Boston Scientific Corp (BSX) 2010 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Boston Scientific Q2 earnings conference.

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

Later there will be a question-and-answer session.

Instructions will be given at that time.

(Operator Instructions).

I would now like to turn the conference over to our host, Larry Neumann, Vice President Investor Relations.

Please go ahead, sir.

Thank you, Tonya.

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

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

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

Key financials are attached to the release including the reconciliation of non-GAAP financial measures used in this discussion and we have posted a copy of the press release as well as support schedules to our website.

The agenda for this call will include a review of second quarter financial results including third 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 overall quarter.

We will then open it up to questions.

During the question and answer session today we will be joined by Sam Leno, Executive Vice President and Chief Operations Officer; Hank Kucheman, Executive Vice President and Group President CRV; Mike Phalen, Senior Vice President and President of our Endoscopy business; John Patterson, 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 including statements regarding our expected market share, growth projections, new product approvals, acceptance and sales, our financial position, expected net sales, earnings and tax rates for 2010, the effects of our restructuring activities, the effect of our debt repayment and expected FDA approval.

The Company wishes to caution the listener that actual results may differ from those discussed in forward-looking statements and may be affected by, among other things, risks associated with our financial performance, our restructuring plan, clinical trial results, our programs to increase shareholder value, new product development and launches, regulatory approvals, litigation, our tax position, our competitive position, our growth strategy, the Company's overall business strategy and other factors described in the Company's filings with the Securities and Exchange Commission.

Any forward-looking statement speaks only as of the date on which it is made and we undertake no obligations to update any forward-looking statements.

I will now turn it over to Jeff for a review of the financial results for the quarter.

Jeff?

Thanks, Larry.

Let me start by providing you with a detailed review of the operating results for the quarter.

Consolidated revenue for the second quarter was $1.928 billion versus our guidance range of $1.825 billion to $1.925 billion and represents a 7% reported and constant currency decline from the second quarter of last year.

Compared to the positive contribution of $25 million assumed in our second quarter guidance range, foreign exchange contributed only a positive $4 million to our second quarter sales results which negatively impacted our reported revenue by $21 million.

We estimate the defib ship hold and product removal actions lowered our revenue growth rate by approximately 300 basis points or $62 million in the quarter compared to our guidance estimate of $127 million due to the strong execution of our stop ship recovery plan.

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 DS came in at $389 million at the high end of our guidance range of $355 million to $390 million, and down 12% both on a reported and constant currency basis from the second quarter 2009.

Our worldwide DS revenue includes $128 million for TAXUS, $210 million for PROMUS and $51 million for PROMUS Element.

Our worldwide TAXUS, PROMUS, PROMUS Element split from the quarter was 33/54/13.

We continued to sustain our worldwide DS leadership during the second quarter with an estimated global market share of 38% which we estimate to be about 10 percentage points higher than our nearest competitor and four percentage points lower than our share in Q2 '09 principally impacted by DS share movements including the introduction of new stents, principally in Japan.

US DS revenue was $209 million at the high end of our guidance range of $190 million to $210 million and 12% lower than the second quarter of last year.

Excluding the favorable impact of a $7 million adjustment to the sales transition reserve included in Q2 '09, US DS sales were down 9% versus last year driven by TAXUS share loss.

This includes $73 million of TAXUS and $136 million of PROMUS revenue, and represents a 35/65 mix of TAXUS and PROMUS in the US compared to a 47/53 mix in Q2 of '09.

We estimate our US DS share was 46% for the quarter with 16 share points of TAXUS, 30 share points of PROMUS.

Excluding the transition reserve recorded in '09 our total share is down three points compared to the second quarter of last year.

The decline in market share year-over-year is consistent with our expectations given the results of the compare study which were released in September of last year.

On a sequential basis our market share of 46% was flat with the first quarter of this year indicating that our share has stabilized as we enter the third quarter which is the last typical US quarter for comparison given the compare results.

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

Based on our estimate of the US market for the second quarter we believe that Boston Scientific's market share was 46% for the second quarter estimated between 47% to 48%, and Abbott's share was approximately 29% while J&J and Medtronic achieved approximately 13% and 12%, respectively.

International DS sales of $108 million were at the high end of our guidance range of $165 million to $180 million and represents a decrease from prior year of 12% on both a reported basis and a constant currency basis.

This includes $55 million in TAXUS, $74 million in PROMUS and $51 million in PROMUS Element, and represents a 31/41/28 mix of TAXUS, PROMUS, PROMUS Element.

PROMUS Element contributed $51 million to our international DS sales including $39 million in EMEA and $12 million in the Americas and Asia-Pac combined.

We estimate that Boston Scientific's DS market share in EMEA for the second quarter was 32%, which is down three points compared to the second quarter 2009.

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

PROMUS market share was approximately 6% with revenue of $14 million.

And PROMUS Element market share was approximately 16% with revenue at $39 million.

Together, this represents a TAXUS, PROMUS, PROMUS Element mix in EMEA of 31/18/51.

We continue to be very pleased with the market acceptance of PROMUS Element which is running ahead of plan due to the product's market leading alloy and stent design which improved ease-of-use.

The recent launch of TAXUS Element on the same leading edge stent platform is expected to offset the current TAXUS share erosion.

The combination of the continued rollout of PROMUS Element and TAXUS Element will position us to begin to take share on a year-over-year basis during the second half of the year.

