Boston Scientific Corp (BSX) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2010 Boston Scientific earnings conference call.

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

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

(Operator Instructions)

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

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

Larry Neumann.

Please go ahead, sir.

Thank you, Kent.

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

With me on the call today are Ray Elliott, President and Chief Executive Officer, and Jeff Capello, Chief Financial Officer.

We issued a press release yesterday afternoon announcing our first quarter results.

Key financials are attached to the release and we have posted a copy of the press release as well support schedules to our website.

The agenda for this call will include a review of the first quarter financial results, including second quarter and full-year 2010 guidance from Jeff, an update on our business performance in the quarter from Ray, followed by his perspective on the quarter overall.

We will then open it up to questions.

We will be joined during the question-and-answer session today by Sam Leno, Chief Operations Officer, Fred Colen, Chief Technology Officer, Hank Kuchema, Executive Vice President and Group President CRV, Mike Phalen, Senior Vice President and President of our Endoscopy business, John Pedersen, Senior Vice President and President of our Urology and Women's Health business, Joe Fitzgerald, Senior Vice President and President of our Endovascular unit, Michael Onuscheck, Senior Vice President and President of our Neuromodulation business, Dr.

Ken Stein, Chief Medical Officer for CRM, and Dr.

Keith Dawkins, Chief Medical Officer for our CRV group.

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 launches, regulatory approvals, litigation, our tax position, our competitive position, and 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 would now like to turn it over to Jeff for a review of the financial results.

Jeff.

Thanks, Larry.

Before I discuss our results of operations, I want to address the goodwill impairment charge that we announced in last night's earnings press release.

We test our goodwill balances during the second quarter of each year for impairment, or more frequently if indicators are present or changes in circumstances suggest that an impairment may exist.

As a result of the ship hold and product removal actions we took in the first quarter, we performed an interim test of our goodwill balances.

We updated all aspect of our long-term discounted cash flow model associated with the US CRM business, including our expectations of overall market growth as well as our share of that market, which we believe will be impacted by the ship hold and product removal actions.

The changes created a $1.8 billion write-off in goodwill in the quarter.

We continue to believe the worldwide CRM market to be growing in the 3% to 5% range.

As a reminder, this is a noncash charge and has no impact on either our continuing results from operations, our levels of expected cash flows, or our bank debt covenant ratios.

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

Consolidated revenue for the first quarter was $1.96 billion, versus our guidance range of $2 billion to $2.1 billion, and represents a 3% reported decline from the first quarter of last year.

Excluding the impact of a positive $63 million foreign currency contribution, first quarter revenue was down 6% constant currency.

Compared to the contribution assumed in our first quarter guidance range, foreign exchange contributed a negative $8 million to our first quarter sales results.

The impact of the defibrillator, ship hold, and product removal actions in the quarter on our revenue growth was approximately $72 million, or a negative 400 basis points on a year-over-year basis.

Compared to the first quarter of last year, excluding divestitures, US revenue decreased 9%, while international revenue increased 7%, or down 1% in constant currency.

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

Worldwide, DES came in at $407 million within our guidance range of $385 million to $425 million and down 9% from the first quarter 2009, which represents a decrease of 12% in constant currency.

Our worldwide DES revenue includes $165 million for taxes, $208 million for PROMUS, and $34 million for PROMUS Element.

Our worldwide TAXUS, PROMUS, PROMUS Element split for the quarter was 41/51/8.

We continued to sustain our worldwide DES leadership during the first quarter with an estimated global market share of 38%, which we estimate to be about 13 percentage points higher than our nearest competitor and four percentage points lower than our share in Q1 2009.

US DES revenue was $210 million at the high end of our guidance range of $195 million to $250 million, and 15% lower in the first quarter of last year.

Excluding the favorable impact of a $14 million adjustment to the sales transition reserve included in Q1 2009, US DES sales were down 10% versus last year, driven by TAXUS share loss following the results of compared trial, the impact of which is expected to anniversary by the end of Q3 2010.

This includes $79 million of TAXUS, $131 million of PROMUS revenue, and represents a 38/62 mix of TAXUS and PROMUS in the US, compared to a 54/46 mix in Q1 2009.

We estimate that our US DES share was 45% for the quarter, with 17 share points of TAXUS and 28 points PROMUS.

Excluding the transition reserve recorded in 2009, our total share is down four points compared to the first quarter of last year.

We continue to maintain drug-eluting stent market leadership in a competitive US market with 17 more market share points than our nearest competitor.

Based on our estimate of the US market for the first quarter, we believe that Boston Scientific's market share was 45%, and Abbott's share was approximately 28%, while J&J and Medtronic achieved 15% and 12% respectively.

International DES sales of $197 million were at the mid point of our guidance range of $190 million to $210 million, and represent a decrease from prior year of 1% on a recorded basis and a decrease of 8% in constant currency.

This includes $86 million in TAXUS, $77 million in PROMUS sales, and $34 million in PROMUS Element, and represents a 44/39/17 mix of TAXUS, PROMUS, and PROMUS Element.

PROMUS Element contributed $34 million to our international DES sales, including $27 million in India, $7 million in the Americas and Asia Pacific combined.

We estimate that Boston Scientific's DES market share in India for the first quarter was 33%, which is down three points compared to the first quarter 2009.

TAXUS market share was approximately 12%, with revenue of $32 million.

PROMUS market share was approximately 10%, with revenue of $24 million.

And PROMUS Element market share was approximately 11%, with revenue of $27 million.

Together, this represents a TAXUS, PROMUS, PROMUS Element mix in India of 38/29/33.

When you combine the impact of reaching the anniversary date of the impact of the compared trial during the third quarter of this year and the continued roll out of PROMUS Element, we expect to begin to take share on a year-over-year basis during the second half of this year.

Our DES share in Japan was 43%, down 11% from the first quarter of 2009, with revenues of $63 million driven by the introduction of additional competitive drug-eluting stent platforms.

We expanded our market share leadership to 17 points over our nearest competitor, off of our strong PROMUS launch with revenues of $33 million.

TAXUS market share was approximately 20%, with revenue of $30 million.

And PROMUS market share was approximately 23%, with revenue of $33 million.

Together, this represents a TAXUS, PROMUS mix in Japan of 47/53.

During the quarter, we estimate XIENCE share at 26%, Endeavor at 12%, and J&J at 19%.

Subsequent to the normal trialing period with new drug-eluting stent platforms and the completion of enrollment in the reset trial, we expect to leverage our commercial strength and two drug platform to regain any lost market share by the end of the year.

We estimate our Asia Pacific DES share remains steadily at about 18% during the first quarter, split 8% TAXUS with $12 million in revenue, 6% PROMUS with $10 million in revenue, and 4% PROMUS Element with $5 million in revenue, or a TAXUS, PROMUS, PROMUS Element mix of 44/36/20.

DES sales in our Americas international region were $24 million, representing approximately 52% market share with 27% or $12 million in TAXUS revenue, 22% or $10 million in PROMUS revenue, and 3% or $2 million in PROMUS Element revenue.

This represents a 52/42/6 mix of TAXUS, PROMUS, and PROMUS Element.

In summary, with global DES market share of 38%, we maintained a 13 percentage point advantage over our nearest competitor.

Our strong commercial team focused on the only two drug platform in the industry, coupled with the rollout of the PROMUS Element stent will allow us to increase our market share leadership going forward.

I would like to provide you with a little bit more detail on the drug-eluting stent market dynamics during the quarter.

We estimate the worldwide DES market in Q1 at approximately $1.061 billion, which is up 4%, but flat in constant currency versus Q1 2009.

Excluding the impact of $14 million or 1% of revenue recorded to replenish customer inventory as a result of the launch of TAXUS Liberte.

Our estimated worldwide market revenue in the quarter includes a worldwide unit volume increase of approximately 10%, driven by an increase in both PCI volume and penetration, offset by worldwide market decline in average selling prices of approximately 9% in constant currency or down 5% when you include the positive contribution from FX of 400 basis points.

Global penetration rates increased 2% versus a year ago.

The US DES market is estimated to be about $467 million, representing a decrease of approximately 2% from the first quarter of last year, excluding the impact of sales transition reserve reversals in Q1 of last year.

This consists of a unit volume increase of approximately 7%, which includes an increase in PCI volume and an increase in penetration.

This unit volume increase was offset by approximately 9% decline in ASPs, including a negative mix shift of DES platforms.

During the quarter, we saw our US DES ASP reductions fair slightly better than the aggregate market declines with TAXUS down about 6%, including the impact of pricing premiums on our TAXUS Long and TAXUS Adam, and PROMUS down about 9% compared to the first quarter 2009.

The US PCI volume in the quarter was approximately 260,000 procedures, up 3% compared to the first quarter of 2009.

We estimate that the US DES penetration was up three percentage points over the first quarter of 2009.

Combined with stented procedure rates and stents per procedure, we estimate that the total unit market of US stents in Q1 was approximately 347,000 units, including 271,000 units of DES.

The international DES market remains strong for the quarter, with approximately 593,000 PCI procedures, including 343,000 procedures in India, 56,000 procedures in Japan, 130,000 procedures in Asia Pacific, and 64,000 procedures in the Americas.

Worldwide, Q1 CRM revenue of $538 million represents a reported decrease of 9% and a constant currency decrease of 11%, versus the $589 million reported in the first quarter of 2009.

For the first quarter, we have analyzed the impact of the issues we faced on our worldwide CRM revenue.

We estimate that being off the market for 13 selling days in the quarter, as a result of the defib ship hold and product removal actions, reduced our US CRM revenue by $72 million.

Of this $72 million, all but $3 million was related to the US defib business.

The actions we took with respect to certain sales personnel and the subpectoral product advisory resulted in less sales of approximately $16 million, $10 million of which impacted the US In addition, we deferred approximately $5 million of revenue related to the launch of Latitude in Europe last year and had a sales return reversal of $8 million within the first quarter of this year related to the subpectoral product advisory in the fourth quarter of last year.

US CRM revenue of $326 million represents an 18% decrease over the prior year for the quarter.

International CRM sales of $212 million in the quarter represent a reported increase of 10% from prior year and up 2% in constant currency.

Both our US and CRM revenues in the quarter were impacted by the items I discussed above.

Worldwide ICD sales of $390 million were below the low end of our guidance range of $440 million to $470 million.

This represents a reported decrease of 12% from Q1 2009 and a constant currency decrease of 14%.

ICD sales in the US were $246 million, below our guidance range of $300 million to $320 million, representing a 21% decrease from last year.

International ICD sales of $144 million represent a 9% reported increase from last year, up 1% in constant currency.

With the exception of the $3 million impact on our Pacer business from the ship hold actions in the quarter, our defib revenues in the quarter were impacted by the items I discussed earlier.

Excluding sales from our five non-core divested businesses, our non-DES, and non-CRM worldwide revenues increased approximately 4% compared to the first quarter of last year to $1.013 billion and were up approximately 1% in constant currency.

