively enroll patients.

The endosurgery team continued its strong performance up 8% constant currency for year with endoscopy growing 10% and urology, gynecology growing 4% or up 10% excluding the Prolieve recall.

More on that in a minute.

Endoscopy division recorded a 10% worldwide constant currency growth and 11% in the US market.

The third quarter results were led by a 25% increase in endoscopy stent franchise, we continue to drive market adoption of the WallFlex biliary RX stent system designed to provide enhanced and endoscopic delivered lumen palliation to patients impacted by obstruction.

We have solid growth across our therapeutic biliary franchise on the strength of the rapid exchange biliary devices.

The combination of these devices provide important therapeutic options to patients with pancreatic and biliary disease.

Endoscopy saw excellent constant currency growth of 15% in its endoscopy hemostasis franchise through the continued market adoption of the resolution clip.

The resolution clip provides clinicians with enhanced bleeding control through a variety of endoscopic procedures.

Our endoscopy business continues to lead the $1.8 billion global flexible GI and pulmonary endoscopy market.

Our individual catheters are used during flexible endoscopy procedures, like colonoscopy to diagnose therapeutically treat and palliate patients impacted by GI and pulmonary diseases.

We continue to see good procedural growth in all areas of flexible endoscopy with increasing utilization of our therapeutic devices.

During the fourth quarter we will continue the commercialization of our market leading WallFlex stent line, Dreamwire and Dreamtone, new RX biliary devices and expanded sizes of our Radial Jaw 4 biopsy forceps..

Neurology and gynecology delivered solid results for the quarter despite the recall in July for the Prolieve catheters for the treatment of BPH.

A Prolieve recall lowered the division sales growth to 4%.

As mentioned previously, growth excluding the recall on the related products year-over-year was strong at 10%.

The product issue has already been corrected and we expect to return to the market during the fourth quarter.

Several new product launches in the first half of the year continue to fuel growth in the women's health side of the business which grew nearly 20% versus prior year.

The Solyx Single Incision Sling System, the Uphold Vaginal Support System, the Pinnacle Posterior Pelvic Floor Repair Kit and the second generation ProCerva HTA Procedure Kit all performed better than expected in the third quarter.

Urology gynecology continued to extend leadership in the cornerstone management business with above market growth of 7%.

The pipeline will continue to be productive in the fourth quarter as we commercialize the DUET Pelvic Floor Reconstruction Kit and the next generation Laser Fiber for Kidney Stone removal.

Finally our worldwide neuromodulation team delivered constant currency sales growth of 21% in the third quarter with the US also growing 21%.

Our growth accelerated in the third quarter with both the first and second quarters as a result of several changes.

We added almost 50 new sales reps which increased our total territories and regions and allowed for better sales coverage.

We expect to continue this strategy.

We founded new programs targeted at competitive positions that helped differentiate the Precision Spinal Cord Stimulator and increase the awareness of Spinal Cord Stimulation with non-paying physicians.

This growth demonstrate that despite competitive launches the market values our technology advantages.

We continue to receive very positive stimulation feedback since the launch of the new lead adapter the M1.

Finally we are optimistic about our on going growth based on third quarter trial growth which is a leading indicator of future permanent implants and on a number of new lead introductions planned for early 2010.

The plan to increase the size and growth rates of the non-DES and non-CRM businesses is essential to our new strategic plan.

Let me finish in the next few minutes with some overall perspective on the following -- first, some thoughts on what we liked about the quarter, what we didn't like and a few hot topics or takeaways from the quarter.

In terms of likes, we like the fact we were able to produce constant currency growth across most of our divisions and regions and we did like our the year-to-date growth rate of 5% constant currency excluding divestitures.

Against the head wind of a lingering recession, pricing pressures and unanticipated slower growth in our major markets that's not a bad number.

Secondly, we like the MADIT-CRT results, and made it crystal clear that CRTD therapy slows the progression of heart failure.

We were expecting good results and they turned out even better than we had hoped.

We are in a strong position for an expanded indication which would create the opportunity to strengthen the market on a go forward basis.

Thirdly, we liked our continued DES leadership on a 41% share in the worldwide DES market which included strong share numbers in the US and Japan of 49 and 47% respectively.

Yes, we know we face some turbulence coming out of TCT and I will re-emphasize our few again, in a moment.

Fourthly, we have to like our continued strong free cash flow at $393 million in the third quarter which allowed us to prepay all of our 2010 debt and make an early dent in our 2011 debt.

Fifthly, we like settling 14 patent suits with J&J and we like we are continuing to work with them to resolve others.

These levels of litigation although at times necessary can surely be a distraction.

In terms of dislikes, let's take a look at what we didn't like and areas where there's room for improvement.

First, we didn't like our gross margins, which fell below 70%.

They're impacted by the same headwinds I mentioned earlier.

We have programs in place to improve our margins and this is an on going area of intense focus with respect to price management and mix utilizing a corporate wide pricing improvement project and our new sophisticated pricing tool, Rainmaker.

Secondly, we didn't like the fact growth has slowed in our major markets.

While it puts an additional burden on us we must remain focused and we are on what we can do to impact our growth in these markets over the long-term.

It is clearly a major factor in the development of our near term guidance.