Our DS share in Japan was 38%, down 15 points from the second quarter 2009 with revenue of $50 million, driven primarily by the number of accounts participating in the Abbott reset trial and a challenging pricing environment, and by the introduction of additional competitive drug eluting stent platforms.

TAXUS market share was approximately 7% with revenue of $9 million.

And PROMUS market share was approximately 31% with revenue at $41 million.

Together, this represents a TAXUS/PROMUS mix in Japan of 18/82.

During the quarter we estimate XIENCE share at 42%, Endeavor at 8%, and J&J's share at 12%.

As we discussed last quarter the reset trial is expected to complete enrollment around the end of July.

This will provide us with an opportunity to leverage our commercial strength in two-drug platform to reenter these accounts as we look to regain some share in the back half of the year.

We estimate our Asia Pacific DS share remains steady at about 17% during the second quarter, split 7% TAXUS, with $11 million in revenue, 5% PROMUS with $8 million in revenue, and 5% PROMUS Element with $9 million in revenue, or a TAXUS, PROMUS, PROMUS Element mix of 39/29/32.

DS sales in our Americas International region were $25 million representing approximately 54% market share with 23% or $11 million in TAXUS revenue, 23% or $11 million in PROMUS revenue, and 8% or $3 million in PROMUS Element.

This represents a 44/44/12 mix of TAXUS, PROMUS, and PROMUS Element.

In Summary with Global DS market share of 38%, we maintain 10 percentage points of share advantage over our nearest competitor.

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

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

We estimate the worldwide DS market in Q2 at approximately $1.035 billion which is flat in reported and constant currency revenue versus Q2 '09, excluding the impact of $7 million of revenue recorded to replenish customer owned 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% constant currency, also down 9% in actual reported.

Global penetration rates increased 3% versus a year ago.

The US DS market is estimated to be about $456 million for the quarter, representing a decrease of approximately 3% from the second quarter of last year, excluding the impact of the sales transition reserve reversals in Q2 of last year.

This consists of a unit volume increase of approximately 6% which includes an increase in PCI volume and an increase in penetration.

This unit volume increase was offset by approximately 8% decline in ASPs, including a negative mix shift of DS platforms.

During the quarter we saw our US DS ASP reductions in line with the aggregate market declines with TAXUS down about 8% and PROMUS about 9% compared to the second quarter of 2009.

US PCI volume in the quarter was approximately 260,000 procedures, up 2% compared to the second quarter 2009.

We estimate that US DS penetration of 78% was up three percentage points over the second quarter of 2009.

Combined with stented procedure rates and stents per procedure, we estimate the total unit market of US stents in Q2 was approximately 347,000 units including 270,000 units of DS.

The international DS market remained strong for the quarter with approximately 608,000 PCI procedures, including 350,000 procedures in EMEA, 57,000 procedures in Japan, 138,000 procedures in Asia Pacific, and 64,000 procedures in the Americas.

We estimate that international DS penetration of 59% was up three percentage points over the second quarter 2009, including 56% EMEA, 73% in Japan, 74% in Asia Pacific and 35% in the Americas.

Worldwide Q2 CRM revenue of $527 million represents a reported decrease of 13% and a constant currency decrease of 13% versus $609 million reported in the second quarter 2009.

For the second quarter, we estimate that being up the US market for the first 11 selling days in the quarter and subsequent ramp up of our sales as a result of the defib ship hold and product removal actions reduced our US CRM revenue by $62 million.

This compares very favorably with our previous estimate of $127 million lost sales for the quarter.

Our commercial organization led by the sales team did an excellent job responding to the recovery plan which allowed us to ramp sales back up in two weeks versus our previous forecast of six weeks which drove most of the benefit.

While we remain cautious on the outlook for the remainder of the year given our previous assertions about requiring multiple quarters to see the full potential impact, we were very pleased with the results of the second quarter.

US CRM revenue at $322 million represents a 20% decrease over the prior year for the quarter, principally impacted by the defib ship hold.

International sales of $205 million in the quarter represented a reported increase of 1% from the prior year and up 3% in constant currency.

Worldwide ICD sales of $379 million exceeded the high end of our guidance range of $290 million to $325 million, driven by the execution of defib stop ship recovery efforts.

This represents a reported decrease from 17% from Q2 '09 and a constant currency decrease of 15%.

ICD sales in the US were $238 million, above our guidance range of $160 million to $180 million, representing a 24% decrease from last year.

International ICD sales of $141 million were near the high end of our guidance range of $130 million to $145 million, representing a 1% reported increase from last year, up 7% in constant currency and excluding deferred revenue related to the launch of Latitude in Europe last year.

The growth in international ICD area is being driven by strong market acceptance of our COGNIS intelligent products as we continue to rollout these products in other areas of the world.

Excluding sales from our five non-core divested businesses, our non-DS and non-CRM worldwide revenues decreased approximately 1% compared to the second quarter of last year to $1.010 billion, and were down approximately 2% in constant currency terms.

On a worldwide basis, our Endoscopy business grew 8% in constant currency terms, with broad based strength across all geographies driven by new product introductions and very strong sales execution.

This is the fourth quarter in a row of high single digit to double digit revenue growth which is just terrific performance.

Our Urology Women's Health business grew 4% in constant currency terms including a few product issues in our oncology and BPH areas which depressed the growth rate by approximately 350 basis points.

Strong growth continues in our Women's Health business as we continue to introduce new products in the area of pelvic floor and abnormal uterine bleeding.

Within the quarter, our Neuromodulation business was flat year-over-year despite growing 10% in the first quarter.