This includes constant currency increases of 9% Endoscopy, 6% in Urology/Women's Health, 10% in Neuromodulation, and 1% in each of our Peripheral Interventions and Electrophysiology businesses.

For the quarter, our Neurovascular business was down 5% in constant currency as a result of continued pressure on competitive launches in our coil and stent businesses worldwide.

In our non-stent interventional cardiology business, we saw a constant currency decrease of approximately 4%.

As we continue to develop our new product pipelines for the businesses, we expect growth in these divisions.

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

Reported gross profit margin for the quarter was 66.2%.

Adjusted gross profit margin for the quarter, excluding restructuring related charges, was 66.9%, which is 340 basis points lower than the first quarter 2009.

Excluding the impact of the ship hold and product removal actions taken at the end of the quarter, adjusted gross margin would have been 67.4%, which is consistent with our guidance for the year of 67% to 68%.

The primary contributors to the 340 basis point reduction from last year include the shift in DES mix from TAXUS to PROMUS during the quarter, lower DES share in pricing pressures in both US and Japan, partially offset by the increase in PROMUS Element sales in Europe, and the negative impact of settling FX contracts and cost of goods sold.

Our gross margin percent will continue to be pressured as a result of negative DES mix shifts from TAXUS to PROMUS, as well as lower overall market shares and lost CRM market share resulting from our recent ship hold actions.

While we now see the profit margin benefits of selling PROMUS Element instead of PROMUS in Europe in 2010, the recent launch of PROMUS in Japan would create an adverse mix of TAXUS and PROMUS compared to 2009.

Our reported SG&A expenses in the first quarter were $628 million.

Adjusted SG&A expenses, excluding restructuring related items, were $627 million, or 32% of sales compared to 32.2% in Q1 2009.

You should note that the ship hold and product removal actions during the quarter did not have an impact on our total SG&A dollars, but did put upper pressure on the SG&A as a percentage of sales as we put plans in place to keep our sales rep's compensation whole during the time we were off the market with our defib products.

Therefore, the negative drops were relative to lost sales and the impact to operating profit in the short term is a bit higher than normal.

Offsetting the impact of the ship hold and product removal actions on SG&A was a favorable legal settlement and reductions in our annual bonus accruals.

These items kept SG&A expenses as a percentage of sales within the expected range.

Both reported and adjusted research and development expenses were $250 million for the quarter or 12.9% of sales.

Our absolute dollar investment remains consistent with our plan to continue to invest approximately $1 billion in R&D on an annual basis.

We continue to believe that this is an appropriate level of dollar investment going forward.

Our R&D dollars will be more heavily directed into the higher growth portions of our businesses, as we begin to implement the restructuring initiatives announced last quarter.

We reported a GAAP pretax operating loss of $1.575 billion for the quarter due to the results of our interim goodwill impairment test and associated impairment charge previously discussed.

On an adjusted basis, excluding goodwill and intangible asset impairment charges, restructuring costs, acquisition related gains and amortization expense, adjusted operating income for the quarter was $380 million, or 19.4% of sales, down 370 basis points from Q1 2009.

The reduction versus Q1 2009 is primarily related to the gross margin deterioration discussed earlier.

I'd now like to highlight the GAAP to adjusted operating profit reconciling items in a little bit more detail for you.

As previously mentioned, we performed an interim goodwill impairment test as of March 31, which resulted in an estimated $1.848 billion noncash charge in the quarter related to the impairment of our US CRM goodwill associated with the acquisition of Guidant in 2006.

The amount of this charge is subject to finalization during the second quarter of 2010.

We recorded intangible asset impairment charges of $60 million pretax, or $51 million after tax, associated with the write-down of certain intangible assets.

We recorded acquisition related gains of $250 million pretax, or $216 million after tax, upon our receipt of a milestone payment from Abbott related to a Japan regulatory approval of the XIENCE PROMUS drug-eluting stent.

We recorded $80 million pretax, or $56 million after tax, in restructuring related charges in the quarter, which are primarily related to severance and certain other costs in connection with our previously announced 2010 restructuring plan.

These charges are slightly lower than previous estimates, due to employee attrition during the quarter.

Total amortization expense was $128 million pretax, or $101 million after tax, which is flat with first quarter 2009.

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

The cumulative affect of all these items was $1.866 billion pretax and $1.84 billion after tax.

Interest expense was $93 million in the quarter, or $9 million lower than Q1 2009, primarily as a result of our $325 million in debt repayments during the last 12 months, together with lower interest rates.

On the same basis, our Q1 2010 average interest expense rate was 5.7% compared to 5.9% in Q1 2009.

Other net was $4 million of income in the quarter, compared to an expense of $6 million in Q1 2009.

For the first quarter of 2010 we had $8 million of interest income, primarily due to the collection of interest on past-due receivables in Spain, offset by $4 million of other expense.

A net expense of $6 million in the first quarter of 2009 included $4 million of interest income and approximately $3 million of net gains related to the monetization of our nonstrategic investments, offset by $6 million of net FX hedging costs and $7 million of other miscellaneous expense.

Our reported GAAP tax rate for the first quarter was a negative 0.9%, and on an adjusted basis our tax rate was 14%.

Our adjusted tax rate for the first quarter reflected a 730 basis point favorable impact, or $21 million, for discrete tax items, as well as 370 basis points of favorable timing events, which may reverse in subsequent quarters.

The discrete items are primarily attributable to the release of tax reserves resulting from a favorable court decision in a third-party case for which we have similar facts.

Adjusting for both the discrete benefit and the favorable timing items, we had an operational tax rate in the first quarter of approximately 25%.

We currently expect our full-year operational tax rate to be approximately 21%, inclusive of the US R&D tax credit, or 1% lower than our previous guidance at 22%.

Including the impact of both the discrete benefit and the timing items that occurred in the first quarter, our adjusted rate is estimated to be approximately 18% for the year.

A decrease in the expected full-year operational rate from our original guidance is due to revised expectations of our geographic mix of earnings and is reflected in our first quarter operational tax rate.

In addition, our operational tax rate for the first quarter excludes the US R&D tax credit, as it has not yet been re-enacted for 2010.

As a result of our revised pretax profit projections, the R&D tax credit equates to 400 basis points on our operational effective tax rate.

We reported GAAP EPS loss for the first quarter of $1.05 per share, compared to a loss of $0.01 per share in the first quarter of last year.

GAAP results for the first quarter included the previously discussed charges related to goodwill and intangible asset impairments, amortization and acquisition, and restructuring related net credits.

Our adjusted EPS in the first quarter, which excludes these items, was $0.16 and was at the high end of our guidance range of $0.13 to $0.17 per share.

There are a number of items that impacted our EPS in the quarter, including a negative $0.03 per share related to ship hold and product actions, a negative $0.01 per share as a result of an increase in our operational tax rate directly related to these items in the quarter, a benefit of $0.03 per share as a result of several items, including a favorable legal settlement and a reduction in our bonus accruals, and a benefit of $0.02 per share associated with the discrete tax item discussed.

Our adjusted EPS for the first quarter was down $0.03 versus our adjusted EPS of $0.19 in the first quarter of 2009.

As a reminder, the first quarter of 2009 adjusted EPS excluded $0.15 per share of litigation related charges, $0.07 of amortization, $0.02 per share of restructuring related charges, and positive discrete tax items of $0.04 per share.

Stock comp was $56 million, and all per share calculations were computed using 1.5 billion shares outstanding.

DSO was 60 days, a one day improvement from the first quarter of 2009.

The improvement was driven by strong collections in the US, India, and Asia Pacific.

Days inventory on hand was 123 days, down three days from Q1 2009, as we continue to work on reducing our inventory levels.

Operating cash flow in the quarter was a $284 million outflow, compared to a $261 million inflow in Q1 2009.

The Q1 2010 included a $250 million milestone receipt from Abbott, related to approval of the XIENCE DES in Japan, a $1 billion payment related to the settlement of certain patent disputes with J&J, and a $33 million restructuring payment.

Q1 2009 included $36 million of legal settlement payments and $24 million in restructuring payments.

Excluding these items, Q1 2010 adjusted operating cash flow was $499 million, or $178 million higher than Q1 2009, primarily due to improved accounts receivable, inventory and accounts payable management, and lower tax payments, including a tax refund in the quarter of $163 million, partially offset by lower adjusted operating profit.

The $1 billion J&J payment was funded with $800 million of cash on hand and a $200 million revolving credit loan.

We repaid this revolving credit loan during the first quarter with cash generated in the quarter.

We expect to fund the remaining $725 million of the $1.725 billion settlement due January 2011, with our 2010 cash flow.

Capital expenditures were $70 million in the quarter and $10 million higher than Q1 2009.

Reported free cash flow was a $354 million outflow in the quarter, compared to a $202 million inflow in Q1 2009.

We continue to have significant availability in liquidity of more than $1.8 billion, including cash on hand and our credit facilities.

In addition, for the year, we expect to generate strong cash flow of about $1.5 billion before special items.

In addition, our debt to EBITDA credit facility covenant ratio was 2.4 times, which is well below the maximum permitted level of 3.5 times and provides us with $750 million of EBITDA safety margin.

This covenant was unaffected by the recent J&J settlement, as we are committed to exclude all litigation related accruals and up to approximately $1.3 billion of related payments from our bank EBITDA calculations.

At the end of the first quarter, we had $519 million of cash on hand, $5.9 billion of total debt, and net debt of $5.4 billion, which is comparable to Q1 2009.

We expect to renew our revolving credit facility and refinance the majority of our 2011 debt maturities in mid-year 2010.

All three rating agencies affirmed our long-term corporate credit ratings in the first quarter.

As we announced in February, we have initiated a restructuring plan, which will span the next 24 months.

During the quarter, we took the first steps in executing on many of our restructuring initiatives we are undertaking.

The execution of all these restructuring initiatives over the next 24 months will result in a gross reduction of our operating expenses by an estimated $200 million to $250 million.

We will then reinvest a portion of these savings into customer facing and development related activities to help drive top-line growth in the future.

We are on schedule with our planned restructuring at this point.

Let me now turn to guidance for the second quarter, as well as revised guidance for the year.

While we have returned to market with COGNIS intelligent as of April 15, the combination of being off the US defib market for 11 selling days in Q2 and lower overall share in our CRM businesses will have an impact on both our Q2 revenues as well as our full year.

While we begin to ramp up our sales, we estimate that our US CRM revenues will be lower than our previous expectations by approximately $127 million in Q2, $55 million in Q3, and $50 million in Q4 this year.

The total estimated impact of our US CRM revenue for 2010, including the $72 million in the first quarter, is approximately $300 million.

This amount is in addition to the estimated $100 million of reduced revenue included in our original guidance for the year, related to disciplinary actions we took with respect to certain sales personnel and the subpectoral product advisory.