I hated to set the (inaudible) quarter and full year 2009 bar and expectations lower for us than what had been previously implied in our third quarter update.

But it would have been foolish not to reflect a more accurate reality.

Thirdly, we didn't like our performance in Europe where we actually experienced negative growth.

It was barely negative at 1% constant currency but nonetheless it was negative.

I have said that through the 100 day plan one of our top priorities is determining if we have the right business models around the world and this weakness highlights that priority.

However, in fairness, other parts of international were up, intercontinental was up 9%, and Japan was was up 7% both on a constant currency basis.

Finally, what were the hot topics for the third quarter and what were the take away.

First is the state of the CRM market.

So far this year, the growth of the overall market has not been as strong as we had expected coming into the year, but our business has continued to grow and we are not seen the slow down in hospital stocking described by St.

Jude.

We need to turn the more than 150 newly graduated additions to the field force in the past year into a productive revenue producing team and we will.

The quality of our execution is not now and is not been a market issue but the overall CRM market growth will remain weak at only 4%.

Second is the initial compare data, which were presented at TCT, single center double blinded unpower studies are not considered optimal trial protocol.

The compare methodology clearly resulted in some double counting of events, and the trial wasn't powered to objectively access the frequency of stent thrombosis.

The compare data are inconsistent with the overall body of TAXUS evidence, and we expect the results of future multicentered studies will be more consistent with those of other TAXUS trials.

Remember that those trials have studied more than 46,000 patients in clinical studies over the past nine years and include the implantation of almost five million TAXUS stents.

You have to ask yourself the obvious question.

In all of these trials in real world use, why has no one but a small single center trial funded by our primary competitor seen these results so conveniently released at TCT.

I will leave the equally obvious surmising to you.

Third is the Health Care Reform, we told you last quarter that I would hold off on saying anything until we knew about what the legislation looked like.

Unfortunately in the intervening months it has become all too apparent what the legislation looks like.

Bacchus Bill that came out of the senate finance committee last week makes absolutely no sense and would be very damaging to Boston Scientific, and the medical device industry as a whole.

In a nutshell, it would raise cost, stifel innovation and lead to significant job loss.

It does not address the quality of care but the political score boarding of savings.

It would have the affect of more than doubling our tax liability adding a 150 to $200 million per year.

The impact is probably even greater because of the double taxation aspect which would result in part of the $155 billion in hospital cuts as well as some others, passed on to our industry as a second order effect.

This tax on innovation is currently non-deductible in the Baucus Bill.

It would force us to make substantial cuts in R&D spending which in addition to harming patients would result in major job cuts, we estimate that the current legislation could result in between 1000 and 2000 jobs lost at Boston Scientific.

However, be clear, these discussions are not over and we are all spending hours and hours talking to individual members of the senate and Congress.

This primarily US based industry is the health care innovation engine to world with 350,000 domestic jobs a $22 billion payroll and annual exports totaling more than $120 billion.

Lastly, these hot topics are all problems and opportunities, what about solutions?

A 100 day plan that I spoke to you about a few days after taking this role has been converted into ten major projects with specific leadership and milestones, they're all underway, the ability to make Boston Scientific fly in the future will in large part be based on the content of these products.

In broad stokes they include margin expansion pricing and productivity, leadership and talent assessment, structural change, and executable strategic plan, and a global sales focus, a growth product portfolio, a global project development process, an integrated communications plan, a best in class health care professional compliance program and the execution of a brand management strategy.

Leadership change rationalization of our business, reduced layers and staff, the effective integration of CV and CRM, remodeled incentive, reprioritize R&D and zero-based budgets are only a few of many project work streams on the table right now.

We will inform you of our final thinking.

As we make these changes over the next several months, you should reasonably expect to see a comparable positive change in the returns to our shareholders.

Short-term we have our work cut out for us.

With that I will turn it back to Larry who will to moderate the Q&A.

Larry.

Thank you, Ray.

Katie, in a minute we will open it up to questions.

In an effort for us to enable as many questions as possible, we ask that each participant ask one question and a related follow up.

Again, I want to remind you that Ray will will be joined during the question-and-answer period by -- with Sam, as well as several of the business presidents and Dr.

Keith Dawkins.

With that, Katie could you please open it up to the first question.

Certainly, our first question is from Mike Weinstein with JPMorgan.

Please go ahead.

Good morning, Mike.

Good morning.

Ray, Sam with your commentary on the call and guidance for the fourth quarter, should we assume at this point that the, the prior commentary for 2010 and 2011 is no longer valid?

Mike, you could assume that but I think the issue is we don't want to get into providing any change, confirmations or otherwise until we do our fourth quarter work.

We have put a lot of work into seeing where we are now but we haven't rolled that up into a finished product.

We don't even present our operating plan presentation to the Board until December.

So we need to get through that process and complete our strategic plan as well.

If I think about your guidance with the fourth quarter which is minus 2% to plus 2% constant currency, anything you can see that would drive that closer to your 5 to 7% top line that you had to about earlier in the year for 2010, 2011?

I think there's a number of things on the down side, if we were able to get some tremendous new productivity from the CR reps they would be, because it is a real expansion of the force, and the outcome of the TCT battles can fluctuate.