We believe that the continued softness in the economy which appeared to weaken the market growth rate in the first quarter has accelerated.

We expect to learn more about the market as competitors announce their results.

At this point we remain optimistic that we will see a return to growth in the second half as patient deductibles are utilized and we introduce new technology.

For the rest of the businesses, Electrophysiology was flat, Peripheral Interventions was down 4%, Non-stent Interventional Cardiology was down 7%, and Neurovascular was also down 6%.

We continue to see a lag in these businesses as a result of later than planned new product launches, competitive product launches, some procedural softness and pricing pressures, especially in non-stent interventional cardiology.

However, given the number and types of new product launches we expect growth in these divisions to begin in the second half of the year.

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 66.1%.

Adjusted gross profit margin for the quarter excluding restructuring related charges was 66.7% which was 350 basis points lower than the second quarter of 2009 but within our previously issued guidance range.

Excluding the impact of the ship hold and product removal actions taken at the end of the first quarter, adjusted gross margin would have been 67.5%.

The primary contributors to the 350 basis point reduction from last year include the shift in DS mix from TAXUS to PROMUS during the quarter, lower DS share and pricing pressure in both US and Japan, as well as the impact of the defib ship hold and product removal actions, partially offset by the increase in PROMUS Element sales in Europe.

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

We continue to see the profit margin benefits of selling PROMUS Element instead of PROMUS in Europe.

However, the recent launch of PROMUS in Japan and the strategy being followed by some competitors is creating an adverse mix of TAXUS to PROMUS compared to 2009.

Our reported SG&A expense in the second quarter were $634 million.

Adjusted SG&A expense excluding restructuring related items were $633 million or 32.8% of sales compared to 32.2% in Q2 '09.

As we told you during the first quarter, the ship hold and product removal actions during the first quarter did not have an impact on our total SG&A dollars but did put upward pressure on the SG&A as a percent of sales as we put plans in place to keep our sales rep compensation whole during the time we were off the market with our defib products.

Our SG&A as a percentage of sales was slightly lower than the guidance we provided you during the first quarter call due to the favorable impact of restructuring savings, the timing of certain expenditures, and the incremental revenue from a faster defib stop ship recovery.

We do expect to see an increase in the level of spending over the back half of the year given both the timing of expenditures in the second quarter and a decision to make incremental investments in top line growth opportunities in both customer facing and development related positions, including specific initiatives in the emerging markets, all of which are aimed at improving our growth outlook.

Both reported and adjusted research and development expenses were $232 million for the quarter or 12% of sales.

The reduction during the quarter is related to the timing of some of our restructuring efforts and a delay or slower start in some of our clinical trials.

We are also in the process of reallocating dollars within our total R&D portfolio to the development projects we intended to focus on going forward.

This is part of our restructuring plans and increased investment we intend to make in identified core growth areas going forward.

We continue to look to invest approximately $1 billion in R&D on an annual basis.

We reported GAAP pre-tax operating income of $231 million for the quarter.

On an adjusted basis excluding a goodwill adjustment, restructuring charges and amortization expense, adjusted operating income for the quarter was $365 million, 18.9% of sales, down 320 basis points from Q2 '09.

The reduction versus Q2 '09 is primarily related to gross margin deterioration.

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

We recorded a $31 million non-cash credit in connection with the finalization of our interim goodwill impairment test performed as of March 31.

When offset against the initial $1.848 billion non-cash estimate we recorded in the first quarter, our final impairment charge totaled $1.817 billion.

We recorded $41 million pre-tax, or $29 million after-tax of 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.

Total amortization expense was $124 million pre-tax, or $94 million after-tax, which is $2 million lower with the second quarter of '09.

For the remainder of 2010, our quarterly amortization expense should remain at this level.

The cumulative effect of all these items was $134 million pre-tax and $92 million after-tax.

Interest expense was $103 million in the quarter or $11 million higher than Q2 '09, which primarily represents non-cash interest expense of $11 million resulting from pre-paying the $900 million Abbott loan and accelerating debt issuance costs related to refinancing our revolving credit facility.

Our average interest expense was 6.4% in Q2 '10 compared to 5.5% in Q2 '09.

Excluding the debt repayment and refinancing costs our average interest expense rate in Q2 2010 was 5.7%.

Other net was $9 million of expense in the second quarter compared to $3 million of expense in Q2 '09.

For the second quarter 2010, other net included $1 million of interest income, offset by $10 million of other expenses primarily related to currency exchange costs resulting from significant market volatility.

Interest income in the quarter was $1 million lower than Q2 '09 due to a lower average cash balance and a lower rate of return on investments.

As a reminder interest income of $2 million in Q2 '09 was offset by $5 million of miscellaneous expense.

Our reported GAAP tax rate for the second quarter was 18% and on an adjusted basis our tax rate was 25%.

Our adjusted tax rate for the second quarter reflected 140 basis point unfavorable impact or $3 million for discrete tax items as well as 160 basis points of unfavorable timing events which are reversing from the previous quarter.

Adjusting for both the discrete benefit and the unfavorable timing items, we had an operational tax rate in the second quarter of approximately 22%.

We currently expect our full year operational tax rate to be approximately 19% inclusive of the US R&D tax credit or 2 points lower than our previous guidance of 21%.

Including the net favorable impact of the discrete benefit and the timing items that occurred from the first quarter, and offset by the unfavorable discrete and timing items in the second quarter, our adjusted rate is estimated to be between 17% and 18% for the full year.