From a US ICD share perspective, we expect to bottom out during Q2 and then rebound, exiting the year approximately 500 basis points lower than we exited 2009.

Of the estimated 500 basis points of loss, 400 basis points relate directly to the ship hold and product removal actions, and 100 basis points relates to the actions we took in the fourth quarter with respect to certain sales personnel as well as subpectoral product advisory that happened in the beginning of this year.

Turning to our US Pacer business, we estimate that we lost 200 basis points of market share in the first quarter, less than 100 basis points as a result of the impact of the ship hold actions on our quarter end bulking, and 100 basis points as a result of the actions related to certain sales personnel.

We are currently estimating that we lose another 100 basis points of share as a result of the ship hold and product removal pressure, but we will gain that 100 basis points back by the time we exit the fourth quarter.

Since much of the additional revenue loss is related to our high-margin ICD business, this lost revenue will negatively impact our gross margins for the balance of the year.

As a result, we are revising our estimated gross margin for the year to reflect the impacts of the ship hold and product removal actions.

We now expect gross margin range for the year to be within 66.5% to 67.5%.

Finally, we have also taken steps to ensure that our sales personnel are not negatively impacted as a result of the ship hold and product removal actions.

This results in a drop through to EPS that is equal to the gross margin impact.

As a result, we expect earnings per share for the year to be negatively impacted by $0.05 per share in Q2 and $0.03 per share in each of the third and fourth quarters.

The full year impact of the ship hold and product removal actions, including the negative $0.03 per share in the first quarter, will be a negative $0.14 per share.

Turning to sales guidance for the second quarter 2010, reported consolidated revenues are expected to be in the range of $1.825 billion to $1.925 billion, which is down 12% to down 7% from the $2.074 billion recorded in the second quarter of 2009.

If current foreign exchange rates hold constant to the second quarter, the benefit from FX should be approximately $25 million or approximately 1% relative to Q2 2009.

On a constant currency basis, Q2 consolidated sales should be in a range of down 13% to down 8%.

For DES, we are targeting worldwide revenue to be in a range of $355 million to $390 million, with US revenue of $190 million to $210 million, and OUS revenue of $165 million to $180 million.

For our defibrillator business, we expect revenue of $290 million to $325 million worldwide, with $160 million to $180 million in the US and $130 million to $145 million OUS.

For the second quarter, adjusted EPS, excluding charges related to acquisitions, divestitures, restructuring, and amortization expense are expected to be in the range of $0.06 to $0.10 per share.

This includes an operational effective tax rate for the quarter on adjusted earnings of approximately 25%, reflecting the delayed approval of the R&D tax credit.

The Company expects EPS on a GAAP basis in the second quarter 2010 to be in the range of a loss of $0.03 per share to $0.02 per share.

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

As a result of the ship hold and product removal actions involved in the Company's ICDs and CRTDs in the first quarter, the Company is revising estimates for the full year as well.

The Company now estimates sales to be between $7.6 billion and $8 billion for the full year, versus previous guidance of $8.1 billion to $8.5 billion.

If current foreign exchange rates hold constant, we expect the FX impact to be minimal.

Therefore, our revised guidance on both a reported and constant currency basis should be in a range of down 7% to down 2% for the year.

To help you in adjusting your models, in addition to our revised range for gross margin, we expect SG&A to be in the range of 33% to 34% of sales, R&D in a range of 12.5% to 13% of sales, royalties of approximately 2.5% of sales, and interest expense of approximately $410 million, including approximately $10 million to $20 million of noncash interest charges in the second quarter associated with our planned refinancing.

Adjusted EPS for the full year is now expected to be in the range of $0.50 to $0.60 per share, versus our previous guidance of $0.62 to $0.72 per share.

This reflects a negative $0.14 per share related to ship hold and product removal actions, offset by the favorable impact of $0.02 per share related to the discrete tax items discussed above.

The Company expects EPS on a GAAP basis for the full year to be in the range of a loss of $1 per share to a loss of $0.88 per share.

Included in our GAAP EPS estimate for the year is $1.22 per share related to the Q1 goodwill impairment charges, $0.03 per share related to the Q1 intangible asset impairment, $0.14 benefit per share related to the acquisition related credits, $0.12 to $0.10 per share of restructuring related costs, and $0.27 per share of amortization expense.

As discussed earlier, we now expect our adjusted operational tax for the full year 2010 to be approximately 21%, excluding any discrete tax items that may arise during the remainder of the year, but including the R&D tax credit for the year.

However, as a result of the discrete benefit and timing items recognized in the first quarter, our full-year adjusted tax rate is now expected to be closer to 18% for this year.

The R&D tax credit has not yet been extended for 2010, but we are assuming that it will be approved in the fourth quarter 2010, as it has in many previous years.

The full-year benefit of the R&D tax credit is 400 basis points on our annual effective tax rate.

As a result of this timing, we expect our operational effective tax rate for the second and third quarters to be approximately 25% and for the fourth quarter approximately 9%.

That's it for guidance.

Let me now turn it over to Ray for an overview of the businesses in the quarter as well as his overall thoughts.

Ray.

Great.

Thanks, Jeff.

Let me begin with more qualitative review of our businesses, and then, as usual, I'll share some brief thoughts on likes, dislikes, and hot topics for the quarter overall.

In the first quarter, we began the integration of our CRM and CV businesses into our newly formed Cardiology, Rhythm and Vascular Group, or CRV, in order to better address the needs of healthcare systems, physicians, and their patients.

We know that realigning our resources will create a more agile organization that will be better prepared to address the needs of our customers in a rapidly changing healthcare environment.

Our continuing investment in new technologies will allow us to build on our market leading positions across our existing cardiovascular service line, while accelerating investments in, for example, structural heart and hypertension.

In addition, this integration positions us well to benefit from opportunities to implement our new cross care initiative.

Looking at CRM, we estimate that our worldwide ICD market share was down five percentage points sequentially in the quarter, driven mainly by the defib ship hold and product removal actions we took in the US beginning March 15.

In the US, we lost eight percentage points of ICD market share for the quarter, as we were off the market for the last 13 business days.

As Jeff indicated, we are estimating a US defib share exiting the year that is 500 basis points lower than we exited the year in 2009, 400 of which relate directly to the ship hold and product removal.

These actions had some spill over effect on our US Pacer revenue, particularly generating fewer bulk sales at the end of the quarter with customers who typically bulk both defib and Pacer products with us.

I'll talk more about the defib ship hold and product removal actions in a few minutes.

While the events during the quarter were clearly a distraction from our focus on planned product launches, we are committed to advancing our technologies to strengthen the CRM franchise.

In the US, we will launch the ACUITY Break-Away Lead Delivery System, building on our already strong lead portfolio.

We also plan a phased US launch of our new 4-SITE header and defibrillation lead, which is designed to be compatible with the upcoming IS-4 standard.

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

The four site system was broadly commercialized in Europe during the first quarter, the first DF-4 compatible system to be commercialized there.

We plan to build on the success of our new products over the past 24 months with the launch of our next generation line of defibrillators.

These devices will include new features designed to improve functionality, diagnostic capability, and ease of use, but also with a far greater emphasis on cost.

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

Our international CRM performance was driven by continued robust growth in Japan, following the launch of COGNIS, TELIGEN, and ALTRUA late last year.

We anticipate international defib performance to strengthen over time.

Europe is poised for continued growth with the ongoing launches of our Latitude patient management system and our 4-SITE defibrillator system.

Early signs point to strong adoption of 4-SITE across 16 European countries, including the addition of new customers and positive physician experiences.

On March 18, an FDA advisory panel unanimously recommended expanding indication for Boston Scientific's CRT-Ds.

If approved, we would become the only company with an FDA indicated CRT-D for high risk New York Heart ASsociation class one and two patients with left bundle branch block morphology.

These patients accounted for 70% of admitted CRT trial population.

We hope to receive an expanded indication from the FDA in the middle of this year, which will potentially create additional opportunities for the market as a whole, but certainly for Boston Scientific specifically.

Touching on our EP business, we launched our Blazer Prime catheter in the US in November and have received very positive feedback from physicians.

Blazer Prime is an improved version of the market leading Blazer ablation catheter, and is designed to deliver enhanced performance, responsiveness, and durability.

We anticipate launching Blazer Prime in Europe in the next few months.

The Blazer Dx-20 steerable diagnostic catheter has achieved an estimated 20% market share in the US since its introduction last May.

We began the initial launch of the Blazer Dx-20 in Europe during the first quarter and feedback from physicians has been very similar to the positive responses we have received from US doctors.

The Blazer open irrigated ablation catheter should be ready for European launch in the third quarter, with US clinical trials beginning around the same time.

Turning now to cardiovascular, worldwide DES revenue of $407 million was solidly within our guidance range and included $34 million in revenue of PROMUS Element, now available in 96 countries.

In the highly competitive European market, this product is rapidly gaining share.

It has surpassed the PROMUS stent in market share and is outselling XIENCE Prime.

PROMUS Element shifts us to self-manufactured margins and improves our DES gross margin performance.

Also, the Australian Therapeutic Goods Administration approval in first quarter opened several emerging market growth opportunities for both PROMUS Element and TAXUS Element.

Our worldwide DES market share is down one percentage point from last year and down four points versus the first quarter of 2009.

As we anticipated, our mix continues to shift from TAXUS to PROMUS and is driving significant reductions in our gross margin, as Jeff has already highlighted.

Also contributing to these reductions is continued weakness in ASPs, offset by an increase in both PCIs and penetration rates compared to a year ago.

The launch of PROMUS and XIENCE in Japan contributed to a penetration rate of 72% in the quarter, an increase of 3% versus last quarter and up 6% from first quarter of 2009.

We expanded our market share leadership over the nearest competitor due to a strong PROMUS launch since its January approval.

However, our 43% share was down 11 points from the first quarter of 2009.

We should note that our PROMUS launch has actually been better than the numbers would indicate.

We believe the reset trial, sponsored by Abbott, comparing XIENCE to CYPHER, is inflating Abbott's share.

This trial locks us out of selling PROMUS to the trial centers until late July, which is when we estimate enrollment will be completed.

Once enrollment is complete, we will launch PROMUS in these centers.

We have consistently chosen not to do studies that revalidate known end points versus first-generation products.

Being the only company with a two drug platform in Japan, we fully expect to remain the Japanese market share leader.

We continue to expect to launch TAXUS Element in late 2011 to early 2012 and PROMUS Element in the middle of 2012.

At the ACC meeting in Atlanta last month, the PERSEUS trial results were presented.

They demonstrated positive safety and efficacy outcomes for TAXUS Element, while highlighting the platform improvements enabled by our platinum chromium alloy.

The unique stent architecture and proprietary platinum chromium alloy combine to offer reduced recoil, greater radial strength, increased flexibility, and improved radiopacity, helping to create consistent lesion coverage and drug distribution, while improving deliverability.