So there's big chunky things that can move it directionally favorable, but the problem is we don't know which of those and what's going to happen with them.

My follow up.

The 30% operating target that you put throughout for 2012, the end of 2012, how do you want us to think about that?

Should we still consider that a valid target or is it too early to say?

I think it is too early to say in some ways but , Mike that's where we want to be.

So we will make every effort to structure the business and format it in such a way to get there.

But obviously, Sam just commented we have got a good handle on where the business is at now, we are just finishing up strategic planned redo, if you will over the next month or so and we have got operational plan with the Board.

So I think we would like to come back and at that you can to that.

But at this point we haven't made any decisions

Some of the decisions are still unfolding, I don't think anybody knows the affect Health Care Reform will have.

I don't think anybody knows truly what the effect of the economy will have in terms of job loss and lack of access to health care.

So a number of things will affect us and our competitors as well.

They're just, they're not knowable right now.

Everybody has their own guesses but we have ours.

But we really can't build them into a definitive forecast.

Okay.

I will let others jump in.

Thanks.

Thank you.

Our next question comes from Bob Hopkins with Bank of America.

Please go ahead.

Thanks.

Can you hear me okay.

Morning, Bob.

I wanted to focus in on your commentary around gross margins, and pricing broadly speaking.

So, you know first of all I was wondering can you comment specifically on pricing pressure that you are seeing in cardiac rhythm management.

Is that any worse than the negative 2 to 3% that you have seen historically, and then also related to the same sort of subject, it, your gross margin in the, in the quarter, seemed to be affected by a one time item related to recalls.

If you add that back, you seem to be around 70% which is kind of in line with where your guidance was.

My question is was the gross margin pressure that you're referring to, does that impact your ability to get above 70%?

I am just trying to clarify how that all falls out.

Okay.

On the first one, Bob is answer is without getting into specifics at this point we did see a little worse pricing.

CRM has been constant over several prior years.

We did see that worsen a little bit.

You are correct on the recall comments.

So I won't unless Sam wants to expand on that.

And then on pricing you are right.

It does get what you back close to 70.

But it is what we foresee in a tougher pricing environment as we look at things like contract renewals, negotiations and where that is trending that I think gives us some pause.

On the recall comment, I mentioned it had about $0.01 effect on gross profit, about $20 million of the gross profit but also an $18 million effect on sales, a combination of loss sales by not having products available to sale, as well as returns we had to record, take product back that we had previously sold.

So if you back both of those out, it doesn't really above the needle on gross profit margin for the third quarter.

Okay.

And then I just want today ask one quick question on stents.

Were you guys willing to comment on any trend you are seeing in October post the TCT data in TAXUS market share, and then finally on, I think you guys delayed TAXUS Element approval, but not PROMUS element approval in Europe and I am just wondering how one could be delayed and not the other.

On the first one we wouldn't comment intraquarter.

It would be nice but we don't do that.

There's separate regulatory issues relative to the two.

So where PROMUS Element remains on track, for this quarter, a couple of things came up on the regulatory side, may cause us some issues and I think we are taking a conservative route in telling people it is second quarter.

If we do better than that people will be happy.

But there's a couple of separate regulatory issues.

All right.

I will get back in line.

Thanks.

Thank you.

Our next question comes from Larry Biegelson with Wells Fargo.

Good morning.

The CRM market dynamics, what are you seeing on new implants, replacements, any additional color on the ICD market would be helpful and the OUS, US growth rates.

Thanks.

Maybe I will ask Fred to expand on that commentary.

No problem.

Larry, this is Fred, on the market dynamics we have seen a little more pricing pressure related to that.

We have also seen some weakness in the market during the quarter, but I have to say September showed some recovery.

So, we are seeing the usual patterns as it relates to replacements that goes back to prior years of implant, the replacement cycle.

That was very normal for us.

We are not really seen any changes, changes on the stocking side.

So hospitals continue to buy the similar metabolic that we have seen in the past.

So, it was a mixed quarter.

Most importantly we have continued to take share we believe, and that will be known when everybody has reported.

We continue to see growth in our business in the US as well as international.

International was offset a bit by the deferral by the LATITUDE System as Ray and Sam alluded to.

So a lot of factors but the most important one is that we continue to take share we believe.

We have solid growth in our CRM business.

And we have also added a number of people on the sales force on a global basis, and we believe that we can make those folks even more productive moving forward.

So the outlook is still positive, but mixed as it relates to market growth expectations.

Fred, the pressure is, the growth slow down is not more pronounced international than the US?

No.

I don't believe that's the case.

Again, we have seen some effect due to the economic crisis on a global basis, and that does vary a bit more in different countries around the world.

As reflects in different pricing pressures and different countries around the world.

But in general I can't say there's an overall different trend in certain geographies.

Let me add to that.

You have to put it in, you have to probably separate two things one is our aspirations and the other is relative to market growth.

If you go back to the original acquisition and think about high single to double-digit aspirations, we more recently looked at the marketplace as being kind of a five, six, growth market with three in the US, as you know from conversations you had with us.

And we are now looking at it and saying a combination of price, and other variables it is 4% overall, 2% domestic.

While we will continue to take share which is a good thing Fred alluded to, the ability to deliver good numbers and the under execution of the reps, brings us back down to where Fred lifted you up to.