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

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

As a result of our revised pre-tax profit projection, the R&D tax credit equates to 300 basis points on our operational effective tax rate.

We reported GAAP EPS for the second quarter of $0.06 per share compared to $0.10 per share in the second quarter of last year.

GAAP results for the second quarter included the previously discussed amortization and restructuring charges along with adjustment to our Q1 goodwill impairment charge.

Our adjusted EPS in the second quarter, which excludes these items, was $0.12, and was above the high end of our guidance range of $0.06 to $0.10 per share, driven principally by our performance in recovery to the defib ship hold.

Our adjusted EPS for the second quarter was down $0.08 versus our adjusted EPS of $0.20 in the second quarter of 2009.

As a reminder, the second quarter of 2009 adjusted EPS excluded $0.07 per share of amortization, $0.02 per share of restructuring related charges, $0.01 per share of acquisition related charges, $0.01 per share of intangible asset impairments, and discrete tax items of $0.01 per share.

Stock comp was $36 million and all per share calculations were computed using 1.500 billion shares outstanding.

DSO was 62 days, a one day improvement from the second quarter 2009 driven by stronger cash collections in the US, EMEA and Japan.

Days inventory on hand were 123 days, down four days from Q2 '09 as we continue to work on reducing our inventory levels despite the required investments to support our new product introductions.

Reported operating cash flow in the quarter was $286 million compared to $419 million in Q2 '09.

Q2 2010 cash flow included $34 million in restructuring payments and $6 million of legal settlement payments.

The Q2 '09 cash flow included $74 million of legal settlement payments and $24 million restructuring payments.

Excluding these items, Q2 2010 operating cash flow was $326 million or $191 million lower than Q2 '09, primarily due to lower adjusted operating profit, lower collections largely due to the 30 day CRM ship hold, and a reduction of accounts payable balances.

Capital expenditures were $61 million in the quarter and $8 million lower than Q2 '09.

Reported free cash flow was $225 million in the quarter compared to $345 million in Q2 '09.

At the end of the second quarter we had $811 million of cash on hand, $6 billion of total debt and net debt of $5.2 million which was comparable to Q2 '09.

In addition, in early July we received a tax refund check of $161 million associated with recent legal settlements which increased our cash position to roughly $1 billion.

In June, we successfully syndicated a new $1 billion three year term loan and a new $2 billion three year revolving credit facility to replace our $1.750 billion revolving credit facility maturing in April 2011.

We used the term loan proceeds to immediately repay the $900 million loan due to Abbott Laboratories in April of 2011.

We expect to use a portion of the revolving credit facility, together with cash on hand, to repay our $850 million senior notes maturing in January and June of 2011.

These actions strengthen our capital structure and provide enhanced capacity upon acquisitions and other investments in technologies that deliver the most innovative solutions to physicians and patients.

The refinancing also enhanced our liquidity as we currently have more than $2.3 billion available liquidity including cash on hand in our available credit facilities.

In addition we expect to generate strong cash flow in 2010 of approximately $1.7 billion before special items.

Further, the new revolving credit facility provides for an increase in the maximum permitted leverage ratio of 3.85 times through March 31, 2011, and 3.5 times thereafter.

Our debt to EBITDA credit facility covenant ratio was 2.58 times as of Q2 2010, well below the maximum permitted level representing $770 million of EBITDA safety margin.

As we announced in February, we've initiated a restructuring plan that among other things will 1) combine our CB and CRM groups into new CRV group, 2) eliminate the international in endosurgery headquarters organization, 3) reorganize our clinical and R&D organizations and streamline our corporate staff functions, and 4) restructure our international operations to reduce our administrative costs and invest in commercial expansion opportunities including significant investment in emerging markets.

The execution of these restructuring initiatives over the next 21 months will result in a gross reduction of our operating expenses by an estimated $200 million to $250 million.

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

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

Let me now turn to guidance for the third quarter as well as revised guidance for the full year.

From a US ICD share perspective, we expect to hold share in the second half of the year, exiting the year at approximately 25% share, a full 100 basis points higher than previous guidance.

Coupled with the impact in Q1 2010, we now estimate the defib ship hold will have a negative impact of approximately $225 million for the full year compared to our original estimate of $300 million, with $72 million in Q1 2010, $65 million in Q2 2010, $44 million in both Q3 2010 and $44 million in Q4 2010.

This revised estimate represents a reduction in our US ICD Q4 2010 exit share of 300 basis points with the ship hold 100 basis points for the disciplinary and header issues which combined reduced our share from 29% initially to 25%.

Turning to sales guidance for the third quarter 2010, reported consolidated revenues are expected to be in the range of $1.850 billion to $1.925 billion which is down 9% to down 5% from the $2.025 million recorded in the third quarter of 2009.

If current foreign exchange rates hold constant through the third quarter, the headwind from FX should be approximately $51 million or approximately 3% relative to Q3 '09.

On a constant currency basis, Q3 consolidated sales should be in the range of down 6 to down 2.

For DS we are targeting worldwide revenue to be in the range of $340 million to $365 million with US revenue of $185 million to $200 million and O-US revenue of $155 million to $165 million.

For our defib business we expect revenue at $385 million to $410 million worldwide with $265 million to $285 million in the US and $120 million to $125 million O-US.

For the third quarter, adjusted EPS excluding charges related to acquisitions, divestitures, restructuring and amortization expense are expected to be in a range of $0.10 to $0.13 per share.