Results from this trial support the PMA submissions for TAXUS Element in the US and TAXUS Element CE Mark approval is expected late this quarter.

Also at the ACC, the results from Horizon's AMI trial, assessing the impact of diabetes on clinical and angiographic outcomes in heart attack patients treated with TAXUS Express drug-eluting stent techs or the express bare metal stent were released.

Analysis of the high-risk diabetic patient population demonstrates superior efficacy and comparable safety for the TAXUS Express stent, when compared to bare metal stents in these patients.

We have submitted an application to the FDA requesting expansion of indications for use of the TAXUS Express and TAXUS Liberte stents to include patients experiencing AMI.

We also completed enrollment in the Small Vessel and the Long Lesion trials of our PLATINUM Clinical Program, which compares PROMUS Element to historical data from the Spirit trials.

The PLATINUM angiographic data will be presented at TCT in September and the PLATINUM primary endpoint results at ACC in March 2012.

We remain on track to launch PROMUS Element in the US and Japan in mid 2012.

We plan to launch TAXUS Element in the US in mid 2011.

We are uniquely able to offer customers choice between the two best DES stents that are on the market today.

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.

Turning to our other CV product lines, our worldwide non-stent IC core business was down 4% in constant currency from the first quarter of 2009.

This decline is mostly attributed to PTCA balloon average selling price erosion.

However, we maintained our US and worldwide PTCA balloon leadership positions with 55% and 41% share respectively.

Our first quarter rollout of the Apex PLATINUM PTCA in the US exceeded our expectations and we are planning to roll out internationally during the second quarter.

We also look forward to launching the NC Quantum Apex post dilatation balloon catheter during the third quarter in the US, while we currently have limited market evaluations going on in Europe.

We believe these products should result in year-end balloon market share gains in the mid single digits.

In addition, we have began a phased US launch of our Kinetix Guidewire and have planned to expand to full product available by next quarter.

Kinetix represents an exciting wave of new products in this space, and most notably, a first time highly competitive entry into the nearly $100 million workhorse wire market.

We continue to expect market share gain in the low double digits by the end of 2010.

In our peripheral intervention business, we returned to modest growth over the prior year during the quarter.

We experienced solid international growth of 5% constant currency, but we are still struggling in the US due to procedural softness.

We continue to build on our strong global position with successful launches of our new technologies worldwide.

We continued our momentum with the international Epic vascular stent launch and continue to see expansion in the new accounts and overall share growth.

In the carotid space, the Adapt Carotid stent system launch in select international market represents an important additional technology in nitinol self-expanding closed-cell stent design.

We received PMDA approval in Japan for our Carotid WALLSTENT system, and this product will officially launch in the second quarter.

Both the Adapt launch and Japan Carotid WALLSTENT launch should bolster our worldwide leadership position.

In late March, we launched the Sterling SL balloons in both the US and European markets, filling a gap in our portfolio in the Long Balloon segment.

Additionally, we received US PMA approval for our Express LD Iliac stent system in early March.

The results from March indicate good momentum, with share gains in the US Iliac stent market.

We continue to be very excited about our number one worldwide mark position in the Peripheral Interventional space.

We believe our growth projections for the business are solid, as demonstrated by the multiple product approvals and launches in the quarter, as well as the additional six product launches planned in 2010.

We will, however, need to continue to monitor the procedural softness within the US market.

Given the global nature of this market, we believe that continued international momentum can offset some of the US shortfall.

Our Cardiovascular business continues to be well positioned and we absolutely believe our overall cath lab leadership will be strong for years to come.

Our Neurovascular business recorded very strong sales in nearly every franchise this quarter and maintained its global leadership in an increasingly competitive environment.

Our Guidewire business continues to do extremely well, and was up 12%, driven by excellent performance and our continued conversion of our customer base to our Synchro-2 Guidewire, which grew 29% worldwide.

Our Catheter business, excluding flow directed and guide catheters, grew 5%.

Our ICAD or Intracranial Arthrosclerotic Disease business posted strong results, with a 13% growth overall.

The launch of the Wingspan stent and Gateway balloon system in some of our key countries, including Brazil, Korea, and Australia in the past two quarters, boosted those results.

While China recorded another strong quarter with growth of 49%.

The NIH sponsored Wingspan stent and Gateway balloon systems SAMPRAS trial is ahead of schedule and continues to aggressively enroll patients, with more than a third of the patients completed 16 months into the trial.

Our Adjunctive stenting business grew 1% this quarter, despite increased pressure from competitive offerings.

The upcoming launch in the second quarter of our Neuroform EZ stent, with its improved delivery system, will no doubt reinforce our number one position in that segment.

Under significant pressure from competitive coil and injunctive stent launches, our detachable coiling business was down 13% versus prior year.

In spite of those softer results, we have maintained an almost 40% worldwide market share.

From a country perspective, the strong sales growth this quarter in China up 26%, Australia up 11%, Korea up 10%, and Brazil up 7% were notable.

These are emerging market countries that have received increased focus from our announced international structural changes.

The Endoscopy division continues its strong performance, recording another solid quarter posting 12% worldwide growth, 9% constant currency, and 8% in the US The launch of the fully covered WallFlex Esophageal stent was executed in late January.

The performance of the complete line of WallFlex stents -- Biliary, Esophageal, Duodenal, and Colonic, was a key driver for the division in the first quarter.

Worldwide growth was approximately 22%.

Enrollment in the benign stricture study of the WallFlex Biliary RX stent continues to be on track.

The trial will evaluate the removal of stents from patients with benign bileduct strictures, as well as the effectiveness of temporary stenting for long-term benign biliary stricture resolution.

Growth in the Biliary interventional space remains strong, supported by our diverse product portfolio.

Worldwide constant currency growth was 9%.

The Hemostasis business continued its strong performance, led again by the resolution clip, worldwide growth was 12%.

Two additional product launches were executed in the quarter -- the TWISTER polyp retrieval device, which is utilized in colonoscopy procedures to facilitate polyp capture for pathology and through general feeding tube are both tracking while following initial release.

In the second quarter, we will continue to execute key product development milestones in support of the 2010 new product launches.

Urology and Women's Health delivered solid results for the quarter, growing at 6% on a constant currency basis, with double-digit growth in our Women's Health business.

The growth in Women's Health is fueled by recent new product launches used in the treatment of incontinence and pelvic floor prolapse.

Our Urology business maintained its leadership position and grew 3% on a constant currency basis, despite declines in our BPH and biopsy businesses.

Urology growth, excluding these two franchises, was very strong at 8%.

During the quarter we launched our next generation Genesis HTA system for the treatment of excessive uterine bleeding in the European market.

We believe that the significantly enhanced user interface and ease of use of the Genesis system will enable the business to grow its share of the $400 million worldwide excessive uterine bleeding market.

Looking forward, we will continue to execute on our Women's Health growth strategy, as we prepare for the launch of the Genesis HTA system in the US market.

Last week, we announced an exclusive agreement with the Bladder Health Network to market their female urodynamic testing solutions for urinary incontinence.

The agreement will allow us to introduce healthcare providers to a female continence care platform that offers professional testing the results interpretation.

It is another example of our continuing commitment to the Women's Health community.

Our worldwide Neuromodulation business constant currency sales growth was 10%, with the US also growing at 10%.

We experienced some softening of our procedure volumes, primarily related to inclement weather in the east and ongoing softness in the economy with respect to elective procedures.

In the second and third quarter of 2010, we will launch four new lead products, which will allow us to offer additional alternatives to physicians and patients.

These new product launches, combined with the the inherent technological advantages offered by our spinal cord stimulation system, look to provide us with continued growth throughout 2010.

Let me wrap up with some thoughts on what we liked about the quarter, what we didn't like, and then finish with one hot topic.

I will start with what we liked.

Number one -- we liked very much the fact that 40% of our sales for the quarter came from new products.

It shows our pipeline is producing products that physicians believe are making a difference for their patients and it's an indication that our R&D investment strategy is on target and paying off.

Number two -- our drug-eluting stent business made progress on several fronts, starting with the on going success of PROMUS Element launch in Europe.

Since approval last October, we have increased our share of Everolimus market nearly seven percentage points, and we plan to build on that momentum following our recent receipt of reimbursement approval and launch of PROMUS Element in France.

Feedback from physicians on the performance of this new platinum chromium stent has been very encouraging.

In a recent survey of UK physicians, 81% rated the PROMUS Element stent better in deliverability compared to their current workhorse stent, 93% rated it better in visibility, and 100% rated it better in acute results.

During the quarter, we also announced positive 12-month data from the PERSEUS clinical trial, which will support our FDA submission for the TAXUS Element stent.

In addition, we are pleased to see the approval and launch of the PROMUS stent in Japan, making Boston Scientific the only company to offer physicians the choice of two different drugs on separate DES platforms in all major markets worldwide.

Thirdly, we like the unanimous recommendation of an FDA advisory panel that the agency expand the indication for our CRT devices, including COGNIS.

The panel recommended the expansion include the majority of the studied population of the landmark MADIT-CRT trial.

Approval and expanded indication by the FDA could lead to a dramatic increase in the number of patients eligible for this therapy.

If the indications expanded, our CRT devices would be the only ones approved by the FDA for patients in all New York Heart Association classes of heart failure.

Fourthly, we again liked the good performances achieved by our Endoscopy, Urology and Women's Health, and Neuromodulation businesses.

Recent product approvals have expanded our family WallFlex stents, fueling first quarter growth of 9%.

The entire WallFlex stent family, including Biliary, Enteral, and Esophageal are now available in the US, Europe, and other key markets.

Our Urology and Women's Health business grew 6%, driven by continued double-digit growth in our pelvic floor franchise and 13% overall growth in international, including 25% overall growth in Japan.

Finally, one of the things we liked best about the quarter was our very strong operating cash flow.

As Jeff said, our first quarter operating cash flow was nearly $500 million, excluding special items, and we ended the quarter with more than $500 million of cash on hand.

In addition, we expect to renew our revolving credit facility and refinance the majority of our 2011 debt maturities by the middle of this year.

We have a lot of room in our debt covenants, with ample safety margins, so overall, we have significant liquidity as well as financial strength and flexibility.

We are substantially stronger financially than most of the written reports would lead readers to believe.

Dislikes -- now let's look at what we didn't like.

Firstly, we didn't like our flat year-over-year sales growth.

Even when the impact of the ship hold and the product removal actions was figured in, sales were still flat.

While we anticipated a loss in revenue associated with actions related to our CRM business, we obviously don't have to like it.

We expect to address this trend as we continue to implement the restructuring plans we announced in February.

The actions we are taking will provide renewed focus on sales and marketing, R&D portfolio prioritization, and selected merger and acquisition activities.

All of these actions will strengthen our top line opportunities and, with continued focus on expenses, allow us to grow our bottom line.

Second thing we didn't like, is we remain concerned with the continued pricing pressures we're seeing globally and their impact on our revenue growth and margins.