So it is a tough go.

Lastly, PCI volume in the US sounds like we have three different data points from the Companies, J&J was down 6% year-over-year, Abbott up low single digits and you guys if I heard correctly plus 1% year-over-year in the third quarter.

What's the source and any idea why there may be discrepancy in what we are hearing?

Thanks.

I would ask Hank to respond to that, please.

I think PCI volume is very, very difficult to get your arms around.

We have a process here, where we try to triangler what we get from Millennium Research Group through their analytics with their own internal data and one thing we look at very carefully here is a key indicator, our inflation devices how many are used in procedures.

So we are seeing year-over-year based upon the data sets we look at about a 1% increase quarter-over-quarter a little bit of a decline.

Thank you.

Our next question comes from Tao Levy from Deutsche Bank.

Please go ahead.

It is Tao Levy from Deutsche Bank.

Morning.

On the CRM or ICD guidance you put forth for the US if I assume the low end of that guidance, that implies, sequentially down in the US for you guys.

What would that be in the summer months.

It is really more flattish than, it may be down very minor, but it is essentially the guidance is flattish.

So what we are seeing is as Ray pointed out a much lower mark growth over prior year.

And we are seeing a little more pricing pressure than we have within seeing so when you get within one or two point of difference.

And was that dynamic one you talked about, still somewhat on track to deliver on operating margins out of CRM in a 25% range or with the slower growth rates, that becomes a little bit lower right now?

Clearly, with lower revenue than we had forecasted it puts stress on those margins, and that's one of the contributors to the overall gross profit margin pressure that we are seeing, consolidated results of the Company.

So, that is under, that is under stress right now.

Okay.

Thanks.

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

Please go ahead.

Good morning.

Morning, David.

A quick question it looks like in the fourth quarter the gross margin looks like it is around 68% or 6850, is that roughly in the ball park.

We don't give guidance as you know that definitively by line.

We give you top and bottom line guidance and you have to work through it the models but we have thing that is continue to put pressure on margins and help our margins and depending on how those shake out you will come up with whatever underlying assumptions you have.

Historically, DES has been probably the most powerful driver of the gross margin, is there any reason to believe that DES is not the most power driver of GM pressure in the fourth quarter?

Clearly, one pressure in the fourth quarter Ray alluded to it.

At the low end of the range if we lose a couple of share points to our competitors as a result of having to deal with the compare and spirit data, that's pure TAXUS, that's not PROMUS, that would have a dampening effect on the margins in the quarter.

If you think about DES, is the issue in the fourth quarter, you talked about large market DES pricing issues, the issue does appear more mix than global DES pricing issues?

It is both but mix for the first time is going to play a more significant impact.

Okay.

Just one interesting commentary you made during your comments was on new distribution model.

As you think about up increased selling costs, can you share with us what you are thinking in terms of other distribution models which would help into 2010.

I can give you some general remember we look at a lot of things but obviously direct versus distributer in some locations is a constant need to always look and confirm that we are happy with that.

The relative mix between clinical support people, and what I would call thoroughbred selling people, therefore face time and selling time becomes a real issue, the economic buyer, the CFO, CEO of hospitals and influences, how best to reach those people in using what type of model we use for training to get people out and be effective.

So there's a list of probably 20 items in total that we could go through and our part of that project that we will look at and obviously the other one that I mentioned is common call pointing and how to leverage our CRM and CV businesses together into more effective unit opposed to separate units.

There's a few, obviously a lot more.

Maybe a quick last question, you talked CRM margin expansion of perhaps 1200 basis points during the year can you give us an updated number about where that will shake out.

They're coming ahead on the last caller, given the fact that CRM is running below expectation, below plan at the low end of the guidance routinely throughout the year, that's going to be a tough number o deliver.

So there's some pressure on that.

Thank you very much.

Our next question cops from Bruce Nudell from UBS.

Please go ahead.

Good morning.

Thank you.

Ray,.

Morning, Bruce.

It is -- it actually surprised us to see how much pressure the hospitals are under with bad debt, and a tightening credit environment.

Do you think that the pricing pressure you are seeing now is transit economy improves or do you think that coupled with Health Care Reform on its heals that in fact this is just the new reality companies have to deal with.

I guess the other heart of the question is CRM and or the ICE market in your own estimation is probably a little slower growing than you anticipated, and drug-eluting stents have reached a new plateau, does that have about how you think about these businesses.

For instance if you look at our receivables performance it is pretty good.

In fact it is very good really in the US, and our problems tend to be a few countries outside.

So the economic pressures relative to hospital payments, and the number of bankruptcies and so on we are not seeing.

However, I think that would be misguided to believe that represents the future.

I think you had it right on the second piece.

It is the new reality.

And that new reality will come about driven by Health Care Reform and driven by the deals made.

If for some reason Health Care Reform gets squashed completely and the various taxes negotiated with hospitals and pharma and ourselves if we have one don't come about I think that will obviously improve the situation but I think that is highly unlikely and I think it is a new reality.

In terms of your second question on slow growth CRM and you combine that with CV you end up with a mix to flatish that is slightly up and yes, were not going to operate a business with long-term mix where 3/4 of the business is flat.