This includes an operational effective tax rate for the quarter on adjusted earnings of approximately 22% reflecting the delayed approval of the R&D tax credit.

The Company expects EPS on a GAAP basis in the third quarter of 2010 to be in a range of $0.01 to $0.05 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.

Given the performance in Q2 2010, the Company's revising estimates for the full year.

The Company now estimates sales to be between $7.6 billion and $7.9 billion for the full year versus our previous guidance of $7.6 billion to $8 billion.

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

Therefore our revised guidance both on a reported and constant currency basis should be in the range of down 7% to down 4% for the full year.

To help you in adjusting your models for the full year we now expect gross margins to be within the 67% to 68% range as our gross margins improve in the second half due to a full period of defibrillator revenue.

We expect annual SG&A to be in a range of 32.5% to 33.5% of sales, R&D to be roughly 12.6% of sales, royalties of approximately 2.5% of sales, and interest and other expense of approximately $400 million.

Adjusted EPS for the full year is now expected to be in the range of $0.54 to $0.62 per share versus our previous guidance of $0.50 to $0.60 per share.

The Company expects EPS on a GAAP basis for the full year to be in a range of a loss of $0.91 to a loss of $0.81 per share.

Included in our GAAP EPS estimate for the year is $1.20 per share loss related to the Q1 goodwill impairment charge, $0.03 per share related to intangible asset impairment, a $0.14 per share gain related to the acquisition related credits, $0.10 to $0.08 per share of restructuring related costs, and $0.26 per share of amortization expense.

As discussed earlier, we now expect our adjusted operational tax rate for the full year 2010 to be approximately 19%, excluding any discrete tax items that may arise during the remainder of the year but including the R&D tax credit for the full year.

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

The full year benefit of the R&D tax rate was 300 basis points on our annual effective rate.

As a result of this timing we expect our operational effective tax rate for the third and fourth quarters will be approximately 22% and 12%, respectively.

That's it for guidance.

Now let me turn it over to Ray for an overview of the business and the quarter as well as his overall thoughts.

Ray?

Great.

Thanks, Jeff.

Let me begin with a 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 new reformed Cardiology Rhythm and Vascular Group.

The CRV group is an example of Boston Scientific anticipating changes in the delivery of healthcare and leading the industry in responding to those changes.

CRV positions Boston Scientific as a company intensely focused on the care continuum for cardiovascular patients.

We're continuing to make substantial investments in new technologies to build on our market leading positions across the cardiovascular service line.

We plan to introduce 30 new CRV products alone in the US in next 18 months.

Looking at CRM, we estimate our worldwide ICD market share was down five percentage points compared to the second quarter of 2009 driven by the ship hold and product removal actions we initiated late in the first quarter.

In the US, we beat the top end of our guidance by $58 million due to our sales ramping back at a quicker pace than we anticipated once we returned to the market on April 15th.

As Jeff indicated, we have updated the estimated impact to the US defib business through the end of the year now that we've been back on the market for more than three months.

While we make no promises to provide quarterly exit rate figures in the future, we estimate that our share exiting the second quarter was far closer to the 25% that we anticipated for the third quarter as opposed to the 23% we had originally predicted for the second quarter.

We don't expect our year-end market share to materially exceed our previous guidance but we could anticipate reaching those shares more quickly.

Obviously we do not have complete knowledge of competitive quarterly performances and therefore my comments should be taken inclusive of that disclaimer.

Despite the ship hold and product removal, our technologies continue to prove their importance in the marketplace.

COGNIS Intelligent are still the smallest, thinnest high energy device in the world and are being extremely well received.

We remain committed to advancing our technologies and strengthening our CRM franchise.

In the US we launched the ACUITY breakaway lead delivery system, building on our already strong lead portfolio.

In the first half of 2011, we plan to launch our next generation defibrillators creating greater choices for our customers including new features designed to improve functionality, diagnostic capability, and ease-of-use.

We also plan to rollout our four site defib system in the US in the same time frame.

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

This new platform will be the first in a series of low voltage launches over the next few years.

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

Our Foresight system has shown rapid adoption in Europe since its launch in the first quarter.

We anticipate that our international defib performance will strengthen over time.

Our worldwide EP business was flat in constant currency versus a year ago due principally to the product availability constraints with our Blazer Prime catheter.

Fortunately we currently have full availability.

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

We also received CE mark approval for Blazer Prime and have begun introducing the product to customers in Europe.

We began the launch of Blazer DX20 in Europe earlier this year 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 later this year with US clinical trials beginning around the same time.

Turning now to cardiovascular.

Worldwide DS revenue of $389 million was at the top end of our guidance range and included $51 million in revenue from PROMUS Element now available in 100 countries.

Share continues to move towards PROMUS Element outside the US.

PROMUS Element will shift to self-manufactured margins in mid 2012 and improve our DES gross margin performance substantially.

Our worldwide DES market share at 38% held steady the last quarter and was down four points versus the second quarter of 2009.

While our mix continued to shift from TAXUS to PROMUS on a year to year basis, that shift has slowed since the first quarter.

The DS market was flat due to increase in both penetration rates and PCIs offset by weak ASPs compared to a year ago.

In the US, revenue of $209 million was at the top end of our guidance range with share at 46% and mix having stabilized in the last two quarters as we continue to focus on our two-drug DES offering.

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

We received CE Mark for TAXUS Element in May which included specific indication for the treatment of diabetic patients.