Pricing pressures remain high in our DES business worldwide, and we are seeing an acceleration of these pressures as a result of one competitors behavior in Japan, as we now have all four major competitors in the market.

The trend we identified, which was confirmed by our competitors last quarter relative to CRM pricing, has continued.

We believe that these pressures are directly related to slower growth market, greater economic buyer sophistication, increased price transparency, and government actions around the world limiting therapy and/or reducing reimbursement.

Last, but not least, we didn't like that we had to say good-bye to a lot of good people recently, as part of our restructuring plan.

These decisions are never easy.

However, the job cuts were an essential part of our plan and over the long run we will be stronger and better positioned, having executed this plan.

Hot topics -- I'm going to close with what could either be a dislike or a hot topic.

And that's the US defib ship hold and product removal actions.

I'll do a brief recap of what has transpired thus far, and then I'll tell you about our return to market efforts.

As your know, on April 15, we received an FDA clearance for the two validated manufacturing changes to our ICDs and CRT-Ds.

And we immediately resumed distribution of our COGNIS CRT-Ds and TELIGEN ICDs.

These two products represent virtually all of our defibrillator implant volume in the United States.

We were fully positioned to meet customer demand for COGNIS and TELIGEN within 24 hours, and in fact, the first implant occurred within two hours of our announcement that we were back on the market.

Throughout this process, there was no indication the two filing omissions posed any risk to patient safety.

They were also not related to product quality or effectiveness.

We are committed to doing the right thing every time and we acted voluntarily, swiftly, and appropriately to ensure compliance with all regulatory requirements.

In addition to our ship hold and product removal action solely on our own initiative we conducted an internal review of manufacturing and other changes for the products affected by these actions, as well as the associated regulatory submissions.

A review found a few additional instances where we did not submit the appropriate documentation for validated manufacturing changes in Confient, Livian, Prizm, Renewal, and Vitality.

We have now submitted this documentation and are working closely with the FDA to secure the necessary clearances to allow us to return these products, the earlier generations of the company's CRT-Ds and ICDs to market as soon as possible in the United States.

These products may continue to be implanted in geographies outside the United States.

In addition to the internal review we conducted, we have made changes to ensure tighter controls over all aspects of our change order and regulatory filing systems.

We have implemented more robust processes, with even more checks and balances for the preparation and review of all change orders and associated regulatory submissions.

Our multi-functional CRM regulatory review board will ensure that all change orders are properly processed, reviewed, and submitted.

These changes were requested by us, designed by us, and executed solely by us.

We continue to unfold a comprehensive return to market plan that engages our sales force, sales management, and senior management with physicians.

Our work streams related to the CR-V cardiovascular service line include new CR-V branding, new customer engagement programs, new pricing contracting approaches, new collaborations between sales and marketing, new sales force enablers, and the new communication programs.

A portion of these efforts will be visible at HRS.

We've been pleased with the initial feedback, which has generally been understanding and supportive.

I'm not suggesting that everyone has been understanding and supportive.

We have certainly encountered our share of skepticism, but overall we've been encouraged.

We've been reaching out extensively to physicians, principally through a series of calls and visits.

We are having a lot of one-on-one conversations, so physicians are hearing from us and we're hearing from them.

Our conversations with physicians are going to continue at the Heart Rhythm Society annual meeting, which opens two weeks from tomorrow in Denver.

We will be there in force and we have a full schedule of meetings.

I would not want our competitive neighbors in Minnesota to think that we're going lay down and die.

That won't happen.

We've also been reaching out to our sales force.

We're keenly aware of the challenges they've been facing and we're doing everything we can to support them.

We're also aware of the importance of retaining them, and we've taken a number of steps toward that end, including keeping them whole while we were off the market and while we're ramping back up.

I want to acknowledge the great job they have done helping us get through the situation.

They are energized and hard at work.

They've been terrific, as has been our entire commercial team.

We've made substantial progress since April 15, and we continue to make progress every day.

Looking ahead, we feel confident about our ability to restore trust and regain market share.

That confidence is based on more than just return to market plan.

Boston Scientific is committed to continuing to invest in innovative new technologies that improve the health of patients.

We have a broad range of products and a promising pipeline.

We plan to continue to invest approximately $1 billion a year in R&D.

We have the financial strength required to make these investments and continue delivering these technologies to physicians and patients.

As I mentioned earlier, the establishment of our new CR-V group has created the most comprehensive cardiovascular serviceline in the world and will help us improve our ability to deliver new products, leading clinical science, and exceptional service.

Our breadth in the cardiovascular space is unique amongst our competitors and will put us in a position to definitively lead in the space and to partner physicians over the long term.

In short, several competitors have good individual product segment offerings, but once powered up, no one else has anything like our CR-V.

Contrary to popular opinion, we were not told to do the right thing every day by anyone.

We chose to do the right thing every day and that strategy for patients, for physicians, and for us will pay off.

As one EP physician said to me, "I love your products and your service and I believe you made the right decision.

I just wish you would stay out of the newspapers." Lastly, there is considerable speculation on our acquisition and divestiture plans.

I have never historically commented on M&A activity and have no intention of changing that approach.

That said, virtually everyone is connecting the wrong dots.

There is no connection or correlation between divestitures, liquidity, and the financial consequences of the ship hold and product removal actions.

Any divestitures we may do are strictly a function of portfolio strategy and capital creation for reinvestment and debt reduction.

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

Thank you very much.

(Operator Instructions).

Our first question comes from the line of Bob Hopkins with BofA Merrill Lynch.

Good morning.

Can you hear me.

I can hear you.

First, Ray, a question for you, then a question for Jeff.

Ray, could you talk a little bit more about the assumptions that you are using for the 2010 US ICD market?

What kind of growth are you assuming for mark in your projections and then also what kind of pricing assumptions are you using?

The reason I asked that question is there is a lot of concern in the marketplace about what you might need to do to get back in favor in your core accounts in terms of offering price discounts and how disruptive that might be to the market.

Thanks.

Yes, Bob, kind of three parts there.

First of all, our assumption, if you talk about US market only, our assumption is the US market is flat on a 2010 guidance purposes basis.

Pricing at this point, we've been using minus 2 to minus 3, which is a little bit higher than I think that market has traditionally been.

It's continuing to trend that way.

I think, as I mentioned in the commentary, our competitors seem to be reaffirming something in that area.

The answer to the third question is I've read those reports just as you have, I'm sure, I'm not going to disclose our strategy but I don't think we view the world as as a excessive cut price take share world.

That may have happened historically.

I was trying to read some of the old Guidant recovery history from prior difficult situations.

I think it did happen by the looks of it.

Our strategy is primarily revolved around cross care, around energizing our sales force communications, marketing programs, new branding, a lot of COGNIS TELIGEN story telling and things of that type.

I don't want to go into great detail because I'm sure there's competitive ears on the phone but I think it would be mas assumption to say that we plan to or think it's knows excessively drive down the market.

And then I wanted to ask Jeff, I know there are a lot of moving parts in the numbers that you were talking about on the call.

But I think midpoint to midpoint in terms of where your guidance was previously given versus where it is right now, it's about a $0.12 decline, so I was wondering if could you put that into a couple of different buckets for us.

And I know did you some of this in the call but you want to confirm, how much of this is due specifically to the ramifications from the ICD recall, how much of that is due to tax rate changes, versus other things, if you could help us break that down from a big picture perspective that would be very helpful.

Bob, I think it's fairly straightforward.

Really kind of two -- if you go midpoint to midpoint, old guidance to new guidance, we're down $0.12.

$0.14 of that is due exclusively to the US CRM's ship hold.

So we're talking about roughly $300 million worth of revenue loss and the margin drop-through on that as I mentioned is very high.

And therefore that converts roughly to $0.14 of lost EPS.

So obviously a drop from the midpoint to midpoint by $0.14.

Offsetting that is the $0.02 of benefit we got in the first quarter from our tax rate discrete item.

So it's the $0.14 headed the wrong way offset by the $0.02 kind of helping us.

So that's the $0.12 differential.

Bob, let me add a bit of color on that.

I can understand how people got to really low margins trying to squeeze this all in and make the model work.

I think Jeff just covered that piece of it.

I think the other part that people perhaps didn't realize, is we're not going to hack away at our R&D budget.

We're going to continue to stay focused on pipeline.

We are going to invest pretty heavily in emerging markets this year, despite the fact we've been hit hard, obviously by the CRM situation, and we're going to drive return to market for CR-V and do all the things I talked about there including maintaining sales rep incomes through the ramp up, new branding, all that.

So the idea that we'll do dramatic expense cutting to squeeze another nickel out here or whatever it may be is a bad assumption.

We are not going to do.

That we he ear going play for year end and play for the second half and play for 2011.

And the other $200 million in revenue reduction?

I think the reduction was $500 million so $300 million from ICD.

What was the other $200 million?

Yes, so there was $300 million from ICDs, there was about $100 million for FX.

You will recall when we gave guidance in January we assumed the favorable impact of foreign currency was going to be $117 million.

We expect that to be minimal for the full year.

So that's about $100 million and change, and kind of two other factors.

One is pricing, and although -- I think we had a relatively conservative view of pricing coming into the year.

I think given all the factors that Ray talked about, pricing is a little bit more challenging than we anticipated, and the other factor are some delays in product approvals.

Kind of -- those are the factors.

I will get back in queue.

Thank you.

Our next question comes from the line of Mike Weinstein with JPMorgan.

Please go ahead.

Thank you.

Let me start with a couple items to clarify.

The cadence of the impact from the ICD ship hold on your quarterly sales, you said $72 million first quarter, $127 million second, $55 million third, $50 million fourth.

Why such a big step did you know in the second quarter and then the step-down in the third given tough full quarter to make up for your lost time on the market, catch up on replacement implants and so forth?

Why the second quarter impact so much bigger than the first?

Well, Mike, this is Jeff.

So you've got the first 11 business days shipping days of the second quarter off the market.

So you've got almost a similar impact, although two fewer days than the first quarter, then there after you've got to get back into the accounts, and get your share back up.

So there's almost two dynamics.

One is missing the days completely for the first 11 days, then for the next number of days you have to ramp your share back up.

What we see happening is that we aggressively regain the lost share, then by the end of the year we end up being down 400 basis points.

So it's kind of a rebound -- reestablishment of being on the market, first big piece, and then the second piece is kind of climbing our way back up towards 400 basis points.

Said differently, a much higher share the first two weeks of March than you get in the remainder of the remaining 10 weeks of the second quarter is a different way of saying it.

I understand.

So what do you think your -- if your goal is to get back to a point where at the end of the year your share is down 500 basis points year-over-year, what do you think your share is down year over year right now?

What's your starting point?

I think we believe it's something like eight points down right now from a 29 to 21, going to a 17, Mike, in the second quarter, in this chipping our -- then chipping our way back up over two quarters following that to end up at a 24 exit rate.

Okay.