Either the market has to change or we have to change our mix.

That's a yes, answer strategically.

I guess just one follow up on compare.

Without the full benefit of the detail data.

I agree it was a very kind of preliminary presentation, the overwhelming sense that people got sitting in the office is that Liberte and TAXUS Express stacked up about the same against XIENCE is their going to be a more formal adjudication of compare that you could share with the Street that would dispell that notion or do we have to wait for the publication of that data.

I will ask, the answer to that is we would obviously like to have a very detailed comparison and do it on a firm basis but I will ask Dr.

Dawkins to comment further on that.

At TCT we had the three year ATLAS data which clearly show a delta, a significant delta between Express and Liberte and favoring Liberte.

One of the issues about compare, it was a single study.

In fact at TCT, the study as you know showed this late Cypher catch up.

So the five year data showed between TAXUS Express and Cypher.

And the other thing to remember is that none of these trials, the individual Spirit trials or compare are powered to look at stent thrombosis.

To stent thrombosis obviously had a lot of air time in TCT and we vary from TAXUS stents thrombosis and Spirit 2, zero percent, Spirit 3, zero percent, Spirit 4, 0.57% and compare 1.7%.

So 3x what it was in Spirit 4.

This is just statistical noise, none of these trails were bad for stent thrombosis.

We had some additional data to put compare into perspective.

It doesn't fit with the 46,000 patients followed up in nine years

Our next question comes from the line of Rick Weiss with Leerink Swann.

Please go ahead.

Good morning, Ray, Sam.

Turning to the product and launch delays versus expectations, how quickly can you fix that and maybe help us think a little bit about what impact we could see as a result.

I don't think we're going to fix the ones that are currently delayed other than just catch up on them.

One of those 10 projects I went over that I think can make a big change in the Company, Rick is the product development process in its entirety, and that would take it through ideation through launch.

We are pretty effective launches when we have the product.

Our issues seem to be with budget and timing in the process itself, and we have somewhat of a checkered history, frankly, on that in terms of time.

So I'm looking to change -- we have great ideas and great launches generally speaking.

It's what's in the middle that causes us problems.

One aside I would make to that is it is a tougher regulatory environment, particularly on iterative product and 510k, but tougher in general.

So to the extent that regulatory is a part of that we may not be able to control that and we just to have give better guidance to the Street on the timing of things if in fact it's going to take longer.

But much of this is our own fault it's execution a.m.

and things that can be fixed.

And on the 150 or so reps that you underestimated the time to get them productive, when is that resolved and how do we think about that possible timing for starting to see the positive leverage, at least from that one Element?

Well, it's obviously well into next year because they just came out of school, if you will.

The other thing you have to remember, those people are better defined as customer facing.

They're not all pure reps.

Some of this is to give us a better balance of clinical and postsurgical coverage versus just selling.

So the mix factor is part of that, too, but very clearly if they are good performers, if we get the mix right, and if we cab get them performing well as we get later out into 2010, that can give us a positive hand.

I'd be curious to hear your thoughts, whatever it is, 14, 16 weeks into the job.

Are you feeling less optimistic about your ability to have a significant positive impact on the Company given the market and price challenges, and maybe just as part of that, does it feel like the business is likely to sort of be stable at these kinds of challenged third and fourth quarter levels into the first half and maybe we start to see the impact of your initiatives in the second half?

Is that how you're thinking about it?

Any perspective would be welcome.

Thanks.

Rick Weiss, after all our years together, you ask me that question?

I live for this stuff.

Exactly.

This is a great company.

I haven't changed anything.

We're getting a realistic expectation setting the appropriate bar for where the Company is now, and we're going to have a great team.

We're going to go to work and fix it.

How dare you ask me a question like.

That I'm shocked at you.

That's the answer I wanted to hear, frankly.

You actually get no more follow-ups.

Thanks.

And our next question comes from the line of Kristen Stewart with Credit Suisse.

Please go ahead.

Thanks for taking the question.

Just wondering if you can talk a little bit more specifically about the change in your long-term guidance.

I assume it's long-term guidance for the CRM business or the ICV business specifically.

Are you looking more specifically at that time last couple quarters under your belt at a different assumption?

Just kind of curious on your thoughts on mix and volume on a go forward basis.

I'll start off, then if Fred or Bill want to jump in, that's fine.

We mentioned it's 4% now, and some of that is somewhat increase in price pressure, but I think you have to take into consideration and try and figure out de novo versus replacement ratios over several years.

We need to give some thought to will CRT V truly perform after the accident and expand the pie and the market for all of us but particularly for us if we can get a new indication, so there's a bunch of variables there that we don't understand, and I didn't mention all of them, but we don't understand fully yet, Kristen.

Fred or Bill, additional comments?

This is Fred.

I think you mentioned the most important one.

Again, we've added a few personnel.

Some of that is needed for the additional burden we have with the increased sales, and hopefully we'll continue to see share taking in the future as well.

We have to cover that aspect.

We have to also make the reps more productive.

Those are important things.

We have programs in place to drive productivity.

Other than that, we are focused on the submission with the FDA.

If and when we get that approved by the FDA which we are hoping will happen around the summer or so next year, we can be much more active on that front.

In the meantime, the markets expectations are lowered as Sam and Ray alluded to.