This marks the first geography where we offer both TAXUS and PROMUS on the Element platform with its innovative stent design and proprietary platinum chromium alloy.

While we are early in the rollout of TAXUS Element we believe it will be well received due to the performance advantages of the Element platform along with the improved performance of Paclitaxel, particularly as an advanced treatment option for diabetic patients.

We continue to be the European DES market share leader at 32%, including a preliminary 16% share for PROMUS Element despite a lack of current access to a long list of public tenders that will annualize in due course.

In Japan the PROMUS and XIENCE launch rollout is now complete and the DS market in terms of share shift has stabilized for the time being.

Our 38% share was down 15 points from the second quarter of 2009 and down five points from the last quarter.

While we lost market share through April and May it now appears to have bottomed out.

During the launch rollout we saw deep discounting by two of our competitors which we chose not to participate in.

Since April, market prices have stabilized with minimal erosion in June.

We are focused on preserving the Japanese marketplace and will not be distracted short-term.

We continue to believe the reset trial sponsored by Abbott comparing XIENCE to Cypher is inflating Abbot's share.

This trial limits our ability to sell PROMUS to these trial centers until late July or early August which is when we expect that enrollment will be completed.

We estimate that the reset centers represent 22% of the entire Japanese market.

It's possible that Abbott will attempt to initiate a new trial and we expect it to document equally unnecessary science.

We have consistently chosen not to do marketing studies that revalidate known performance versus first generation products.

Most important, though, and to give you a better perspective, in the non-reset trial accounts where both PROMUS and XIENCE and other competitors are available, we currently have a 50% market share.

We intend to focus our two-drug platform with expectations to gain share in the back half of the year.

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

At the Paris PCR Meeting in May, the Spirit Five registry results were presented and they demonstrated positive long term safety data supporting the PROMUS and XIENCE stent family, now out to six years.

These data give us increasing confidence in PROMUS Element which uses the same drug and polymer technology with the improvements of the Element platform.

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 and predictable lesion coverage and drug distribution while improving deliverability.

The primary end point of the Perseus trial was recently published in the JACC confirming the safety and efficacy of the TAXUS Element stent and importantly demonstrating effective transfer of Paclitaxel and the SIBS polymer to the new platform alloy, all with enhanced benefits in acute handling.

Also in May we announced the initiation of Platinum Plus clinical trial designed to compare the performance of PROMUS Element to XIENCE Prime in an unrestrictive all comers patient population.

The results which are expected to be presented in 2012 will demonstrate how two distinct stent platforms with the same Everolimus drug performed in comparison to one another.

In support of the TAXUS and PROMUS Element launches in India in the latter part of 2010 or early 2011 we have funded an important investigator initiated study comparing the safety and efficacy of TAXUS Element versus XIENCE Prime in patients with diabetes led by primary investigator Dr.

Upendra Kaul of New Delhi.

Diabetes is a global healthcare challenge and we look to the study to confirm the unique role of the TAXUS stent in diabetic coronary disease.

In addition we'll undertake through an investigator sponsored research protocol and all comers registry to assess the outcome of patients with complex coronary disease in India treated with the PROMUS Element stent.

This study will be led by Dr.

[Asia Bulasari]of Chennai.

These are two examples of our deliberate strategy to increase investment in strategically and scientifically relevant investigator sponsored research in the CRV space.

In the near future we expect to begin patient enrollment in the EVOLVE clinical trial designed to assess the safety and performance of our Synergy coronary stent.

The Synergy stent represents our fourth generation drug eluting stent technology and features a viral absorbable polymer and Everolimus drug formulation to create a thin uniform coating on the abluminal or outer surface of the platinum chromium alloy stent.

The Synergy stent is intended to provide the same degree of restenosis reduction as a conventional drug eluting stent while offering faster and more complete vessel healing, and with the aim of reduced length of time on dual anti-platelet therapy which under most current regimens actually costs more than the stent.

We are uniquely able to offer customers a 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 7% in constant currency from the second quarter of 2009.

This decline is attributed mostly to PTCA balloon price erosion.

However, we maintained our US and worldwide PTCA balloon leadership positions with 56% and 39% shares, respectively.

We began the European rollout of Apex Platinum during the second quarter and physicians have been happy with the improved visibility of the product.

We launched the NC Quantum Apex post dilitation balloon catheter during June in the US and limited market evaluation in Europe and other CE mark countries.

Early results have exceeded expectations.

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

In addition we've begun a phased US European and other CE Mark countries launch of our Kinetix guidewire and plan to expand the full product availability by the next quarter.

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

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

In our worldwide peripheral interventions business we experienced a 4% constant currency revenue decline compared to the second quarter of 2009.

On a year-to-date basis our worldwide PI business declined by 1% with our international business growing 2% and our US business declining 5% year-to-date.

The US decline is attributed to procedural downturn and increased competition.

Taking out discontinued products and current unanticipated back orders, our worldwide year-to-date PI business is flat year-over-year with international growth of 3% and a US decline of 3%.

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

We launched our EPIC vascular stent internationally and we continue to see expansion in new accounts and overall share growth.

In the carotid stent space, the Adapt carotid stent system launched in select international markets clearly gained incremental share in our targeted accounts.

We also began a limited launch in Japan for our carotid wall stent system.

Both the Adapt launch and the Japan carotid wall stent launch should bolster our worldwide leadership position in the carotid stent market.

These stent launches have helped to produce 3% international stent growth year-over-year and helped to stabilize our stent franchise.