So you think you're down eight year over year, and your goal is to get to down five.

Let me ask you on pipeline, it seems if I look at technologies coming out on the CRM side over the next couple years that the competitors are focused on, one of them is MRI compatible pacemakers.

Another one is going to be quad polar leads.

Can you tell us where you are with those two technologies?

I will and then I'll ask Fred to jump in and add to it.

We have them in the sites.

Our timing is different, I think, than some of the competitors.

We are later on at least the one.

Fred, do you want to add some color to that for me?

Absolutely, Ray.

We have a very exciting MRI program on the Brady side on going.

As you know, Mike, we have a new platform in development for Brady.

That platform includes the implantable pulse generators as well as new series of Brady leads.

And those all in active development.

It's a major development that we are making, have been making in the last year and a half.

Those products will start rolling out next year, and we have a very exciting MRI compatible program with.

That in fact, we believe that our solutions are going to be holding up very well in the marketplace and are going to be really exciting for us.

So we certainly are making those investments and have a very good investment going on on that side.

That's MRI in Brady.

Then on quad polar, obviously that's something we're working on as well.

You though that we have always add strong position in left ventricular leads.

We are making those investments as well.

We have been very focused on our DF-4, future IS-4 stand-up product.

Those are being rolled out as we speak in Europe with very good success.

Obviously the next inline for us to bring to market is quad 4 technology.

Any sense on timing of either the MRI compatible launch in the US or the quad polar launch in the US?

The Brady platform is -- I don't have the days in front of me, Mike, but the Brady platform will be starting to rollout in 2011 next year in Europe and other geographies and then also later in the year in the US.

That will be the foundation for our new Brady platform, including the technology that's already built in there for MRI safety.

We will still to have do a clinical trial to prove the benefits on the MRI side and so to get the MRI claims we'll take it longer.

Okay.

Mike, it's Ray.

I want to make sure we're clear on that.

The Brady rollout, the new platform is 2011, but the MRI effective platform is 2012 so we're not misleading you.

Two others.

One, are you comfortable at all commenting on the divestiture of the neuro businesses and then last question would be on the question of ongoing earnings power.

Obviously this year is getting impacted by the ICD ship hold, a lot of moving parts.

But if we look at the decline in the Street consensus forecast for the company on the last six months, can you give us your thought son once you get past this what the earnings power of this company is in say 2011 and then into 2012?

Thanks.

Okay, Mike, you want me to comment publicly on M&A and give you long-term guidance.

Is that where we're at?

No, I know you've got -- are you at a pint on the first process where you are willing to confirm the process and if no, I understand, and second, could you talk about not long-term guidance but what you feel like the earnings power of the company is.

First of all, you're assuming there's a process, so I wouldn't even touch that at all.

On the second one, we've commented on the areas we want to get into.

We're going start doing -- we're exposing our employees to that now as we travel around.

I think the earnings power will be fine, provided that the new product lineup, some of the things Fred just talked about, provided that element turns out to be the kind of killer product we think it is, and provided that we can make, through acquisitions of not just companies and technologies, pretty dray matting growth into those women's health and some of the endo and the other areas we've talked about.

If we can do all those things, if executed properly, people focus on cash and debt and refinancing.

I don't see where that issue is because of our cash flow.

The question is can we smartly change the portfolio in such a way and do this restructuring that we drive higher earnings and attract a hair multiple because of a new growth rate.

That's the challenge.

The financing part I think is overfocused on frankly.

I'll let some others jump in.

Thank you, Ray.

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

Please go ahead.

Good morning.

Just two questions here.

Jeff, could you help us understand on spending throughout the pace of the quarters here, you obviously talked about a commitment to reps so I assume you continue to accrue but that there was significant SG&A constrainment in the first quarter.

Can you help us understand what happened in the first quarter versus your plan for spending specifically as relates to sales and marketing for the remainder of the quarters?

Sure.

So what ended up happening as I mentioned we had some favorability in SG&A in the first quarter that derived as a result of some settlement of some tax issues where we had a tax reserve reversal.

And then we had some adjustments both to the bonus accrual from last year and the bonus accrual from this year based on how we see the year playing out.

So those items, let's say artificially drew down the SG&A rate.

So you've got two dynamics going on.

One, you had the $72 million less sales from the CRM stop ship but you had all the SG&A associated with that so that would normally drive up your SG&A rate.

Came into the year saying we were roughly going to have a comparable SG&A rate to last year, which is 32%.

Without the benefits of legal and bonus the SG&A rate would have gone up.

We had the benefits of SG&A legal, therefore that drove down the percentage.

So as we move our way through the year, we don't anticipate having the reversal of legal reserves and certainly the adjustment for prior year bonus.

Therefore, those, let's say benefits will go away and as our commitment is to stay with compensating the sales force, the whole sales force in place and protect and grow the share, therefore that rate will come back up which is why now we're saying the SG&A rate will go back up to like 33, 34% for the full year versus 32% a year ago.

Okay.

Very helpful.

Maybe just two quick ones.

Jeff, you mentioned a small component of the delta between $300 million and $500 million guidance reduction is product delays.

The one or two specific product delays having the biggest impact, $50 million or $75 million, what are those delays?

Probably the one that has the biggest impact is the target coil launch which we had hoped to kind of get out at the early point of this year.

That's been delayed to kind of the back half of this year, perhaps the beginning of this year.

That's one.

Then we had a couple of delays, one in the EP space, some of our catheters are coming out later than planned, even in the PI space despite getting approval at the end of this quarter we thought we he'd have approval at the end of last year so those are the three factors.

Coil is the biggest one.

Ray, one strategic question.

Obviously taking aside the inter quarter speculation on divestitures, and where they are and not related to your financing, all that aside, last quarter before, the ship hold, you talked about the opportunity of divestiture and portfolio rebalancing.

Given your comments about CRM and DES pressure which are being echoed by other competitors, can you help he can can heed by other competitors, can you help us understand why now is the time to be a less diverse business than a year ago?

David, you made a good point, which I've been trying to make all of the time, that we did make those announcements prior to the ship hold, therefore it's hard to believe that it could possibly be connected, so that's one comment.

Secondly, we're not talking about less diversity, we're talking about a phasing -- I suppose at some point in time, it might be a little less diverse as you alter the portfolio, but we're actually talking about being considerably more diverse than we are now, when we are completed on our portfolio rollover, so if you look at the top 14 target areas that we're working on, some of which is internal, some of which is external, it will make us more diverse.

At some, any given point in time, with product line and business divestitures, sure, we could be a little bit less diverse, but it's only for a small period of time.

Thank you very much.

Thanks, and our next question comes from the line of Tao Levy with Deutsche Bank.

Please go ahead.

Hey, good morning.

This is actually Imran in for Tao, thanks for taking my question.

Can you talk about sales force turnover in CRM, to what extent you've seen that, and specifically what you're doing on the comp side to offset that?

I'll talk about it in generalities.

We've had some sales force turnover that we forced, as you know, because of HCP-related and other activities that we were not happy about, so that was us creating the turnover.

There were some people who perhaps who don't like our policies or the change in policies, that can create some more.

This is a relatively sticky business, and so obviously you lose some sales when those folks go.

We also had things like contract renewals coming up, that if people are not happy with the change, and we're making a lot of change right now.

The morale in the company in total is fairly down, because it's tough when you have these kind of ship hold situations, you have restructuring going on and people being let go, so you can't anticipate a high morale at this point, that's for sure.

So you have those areas going on, and then with the ship holds and some of the change at CRM, it's somewhat tougher to bring the new people in, so your net loss as opposed to your gross lost is also affected, so are we losing more, over the last little while and for the foreseeable future, than the historic turnover rates?

The answer is yes.

Will we get through all that, the answer is yes.

On the pacemaker side, sales remember also relatively weak versus our expectations.

Can you talk about your market expectations?

I think you said on ICDs you're looking for flat US growth.

What are your expectations for pacers over the balance of the year?

Thanks.

I'll let Fred jmp in and talk about the pacers and finish that off.

Yes, on the pacemaker side, there nor changed expectations as it relates to the markets.

I think those numbers are well-known.

As it relates to our own position there, we are well positioned with our platform.

We believe that we can also regain some market share there.

As Ray talked about there is spillover effect as it relates to box, et cetera, due to the ship hold situation.

And, like I talked about before, we are developing a exciting new platform on the pacemaker side, implantable device and a whole new series of Brady leads which is going to be very exciting.

So we actually are excited about our portfolio and opportunities for the future.

Just to be clear, I mean, kind of flat to 1% if you're looking for a number, but our ability to effect that with technology change and innovation is really for us about a year or so away, then some good stuff coming.

Thank you.

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

Please go ahead.

Good morning, Ray.

Good morning, Rick.

Couple things.

First, maybe Jeff you could talk a little bit about upcoming refinancing.

There's been some concern that the refinancing because of some of the issues that have happened in the first quarter could be more complicated or expensive.

Can you talk -- give us perspective on cost, timing, and what you are assuming in guidance?

Sure.

So let's back up and look at kind of what transpired in the fourth quarter 2009 when we went out and tried to do $1 billion worth of financing the public bond market just to reiterate the success of that program.

We went out for $1 billion dollars and we had 11 billion of demand.

So there's no shortage of interest from a debt holders perspective in financing Boston Scientific.

No concern on that point.

We ended up doing $2 billion, we could have done more.

As we think about moving forward, as I mentioned, I don't anticipate us having any issues.

We have a very strong supportive bank group that we're engaged with.

We're in constant discussions with the rating agencies in terms of our plans.

If you look at kind of our refinancing amount that we have to deal with we have roughly $1.7 billion worth of debt that's due in the first half of next year, part of which is due in April, part of which is due in June, between the Abbott notes and the public bonds.

So our plan would be to go out, assuming that the market conditions are as good as they are now, to go out before the end of the second quarter and redo our revolver and do some other type debt to take that financing risk off have the table.

And what we had planned in our guidance as I have articulated is you expect to see a short blip in the interest expense in the second quarter for the fees associated with potentially writing off capitalized fees from the previous revolver and other issues associated with refinancing, all assuming that the market is cooperative we can get the financing done, which right now I think that's probably the case.

Okay.

Couple other follow-ups.

Ray, maybe could you talk about your expectations about PROMUS Element in Europe.

Currently it's off to a very strong start.

Is it right to assume full conversion at some point?

Does it take a year, year and a half, any perspective there?

Yes, I will let Hank comment on that because he's been close to the, as well.

But I would preface it by saying that the early feedback and it's sort of data pointed a little more now, it was just anecdotal has been extremely positive, and I think I referenced some survey work we had done in the UK, but Hank, why don't you jump in and put a little more color around that.

Sure, Ray.

The progress that we're seeing we like.

Long story short.

The Endo feedback is exceptionally positive.

The actual results are exceeding their planned expectations.

The answers to your question in terms of conversion, as you know, in Europe it is going to take longer than sooner because of tenders.