Some additional pricing pressure.

I think those are the key elements that we face.

We have a good, strong competitive offering, in particular on the tachycardia side, and we are continuing to work on meaningful innovation moving forward.

Can you quantify the pricing declines?

I know you said it was greater than the 2 to 3 hiss store clear, but are we talk more like 5%?

What are we talking in terms of ICD pricing pressure?

Can you look at it US and then in the key international markets some.

Kristen, we don't quantify additional amounts on the pricing, so I'd prefer not to do that.

But it was worse than the 2 to 3 you said earlier?

Slightly worse is what I said.

In terms of adding new people are you going to continue to had a people next year within the CRM sales force?

How should we think about kind of balancing sales additions or potential restructuring efforts on a Barter level?

Again, historically, CRM and Boston Scientific have not provided sales numbers.

I provided them this time to give you an order of magnitude of impact.

First of all, strength of investment in size being the more than 150, then the order of magnitude it presents in our operating expenses when you're paying all the bills and they are not bringing in additional substantial additional sales at this point.

So that was the reason to do it, it was give you perspective on it.

In terms of ongoing additions and whatnot again, we would prefer not to do that unless necessary.

Last question, just in terms of your revised market assumption, does it make you, I guess, more or less likely to think about doing acquisitions in the near term?

To further diversify and maybe position the company for stronger growth.

I don't think it changes anything particularly.

We're still, you know, until the middle of next year, when the balance sheet saddle different, we're still look at 100 to $200 million acquisitions.

We could do pretty much what we want in that area, and the diversification belief and work that we're doing is really unrelated to the -- whether the growth in CRM is 4% or 5 or 6.

It wouldn't change the outcome of the strategy.

And I incorporated in my comments as well the fact that we will continue to invest in the longer-term profitable growth of the company to include acquisitions.

Thank you very much.

And our next question comes from the line of Joanne Wuensch with BMO Capital Markets.

Thank you very much for taking my question.

We've talked about DES and CRM pricing pressure.

Could you please expand what may be looking at in terms of some of your other divisions?

Yes, I don't -- I think generally in the non -- in the core product in CV, non-DES there's certainly some pressure there, in part because in some cases our are getting a little bit dated and we've got some folks coming in that are trying to gain some volume, so I think in some of those areas, Joanne, there's certainly similar pricing pressure, and in many cases they come out of the same or adjacent departments in the hospitals, or similar types of cardiac centers, centralized hospitals.

I think in the other areas we're less concerned, not that it's completely rosy, but it's consistent with historical patterns.

Doesn't seem to be anything new there.

That sort of leads me to the question, is this hospital pushing back or is this just competitors in your DES business making it more difficult to continue at the current prices?

I think it's both.

I don't think it's one or the other.

It may vary by area, and even by country, but the general answer to that it's both.

It's really hard to separate them out.

It originates with the hospital pushing back at all suppliers, suppliers have to respond to that as well as each other, you really can't separate the two.

That's all I had at this stage.

Thank you.

And our next question comes from the line of Derrick Sung from Sanford Bernstein.

Please go ahead.

Thanks for taking my question.

I wanted to go back to the US drug-eluting stent market dynamics.

Looks like the pricing that you saw, the price pressure that you saw this quarter, 8% down, was similar to what you saw the previous quarter, but the total unit volumes for drug-eluting stents in the market were down substantially more.

I think you reported 17% growth last quarter and this quarter I think you said something like up 7%.

Can you speak to the -- to what we're seeing there in terms of pressure on unit volumes this quarter versus last quarter?

I'll ask Hank to jump in and answer that please.

We are seeing some procedural volume softness, which I think is in relationship to kind of the general economic conditions, number one.

Number two, in terms of ASP pressure, you hit it right on the head, it's pretty consistent with what we experience he'd, so those two things are kind of in play, then you also have to look at back to procedure volume, procedural volume, second quarter to third quarter, we estimate was down low single digits.

So it's a combination of those three pack stores that I think are in play.

The other thing I would add, Derrick, even though we had 49% total market share in the US in both the second and third quarter, we had a couple of points of movement away from taxis towards -- and we've been clear that it's a premium priced product.

So we had a gross profit effect as well as ASP effect which comes largely from mix.

Okay.

On that procedural volume softness due to the economic softness, any insight as to why you're just starting to see that now versus earlier in the year, and any sense on really what exactly are you seeing patients not coming in with chest pain to the hospital?

Any color there would be helpful.

I think one of the speculations that we have that we're taking a look at, there seems to be a correlation between the timing, if you go back to early stages of the recession, if you will, there seems to be some sort of correlation between the timing of the unemployment and therefore the point at which cobra would run out for many people, and I don't know whether that's real or not.

We're looking into that but there may be a pattern where, yes, we understand people are sick and would go if necessary, but if they absolutely have lost coverage and have not regained employment it becomes a very difficult situation.

Whether that's real and it's a market moving factor, I don't think we know at this point, but I think hat some possibilities correlation wise.

Lastly, quickly, on the OUS CRM markets, it looked like the oh-US had been growing at a nice double digits clip, then suddenly we've been seeing a real decline in oh-US growth rates.