Additionally we fully launched the express LD Iliac stent system in the US during the quarter.

We've gained incremental share with this approval and solidified our number one position in balloon expandable stents.

We launched the Sterling SL balloon in both the US and European markets during the second quarter filling a gap in our PTA portfolio in the long balloon segment.

We are early in the overall rollout of Sterling SL, but we've clearly penetrated our target accounts and taken share.

We also launched the Cryo long balloons to select accounts in the US during June.

In the interventional oncology products segment we launched our Renegade HI FLO kits in June.

This brings together the Renegade HI FLO and the Fathom guidewire in a single sterile package.

We continue to be very excited about our number one worldwide market position in the peripheral intervention space.

We believe our growth projections for this business are solid as demonstrated by the multiple product launches in the quarter.

However, we do continue to monitor the procedural trends and ASP trends within the US and European markets.

Given the global nature of this market we believe that continued international momentum can offset some of the US softness seen here to date.

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

In a highly competitive environment our neurovascular business reported softer results this quarter and declined 6% in constant currency compared to the second quarter of last year while maintaining its global leadership in every franchise.

During the quarter we launched our Neuroform EZ adjunctive stent in both Europe and the US and have received positive feedback from physicians.

At the [LINK] meeting in Istanbul, more than 100 physicians had the opportunity to practice Neuroform EZ on our flow model.

Neuroform EZ offers an improved delivery system for the market leading Neuroform stent.

It is designed to provide open catheter delivery technique which aids in the placement of stents in tortuous neurovascular anatomy.

Our Neurovascular business is the only company that provides stent delivery technology via over-the-wire and open catheter systems as well as regulatory recognition for the stent transfer technique.

We are looking forward to expanding our Neuroform EZ offering to other regions over the coming months.

Our guide wire business experienced softer results this quarter and was up only 3% compared to last year.

This was largely the result of a back order situation experienced at the end of the quarter with our market leading Synchro 2 wire.

As production ramps up we expect to be out of back order by the end of the third quarter.

Our catheter business, excluding flow-directed and guide catheters, grew 4%, driven by strong sales of our XL10 micro catheter and Renegade HI FLO catheter used in conjunction with the Neuroform EZ stent delivery system.

Our I-CAD, or intracranial atherosclerotic disease, business posted another quarter of strong results with 17% growth overall driven by strong sales in the US, Brazil, Korea, and China.

The NIH sponsored Wingspan stent and Gateway balloon system SAMMPRIS trial is ahead of schedule and continues to aggressively enroll patients with more than 40% of the patients enrolled within the first 18 months.

Our adjunctive stenting business declined 2% this quarter compared to last year but maintained its leadership position.

The launch of our Neuroform EZ stent with its improved delivery system will reinforce our number one position in hemorrhagic adjunctive stenting.

Under significant pressure from multiple competitive coil and stent launches, our detachable coil business was down 13% compared to the second quarter of last year.

However we continue to maintain market share leadership with 20 plus more market share points than our nearest competitor.

We are looking forward to launching our new Phoenix coil in the back half of the year.

Our Endoscopy business continued its strong performance recording another solid quarter posting 8% worldwide growth with 6% growth in the US, and 10% growth internationally.

The Endo business saw strong growth in its metal stent franchise recording an impressive 10% increase worldwide.

This performance was led by our Biliary and esophageal stent product lines due to continued market conversion to the WallFlex product offering.

Worldwide growth of 9% was also recorded in our Biliary device franchise due to continued adoption of the SpyGlass platform.

The Hemostasis franchise experienced significant growth of 18% on the strength of the Resolution Clip technology.

In the third quarter the Endoscopy business plans to commercialize a number of new products targeting the Biliary interventional market.

Urology and Women's Health continues to deliver solid results growing at 4% on a constant currency basis with 9% growth in our Women's Health business.

Our Women's Health business continues to benefit from 2009 new product launches in our pelvic floor franchise as well as a strong double digit growth in our gynecology franchise.

Our urology business maintained its leadership position and grew 2% at constant currency basis despite declines in our Prolieve and Biopsy businesses.

Total divisional growth excluding these two franchises was 8%.

During the quarter we launched two new laser fibers used in the treatment of kidney stone disease.

In the second half of 2010, we are preparing for the US launch of our recently approved next generation Genesis HDA system for the treatment of abnormal uterine bleeding.

We believe the significantly enhanced user interface and the ease-of-use of the Genesis system will enable a business to grow its share of the $400 million worldwide AUB market.

Our Neuromodulation business was disappointing and essentially flat over a year.

Procedure volumes continue to run softer than expected, a trend that we believe reflects some ongoing loss of benefits and lack of available co-pay funds through increased unemployment and a soft economy with respect to elective procedures.

We've noted with interest some of the ongoing weakness in the elective procedure portion of the US spine business and feel there may be some parallels here.

Despite this temporary weakness in spinal cord stimulation markets, we believe the US market will return to double digit growth in the second half of the year.

We firmly believe our differentiated technology and the new product launches will continue to place us in a favorable position.

In fact, we were pleased to launch our new lead splitters at the 12th annual meeting of the American Society of Interventional Pain Physicians just a few weeks ago.

We have already seen an increase in multi-lead placement cases.

These new splitters offer a broad range of lead configurations and are designed to provide physicians with more treatment options for their chronic pain patients.

These splitters in conjunction with our wide 1x8 leads, expected to launch in the third quarter, will help make our portfolio of percutaneous lead options more extensive than any other company.