And you will not see a conversion at the pace of which would you see, for example, in the US.

In the US, once we get PROMUS Element, I think you will see a conversion that happens very rapidly.

So this is going to take months to convert, not days.

I think, if I can add, Rick, there's always pace taming over there.

Tenders is one issue, the other someone actual reimbursement as opposed to acceptance of the product.

So for instance, we were able to get, I mentioned the script, we were able to get just reimbursement approval in France.

What I didn't mention is we got it well ahead of Abbott.

So there are some overlapping features here, if you will, of the tenders, another example is Italy, we got 22 different sectors, and the tenders don't roll off and roll in all at the same time.

So to Hank's point, it's going to take longer but we sure like what we've seen at the beginning.

Last ICD question, Ray, I have talked, some random conversations, but what I'm hearing is that this ship hold has finally pushed these docs to open the door to some of your other competitors that they have never looked at, sort of implying hat it's going to be tough for Boston to even with time and some of the new product, to regain share.

How optimistic are you that you can make that happen and that things like foresight and what seems like a delay of the other sort of keeping you even MRI and quad polar issues, how optimistic are you that you can get back to where you were second half of last year and start to exceed it?

Is that two years away?

Four years away?

Any perspective would be welcome, thanks.

I don't have the vaguest idea how answer your question because I don't think any of us know.

It's open territory.

What I can judge it by is what's happened historically in previous situations with Guidant.

I know this is layered on top of that, some time later.

I think we feel pretty comfortable with what we've said about getting back to 24.

The other question I always get into, Rick, because I never though when I read these reports, whether it's yours or anybody else, I read one this morning where they talked to one EP.

I don't know what that means.

Apparently that person was going 100% to somebody and leaving us.

Who cares.

That's craziness reading that stuff.

So I don't know.

We've talked to hundreds of EPs.

I'm leaving for Paris tomorrow morning to go spend the rest of the week with the European ones.

I think we'll get back to the 24 as we've said, then I think everything after that is uncharted waters at this point in time.

Great, thank you.

Our next question comes from the line of Larry Biegelsen with Wells Fargo.

Please go ahead.

Good morning, thanks for taking my question.

First a couple questions on drug-eluting stents.

The Japanese price cuts, could you tell us what that was this year?

Second, PROMUS Element in Japan, how confident are you in a 2012 launch given that all the other drug eluting stent launches there have trailed the US by a few years, and your TAXUS share in Japan exiting the quarter, then I just have follow-up.

Okay.

Japan pricing and elements success, the Japan pricing, there's a couple different things going on there so I'm going to have to qualify my answer a little bit, Larry.

The pricing cuts, I can't think off the top of my head, but I want to say, is it 4%, I think?

I'm guessing at that one, Larry.

I think it's four.

I don't have that document in front of me right now.

I can tell you, though, there's some heavy discounting going on from one of our friends that's well off the red zone understood pricing over there, the local government pricing that's blended with the foreign average basket.

So what will happen, and I don't know whether these people understand it or not, but what will happen over a couple years is that will become, because of the surveys that developed the red zone are based on actual, that reduction in price will become the real price in a year or two, as they complete the survey work.

So the cut itself, which is a historical, it's a retrospective data point, then there is the actual activity going on now which will create a prospective issue on the next round, and neither of those are good.

On the Element, we have no reason to believe that we won't be in there and launch and deliver on schedule.

One of the things that -- and I was just over there, as a matter of fact, just came back.

One of the things that we've got is just one of the finest reg departments over there and capability and knowledge and relationships and so on, and aim very confident in their capabilities to deliver on the schedule.

They have dramatically improved the filing and the time frames of Boston Scientific over the last few years.

So I've got lots of comfort with that one.

Now is there something -- sorry, Jeff.

I think the final question was what was our Japanese market share.

TAXUS share exiting the quarter.

TAXUS share was 20%.

And secondly, on ICDs, are you participating in all the accounts that you participated in before the suspension?

Give us any color there, Ray.

Lastly, the COGNIS, TELIGEN, weaker header bond, any updates since the last call when you said there were two subpec and three subcu products identified.

Thank you.

I'll answer the latter one, and let Hank jump in and do the first one.

I'm not aware of, and I may not be completely up to date but I'm not aware of any new filings and or issues related to that, if there are it's my mistake.

But I've not been made aware of them.

Larry, in terms of your first question, we are participating in pretty much every account we are pretty much in before.

It's just a matter to what degree.

In some cases, the defib side has been impact but the Brady hasn't.

But I'd say in general we're pretty much in every account we were in before.

Thank you.

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

Please go ahead.

Thanks for taking the question.

First, on the ICD side, can you just give us a little more specificity in the timing of the new high-powered product in the US?

I'm assuming it's going to be part of your strategy to regain share.

So when can we see a replacement to COGNIS/TELIGEN?

What will be some of the new features of these devices?

Fred, I'll let you jump in and talk to that.

So we are going to launch a new whole series of products that are derived from the COGNIS/TELIGEN platform toward the end of this year in the US.

That is a whole family of new products and like Ray already said in his announcement and in his statement before, these products have additional diagnostic features.

There is some improved algorithm in those devices as well.

There is going to be a differentiated offering, so this really is a new platform with a lot of different product devices one family so that we're able to better tailor the needs for the patient and the physician in the offering.

It enables to us also obsolete a loot of the older BSC high-voltage product so that from an overall efficiency standpoint internally we would be better positioned to provide physicians with all of their needs through the entire feature range and price range and enable to us obsolete the older product at the same time.

So we are very excited about this.

I think there's going to be a good offering in terms of new features on the top line as well as offering of the same thinness, smallness of the device and excellent longevity even with let's say more basic device offerings.

So this is going to be an additional step forward for us in offering the best high voltage portfolio in the industry.

Another follow-up on the ICD side.

Any ramifications from the sales stoppage at the FDA?

Is there a potential of a fine or anything on that front given that you were shipping non-FDA-approved product for some time?

I've not seen anything, and I don't think it would be an FDA-related item.

Tim, perhaps our General Counsel, did you want to pass a few comments on?

I don't think there's any indication to date at all that the FDA or any aspect of the government really has an interest in that, but that's where things stand at the moment.

Thank you.

Thanks.

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

Please go ahead.

Just wanted to go back to the goodwill write-down specifically.

What was the change in assumptions that were made in your last kind of update I think when you wrote it down, I guess it was in 2008, the notation was that you had reduced the sales estimates for market growth in the mid -- or I guess its growth to the mid to high single digits.

Is the write-down related to bringing down the growth rate to that 3 to 5 you mentioned earlier, or does it incorporate the view that your share is permanently impaired?

Yes, Kristen this is Jeff.

There is two things going on.

One, the stop ship impact was kind of the trigger that forced to us kind of go off and look at the goodwill.

And as we've laid out here for guidance purposes we've assumed 400 basis points of share loss as we exit this year.

We're assuming that some of that kind of survives and lives on through a medium term impact so certainly that had an implication.

I would say the other implication is more broadly speaking that I think since we've last done that test, almost a year ago ,there is a different outlook we have a year ago relative to the middle point of a 15-year discount cash flow look at some technology that we've thought previously could lift the growth rate of the sector, and so I think we think that that growth is going to be lower although still comfortable with 3 to 5% for kind of the whole global market for CRM for the foreseeable future, it's going to be lower than previously anticipated.

Going back to the legal I guess and bonus accruals in the quarter that was favorable on SG&A, can you quantify for us how much that was?

Yes, it was a couple pennies is the way to thinks about it.

Okay, and then earlier you had mentioned with the delta with top line there was $100 million that you broke into two buckets, one beg pricing, the other being some product delays.

Can you just give us a little bit more color on what part of pricing?

Is it specific to one product category, or just your overall pricing assumptions, and what are some of the specific product delays leading to the, in aggregate, $100 million of lost revenue?

From a pricing perspective, I would say it's more or less a -- within the DES and the peripheral intervention space, we're seeing a lot more competition, particularly in areas like Ray mentioned, Japan.

We had estimated that PROMUS and XIENCE would hit the market later in the quarter, and we're seeing fairly aggressive behavior in Japan.

Also in the US, PROMUS is a tough market from a pricing perspective.

That's probably the main factor.

Product delays?

Product delay-wise, I think I went over that before, but to reiterate, the largest contributor to that is a target coil delay out of our neuro vascular business which we had hoped to get to the market early in the first half of this year.

That's now looking like second half of this year, probably late second half of this year at the earliest.

So that has implication for us as well as some timing items and PI again.

We've had a number of new products being introduced some of them are two, three months later than we thought.

So that takes a little bit out of revenue, then on the EP side, similarly we've got a couple product introductions that are slightly delayed so those are kind of the three factors but mostly the target coil.

Then pricing just to be clear, there was no change in your price assumptions on the CRM side relative to where you were a quarter ago with the shipping hold?

I think earlier you had mentioned would you not be aggressive on price.

I think we're about 100 basis points higher than perhaps kind of what the competitor -- I think the competitors are saying 2 to 3%.

We're about 100 basis points higher than that.

higher meaning worse.

More pricing pressure, which is consistent with what we said in the fourth quarter.

Thank you.

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

Please go ahead.

Thank you very much and good morning.

Could you tell us what your SG&A as a percentage of revenue would have been without your two one-time offsets in the quarter?

It would have been a couple hundred basis points higher.

And can we assume as we look into 2011 that the increase in the SG&A spend, or the make whole spend that you're doing in 2010 will have rolled off by the time you start next year?

Well, I think as Ray had said, we're certainly not in position to give guidance on revenue, but as you would expect, that SG&A rate will get the benefit of us regaining share at the end of next year, and we expect and hope to kind of pick up relative -- 2011 should be a better year than 20 10 in terms of the ship hold issue.

So you would have the revenue back, and you'd have the SG&A.

So that would push the rate down.

By how much, it's too early to tell.

Keep in mind, Joanne, there's three components there.

Jeff just hit on one.

The investments in emerging markets and the investments in R&D are not going to go away so I think you have to look at all three components.

one of the things I noticed was missing when you talked about the $500 million down this year was it sounds as if you're not anticipating lower pacemaker revenue versus your previous guidance, although did you experience it in the quarter.

Could you comment on that, please?

Yes, it's really small, Joanne.

You've got some customers in bulk and bulk product lines and that's primary impact.

As we did our analysis and got to the shares and sales for the outgoing quarters we saw that as being pretty miniscule.

There might be a small number in there, but it's pretty small.

Next question, Glenn Novarro, with RBC Capital Markets.

Ray, wanted to follow up on your comment about the US ICD market.

On the call you said you thought it would be flat this year and that's a little bit slower than what we were thinking.

So how does your thinking of the overall ICD market today compare to what you were thinking back in January, and the reason I ask is because quite often when there is a recall, even though this was small, does it slow down the overall market.

So just big picture your thoughts on how you're thinking the about the market today compared to how you thought about it in January, thanks.