Should we no longer assume that kind of the same underlying dynamics that were previously -- under penetration versus the US, are those no longer going to be driving double-digit growth, or is this kind of a temporary economic slowdown that you think will be temporary and pick up later on?

I'll ask Fred and or David to comment on that please.

Fred first.

Yes, this is Fred.

So I do believe that the markets internationally are growing -- continuing to grow at a higher rate than the U.S.

We've always said that, and that's still the case.

As Ray indicated, in the US we are looking at a market growth of around 2p and globally around 4%.

So that obviously would indicate more market growth in international.

I also believe it's fair to say that they're in certain mark internationally, there is also more pricing pressure now than there has been historically, so I think those are the key factors that you have to take into account.

I think that's the best way I can describe it.

Maybe you can add to that.

David, just before you jump in.

Just mentioned the accounting aspect.

Lost in the shuffle here, then you can talk to the markets.

Keep in mind that we do do deferral on latitude, and latitude has just been launched in Europe, and text of that I think was about four points, and essentially, had we not deferred latitude as a normal accounting policy, our growth -- our growth internationally would have matched that of domestically at I think about 3% growth, so we need to keep in mind the accounting aspects of this, sorry, David, go ahead.

No, that's exactly what I was going to point out, Ray, the fact that deferred latitude component certainly makes a difference when you look at the net numbers from.

A gross perspective, certainly, I believe, we're keeping pace internationally, and to Fred's point there are some isolated marks where pricing pressure as a result of the economic conditions is probably creating some downturn, but overall, I think that we're running pretty much the same.

Thank you very much.

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

Please go ahead.

Good morning and thanks for taking the question here.

Just a couple on the drug-eluting stent side.

First on PROMUS are you increasing inventory?

And can European inventory be shipped and sold in other geographies, or will it be written off?

There are contingencies, and the contingencies are to have just to right amount of additional PROMUS inventory through additional inventory building courtesy of Abbott but not have so much that when the approval does come through it has financial impact, so there's a fine line to walk there but clearly that San insurance policy.

The other insurance policy is the European commission itself giving an extension of some period of time to cover this.

They have a history of not wanting single vendor plays like this in the European park place, so there is historical precedent for that.

Those are the two primary insurance policies.

Sam?

As it relates to the inventory, one of the balancing acts we have is to make sure we have enough inventory to last us, even if we have to last us beyond November 15.

But also, not so much inventory that we end up with stale inventory that we have to write off.

So we go through the evaluation process every week on how much inventory we have and how much exposure might we have.

One of the big differences is because we have a number of different countries in Europe, unlike the U.S., we can have a more staged launch of PROMUS Element to give us a chance to burn down the inventory as we replace sales with element.

The other big difference, in the international marks we do not take back the PROMUS inventory from our customers, so they use that to depletion, then we con variety that as they deplete their inventory veal meant.

So the big exposures that we saw tin US are not typically present in o-US marks.

Got it.

In terms of your use of cash, you guys have done a fantastic job of take your debt levels down.

Any other thoughts in terms of -- continued debt paydown, or with the stock here, it's off here a little bit today.

Any thought of share buybacks or any thoughts on that front, please some.

We're still going to use our cash to pay down debt and also use cash as a source of capital for acquisitions.

It has been our priority that we'll continue to be our priority.

We're focused at refinancing the 2011 maturities.

If plans go as expected we should be able to get that done by midyear next year.

Once we get that refinancing behind us then we can take a step back and reevaluate the use of cash and the deployment of cash towards perhaps larger targeted acquisitions, but for now we're going to stick to the strategy we've had for the last two years.

Great, thank you.

All right, thank you.

And next we'll go to the line of Adam Feinstein with Barclays Capital.

Please go ahead.

Okay, thank you.

I know it's late in the call here so I will be brief.

Just wanted to get your sense.

You spoke about pricing numbers, very helpful.

But how do you think about pricing numbers you are giving relative to the overall industry?

I guess a second part of the question would be how aggressive are you guys going to be to keep market share to the extent there is more push-back from hospitals?

Are you willing to be aggressive to keep market share or in some cases are you walking away from things?

Thank you.

I think, Adam, it depends on level of so tie indication.

One of the things I commented on the script is we've put a new system into play that's been worked on here for a long time that allows us to have visibility and sophistication around pricing.

Part of it is to not leak profit loss on the current policies you have and to make sure you're maximizing profitability.

So that system, which is called rain maker, is allowing us to have some huge opportunities an to try and protect against that, but the key to it is profitable sales.

That's the business we're in.

The question that comes up, then I'll let Hank comment on this as well since a lot of is it DS, but the other question that comes up is pricing is one facet of.

This we need to look at our entire model and say how do we want to deliver product to the marketplace that optimizes operating income and moves us toward our aspirations as opposed to sole focusing on just the pricing aspect of it.

Hank, have you got some additional comments?

Adam, to answer one of your questions specifically, yes, we have walked away from business when we felt the combination of factors that Ray just alluded to were unacceptable to us.

But I would say overall, our sales management team is managing competitive bids very, very responsibly.

And I'm very pleased with what they are executing out in the field in that regard.

Okay.

Just a follow-up if I may.