Yes, I think the question that came up, I shouldn't use the term flat, the question that came up was comparison to what we thought previously.

We're seeing that's unchanged.

It's flat to what we believed is around 2% growth.

So I may have misled you there.

Apologize if I did.

So we see it as around 2%.

I think if I look at -- if I take St.

Jude is for instance, in this quarter, and I take -- and I don't have the numbers in front of me, 8 or 9% growth, I back out 20 or 25 million they probably got from us as gift, net that down, take a look at what they finally said was 1 to 3 in price, I'm getting down to where their actual performance in the US was negative in units are flat to slightly negative.

So I think our 2% growth, because that's a dollar market comment, not unit of surgery comment is probably still a good number, and we're consistently saying that, but when I meant flat, I meant consistent what we previously said, which is plus 2%.

One quick follow-up on the ICD market.

Madit CRT.

When is your anticipation of the FDA approving that?

Then in the past on the calls you have always said that this could accelerate the market.

I think one or two percentage points.

Does that still hold true today?

Thanks.

Yes, on the first part, it's hard to answer that but the history of those, assuming the advisory boards and the FDA get together completely, and as you know, they usually do, I think around 90 days from panel approve so I don't remember the exact date of the panel, but I think you can think that in range unless this sort of becomes abnormal, and I think we will have an up-lift -- we haven't changed our numbers much on up the lift.

The question is how long it takes to get to those numbers.

So I think we were quoting numbers around 400 to 500.

That's global.

200, 250 in the US.

I think the numbers make sense, if you look at those patient classes and keep in mind we got kind of not 100% of the indication we would have love to have had but we got about 70% with the left branch bundle block folks as opposed to the entire indication.

So if you want to multiply it by 0.7 I suppose that's a legitimate argument.

But I think it's more time than if, Glenn, at this stage.

Thank you.

Our next question comes from the line of Matthew Dodds with Citigroup.

Please go ahead.

Jeff on the sales force lockup can we assume that's all US CRM or any other divisions potentially impact by that?

I think you can assume it's a US CRM issue.

One other quick questions.

On the covenants, I think you said at that time beginning with the legal settlements, I think part of J & J was in there, of the J & J payment you made, the $1 billion, and the $724 million coming up, are any of those part of that covenant agreement from last year, or are they on extra or on top of that?

So the way it works when we renegotiated our revolver, we have an exclusion for any accruals for litigation settlements, then we have a basket of exclusions for any cash payments for legal settlements so basically $1 billion that we spent this quarter eats into that basket.

We've got $300 million 400 million left, I think it's 400 and change left on that, which should be fine for the foreseeable future until we refinance.

Perfect.

Thanks, Jeff.

That's helpful.

Thank you.

Our next question comes from the line of Bruce Nudell with UBS.

Thanks.

When we talked to a sample of your customer base, it seemed like the vast majority of the EPs, 6 to 7 kind of ratio, were pretty understanding and felt that they would go back to business as usual as soon as they were convinced that there really wasn't a safety issue.

A 7th were disaffected and tough or not.

Is that a fair characterization of the situation, in your mind, and is there anything you could do to kind of get back to that disaffected minority?

And I have a follow-up.

I'm just happy you phoned the seven names I gave you.

Really helped me out.

That was a joke, Bruce.

I get it.

Seven is too small a sample, and so is 70.

This is a fairly large community, and I think what's more important is what Hank said what we see over the next couple of three months as we work our way back in with people, I find the samples and the mix for me are difficult to comprehend in some of the research reports.

It's not criticism, it's just a fact.

It's a complex business.

People's mood change every day.

It makes a difference whether you see them live than over the phone.

It makes a difference on what they actually believed and how you can take them through what really happened.

I talked to a number of them that still thought after everything we published and talked to it was a quality issue, and I finally got them off that and had them understand that it was truly a paperwork issue.

Poor paperwork on our part, but paperwork nevertheless.

So I just think we're in uncharted waters.

I think we've given sensible guidance based on historical factors.

We are going to have to grind this out a few months to see where we really stand.

And I don't think talking to seven or 27 or 57 is going to tell us what we need to know.

Just given that, how in the heck do you get to $8 billion at the top end of the guidance range?

How do you get to it?

Yes.

What are the swing factors that could take you from the expected case to the high end case?

I'm presuming it really has to do with the hit to the ICD franchise.

Not totally because you could get improved release times on products, yes, it's a little better share in CRM.

It is PROMUS Element performance that not only matches but takes share -- when we do our meetings on guidance there's a lot of variables we're talking to.

CRM is probably at this point in time the most influential one.

There's a long list of things that have several millions of dollars of swing factor in them.

thanks a lot.

Okay.

Our next question comes from the line of Derrick Sung with Sanford Bernstein.

Thanks for taking my question.

I wanted to go back to your ICD US share assumptions.

You have talked about 400 bips down due to the recall and 100 bips from your actions of last quarter, but I didn't hear you talk about the impact of the previous Guidant recall on your replacement share moving forward and the thinking here was that the 10 points of share that you -- 10 points of share that you lost in 2005 would impact your replacement share kind of in the 2010 to 11 time frame.

How are you thinking of that and is that factored into your numbers?

That's been pretty well analyzed by our CRM folks.

There's a pretty good understanding of that.

I think there is some reason to believe parts of that will happen, and I think it's already been included in the forecast we get from CRM and therefore that we incorporate it as we do our overall guidance.

So those numbers are fairly to get at if you are in the field every day or for our marketing and sales people.

We range those numbers.

We don't overkill at the high end.

Just depends who you are talk dog.

Also, I think everyone would agree, fairly big difference between the 2005 recall and the implications of that and our voluntary recall of this action so when you look at your 10 points of share, historically these are apples and oranges.

They're not really comparable.

You are just talking about the benefit of giving them the replacement and we understand that.

Every time you sell a CRT-D from the Madit trial approvals it could be a $6,000 or $7,000 up tick as an example in price which is therefore in market share, since it's a dollar market, so there's all sorts of pluses minuses here, it's not just that.

Thank you, that's helpful.

Going back to your -- the comments you made on the new ICD products you are hoping to launch it is a the end of this year, two questions.

It sounded to me, and maybe I'm misinterpreting Fred's comments, but sounds like these will be priced at a lower price range, more basic price range.

Is that going to impact pricing ASP in a negative way?

Secondly related to that, or new product what are the chances that the FDA might come back with a warning letter or require an inspection that might impact the rollout of your new product?

I don't necessarily think it's very likely but we don't know.

Obviously, we don't have anything to really understand what might happen there.

On the first one, I think what we're looking at here is a two-fold thing.

One is the segmented product offering so it's not a case of somebody coming out with features and then lowering the price.

It's a segmented market out there now.

Of three, at least three different value propositions in several marketplaces and you've got to be able to service those value propositions so what comes into play is what features match which segment you're trying to target.

How big is that target segment.

And then what is your cost structure for each of those target products.

So one of the things that was in my script that I just mentioned again is, yes, consistent with Fred's comments, we're going to look at different features, segmenting.

We're also going to look at cost structure, manufacturing, these kinds of things, to make sure that we're optimizing margins as we move our way through those segments.

One of the things to keep in mind is currently, in Europe, for a lot of the tenders, there are different price points you have to hit, and right now, we don't have product availability in some of those price points, so this new line we're coming out will have specific products geared at different price points, which will enable us to compete in these tenders, which will be very helpful in Europe.

Our next question comes from the line of David Roman with Goldman Sachs.

Please go ahead.

Sir, if your line is muted, we're unable to hear you.

And hearing no question from that line, we're going to move on to the line of Adam Feinstein with Barclays.

Please go ahead.

Can you hear me?

Yes, we can hear you, go ahead.

I had a question.

You mentioned you that were going to go to Paris to talk to EPs abroad.

I'm wondering what impact this may be having on your OUS business if any.

Why are you going there?

What's the message.

I like Paris.

I do too.

I hope to be there in a month or so.

We have a number of advisory committees and EPs we work with.

We're not being impacted.

Once we got clarity that this was not for the OUS markets and had no effect, it was our own fault, we probably should have made it clearer from the beginning.

Once we got through that, it's not really having any impact that I'm aware of.

We're out there talking to them about product development design issues, future products, the healthcare reform, changes in government policy in Europe and so on and so on.

So it's a meeting that I'm going to with about 15 of them, where we're going to spend some time going through that, and then I'm going to go out and make some sales calls.

It's not directly connected to the ship hold, if that's what you mean.

Okay.

And then on your 24% assumption, I'm just wondering if you can tell us qualitatively, does it plateau there?

Does it continue to go up in 2011, in your view?

Yes, that's the question that was asked earlier and I think that's where we get into the unchartered waters.

If anything, we'll do it -- the conversation we just had around progeny and around having segmented available product, I think, and the commentary we had around CRTD and Madit trial and the ability to get into the additional New York heart classes, those kinds of things I think give us a unique shot at getting above the 24, but we have not planned anything above the 24 at this point in time.

I think we have time for one more question.

Okay.

Great.

And that question comes from the line of Steven Lichtman with JMP Securities.

Please go ahead.

Thank you.

Hi, guys.

Just firstly on DES pricing, you talked about competitor actions in Japan.

But what's driving it down so much here in the US.

Reimbursement's firm.

What's still driving it down and what stabilizes that here?

I think it's a share settling out.

I think it's more sophisticated buyers and transparency.

At some point that will settle out.

Is it next months or next year?

I don't know the answer to what.

But it has been anywhere from 2 or 3 points to as much as 4 points more aggressive than we've seen it on a comparative basis back over the last 12 months.

But I think it's the things I covered.

It's governments changes in viewpoints and while it's stable here in reimbursement, that's not true on an OUS basis.

There's a fair amount of movement on reimbursement programming and policy around the world that does affect that.

In just the US base, I think it's transparency.

I think you've got two players in the market that have a lot lower share than they've had historically and they've got businesses to run too and try and keep themselves well in the game as they prepared new products.

It's an aggressive marketplace right now.

I think it will settle out as some of the big GPO contracts are signed up and they've got some years to them and we sort of get stability through that but it's likely to be stability at a somewhat lower price, I would think.

Okay.

Thanks, Ray.

And then lastly on neuro modulation you talked about some new leads but anything else in the pipeline in terms of new indications beyond pain that we should be looking for to keep the growth there over the medium to long term?

Yes, there are, if Michael's still on the line from Washington, if you want to jump in Michael and give them a bit on the pipeline, that would be great.

We're pretty excited about a couple of things.

We've got the new lead portfolio that we're working on that will be out later this summer.

We're also going to start our OUS AVS clinical trial in early fall and are looking towards a migraine clinical trial that will also start in the late part of this year, beginning of 2011.

Thank you very much.

And that does concludes our question-and-answer session for today.

Thanks, Kent.

I'd like to thank you all for joining us today.

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Thank you.

Thank you.

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