On the woman active bids have you seen a lot more in recent months or is the impact from some of those already in the numbers here, so you're not looking for to the get worse but maybe not necessarily to get better, but due think it's fully factored in some of these more aggressive act terms of putting competitive bids out there?

I think the competitive bid flow ebbs and flows.

There's a Serb that come up, that or on an annual six-month basis.

What we're aware of we have cranked in, then obviously whatever unfolds over the course of fourth quarter we'll deal with at that time.

The other thing I would add is that drug-eluting stent market is an expensive market to enter.

The cost of launching a new drug-eluting stent, depending on what it is and how much design energy goes into it is $400 to $500 million.

It's in nobody's best interest to keep on driving price down.

So we all walk a good line of being competitive as we have to be with making sure that we don't take on business that we shouldn't be taking on.

Okay, thank you very much.

All right, thank you.

And next we'll go to the line of Matthew Dodd with Citigroup.

Please go ahead.

Thanks, good morning.

I know you're sick of the pricing questions, but drug-eluting stents internationally, was it down in the mid teens, and if that's right, is that mostly EMEA and Asia Pac?

No, Matt, I'm not sure where the mid teens came from.

International DS pricing as of right now is down 9.8 9.8%.

And that includes currency?

That is pricing.

Okay, perfect.

On CRM, where are you do you think in Japan on distribution chain?

I know you said over 150 people total.

Can you say how much has gone to changing dynamics and when you think you will be back on track to where you were a little over a year ago?

The ads that we had in Japan were a result, as you recall, in April of last year, having lost J L L as a distributor, and, therefore, we lost the sales reps that we had.

She spent the next 12 months or so rebuilding a direct sales force in Japan.

Those reps are trained, and as we're seeing in the US and in Europe, once trained, even with all the efforts of training them well, does it take awhile for those reps with their new training and technical skills to go out and win business over.

So what's taking longer is the transition from fully trained to actually seeing points on the scoreboard.

Matt, the only thing I will add to that, you have to remember that the Japan life line sales for force that we actually lost was largely the pace or sales force we've now given, introduced in the quarter, which will make a difference for our Japan sales team as well, and that was given type 4 reimbursements as well so that will have an impact as well.

All right, thanks.

You're welcome.

Thank you.

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

Thanks for taking the question.

I'll ask a non-CRM non-DES question.

Ray, I think you mentioned in your prepared comments that the other businesses, if you will, are going to be key here in terms of the company's growth trajectory going forward, and I know it's early.

I know you've got this operating plan that you're working through now, but are there specific product areas or product lines that we should be focused on in terms of the ones where you think you've got the most growth potential near term, and what kinds of investments do you think you're going to need to make to get the growth out of the non-DES, non-CRM businesses that you think you may need?

Is.

Yes, Sara, there's a fairly long list.

We're actually doing an R&D portfolio redo right now to rethink the direction we're thinking, particularly the order of priority and the investment level we're willing to put in, both internal and external, but I would highlight it with things such as women's health, which I eve mentioned there's a substantial number of areas in women's health that we are not in today that are adjacent to what we're doing.

We've done and will continue to do a lot of work on obesity and diabetes, both from internal work we're doing on platforms we have available here as well as external work.

We certainly will continue to look at structural heart, which is still cardio, I realize, but an area different.

There's several other ones.

When we're done this priority work, which is due to be finished in the next 30 day, we ought to be able at some point to communicate strategic plan both for our employees and public will outline these areas and other ones in a little more detail.

That okay.

And then the other thing I know you're working through, and I think Sam had mentioned it, was the headcount management process and just was hoping you could spend a minute, just talk to us about how you're dealing with that, and if we should expect any changes going for warned terms of how that process is run.

Thanks.

We've had a pretty tight headcount management process in place now.

That's what's at the core of our, what we in termly call moving mountain.

2007.

That hasn't change.

Each of our departments, as part of their operating plan have planned headcounts as well.

And we don't allow anybody to put a requisition out that isn't planned.

And we're also pretty stingy about approving those in our plan.

That will just continue forever in the company.

And just as a follow-up, assuming that there are some commercial areas that you feel like you need to invest in, how do you balance that against keeping the headcount at a level that's manageable for the Company?

Thanks.

That's a good question.

As you know, we made it to the middle of last year to start adding headcount in the US as well as in Europe and CRM because we saw that as an opportunity.

Those were on top of the normal headcount plans that we have, but even with headcount plans being X, there's always a number of open requisitions, so our -- none of our departments, none of our business are ever at their plan headcount levels.

While we don't have a lot of turnover, it's modest, turnover allows us to both manage headcount to below plan levels and still take advantage when they present themselves of strategic investments and direct selling.

Just to add quickly to that, let's be crystal clear, what he become a much more sales focused company globally, and in addition to training and tools and tracking and all the other things we need to do better, it does require us, and will require to us add customer facing positions.

They may be not necessarily pure sales.

They could be clinical support, but we will add to our focus on sales and what he had a to the sales force or customer facing positions over the next couple years.

That's pretty much a certainty.

Okay, thank you so much.

Katie, we're coming up on the top of the hour in a minute I'm going to have you give instructions for the replay information.

I would like to thank everybody for joining us today on the call and remind you that I will be available following the call in the event that there were questions we were unable to get to.

Thank you, everybody.

Thank you.

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