We look forward to these new products helping us grow our market share through the second half of 2010.

I'll finish some overall perspective on the quarter.

What we liked, what we didn't like, and hot topics.

I'll start with what we liked.

Number one, we liked the recovery we made during the quarter from the CRM ship hold and product removal.

We finished the quarter ahead of where we expected to be in terms of our ICD and CRTD sales.

We are encouraged by these results and we believe we may potentially exit the year with slightly better market share than was our view coming into the second quarter.

I want to recognize our CRM sales team again for the role they played in this recovery as well as the entire commercial team.

This was a case of excellent execution and everyone involved deserves a great deal of credit.

I also want to recognize the physician community which has kept an open ear and an open mind throughout this process.

We did a lot of meetings and calls, literally hundreds, and virtually everyone listened.

They also responded often very candidly and forthright and we appreciated those responses.

At the end of the day, they said they liked our products and many of them have returned to those products.

Not all of them have returned but we will continue to work to bring people back into the fold.

Secondly, we liked the solid expense control we demonstrated during the quarter.

We showed good discipline around expense management.

Our restructuring program continues to drive our expenses down to fund areas of future growth.

We will continue to invest in our growth opportunities and we expect our operating expenses to reflect that in the second half of the year.

We hope to invest between $20 million and $40 million or $0.01 to $0.02 of EPS related to India and China and sales feet on the street alone during the second half of 2010.

Thirdly, we like the approval and launch of TAXUS Element in EMEA.

TAXUS Element was on the market for only a few weeks at the end of the quarter but we like what we saw.

We also like the indication for the treatment of diabetic patients since approximately 1/3 of all patients with coronary artery disease in Europe also have diabetes.

We are off to a good start with TAXUS Element in EMEA which complements the ongoing strong performance of PROMUS Element.

As you know, PROMUS Element launched in EMEA in the fourth quarter of last year and has posted strong numbers since then including during the second quarter.

Both Element platforms are performing well in EMEA and we believe this bodes well for their future performance in the US and Japan.

Fourthly, we like that we maintained our worldwide drug eluting stent leadership which included another strong quarter in the US.

We also liked we launched the NC Quantum Apex balloon catheter and the Kinetix Guidewire and that the initial indications are that these products are selling well and have the potential to increase our share of the balloon catheter and guidewire markets.

Overall we continue to offer innovation, performance and leadership throughout the cath lab.

Let me switch now to what we didn't like.

Number one, we continue to be concerned about pricing erosion, especially in CRM and DES.

That concern was compounded this quarter by a weakening euro which hurt our revenues.

We now are starting to see additional pricing pressures in the rest of our interventional cardiology business and to a greater degree in southern Europe.

We will use the power of our newly formed CRV group, cross care and the patient care continuum to leverage our strength in the cath lab.

Number two, we weren't happy with our overall sales performance.

While we were encouraged by our CRM recovery and continued solid performances in Endoscopy, Urology and Women's Health business, we continued to under-perform relative to our expectations for our other businesses.

While some of this under-performance is related to factors beyond our control we must do a better job of executing relative to our sales plans.

Thirdly, we didn't like our TAXUS share loss in Europe and Japan.

The share loss in Europe was offset by the strong showing of PROMUS Element but there was no offsetting effect in Japan since PROMUS Element is not on the market there.

We can argue that there is some unique circumstances in Japan to which we refuse to respond in kind.

However the shares are the shares.

On the hot topic, I'll close on the hot topic of our often debated financial stability.

We cannot underestimate the importance of refinancing our remaining 2011 debt maturities and the extension of our revolving credit facility by the middle of 2010 as planned.

The continued strong committment of lenders to our new $3 billion credit facilities was extraordinary.

As a result we have minimal debt obligations for the next three years.

In addition, the new credit facility provides us with ample safety margins under our bank covenants as well as prepayable debt to help achieve our target capital structure goals over the next two to three years.

Overall this refinancing adds to our financial strength and flexibility and it enhances our capacity to fund selected acquisitions and other technology investments.

In order to truly turnaround this business, we need not only the prerequisite executable strategic plan but the financial stability and strength to do so.

Today our ratios and details reflect substantial progress.

For instance, our 2.6 times debt to EBITDA coverage far exceeds our covenant maximum limit of 3.85 times.

Our 5.7 times EBITDA to interest expense coverage is nearly double the covenant minimum of three times.

Our liquidity reflects an increase in our access to capital to more than $2.3 billion now.

Our debt maturities through the end of 2012 are $1.15 billion, representing less than one year of free cash flow.

And lastly, we have more than $1 billion of cash in the bank, as I speak.

While we understand that doing things right every time does not necessarily earn us short-term marks, we intend to sort out and rebuild BSC's power in an orderly and planful day.

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

Thanks, Ray.

Tonya, in a minute I'd like to open it up to questions.

In an effort to enable us to field as many questions as possible in the time remaining I'd request that you limit yourself to one question and a related follow-up.

Again, I remind you that Ray will be joined during the Q&A session by Sam and several of the business Presidents as well as Dr.

Dawkins and Dr.

Stein.

Tonya, please go ahead.

Thank you.

(Operator Instructions).

The first question will come from the line of Bob Hopkins with Banc of America.

Please go ahead.

Hi, thanks.

Can you hear me okay?

We can.

Good morning Bob.

Good morning, thank you.

First, Ray, I just wanted to ask on the ICD side and then I've got a gross margin question.

So first on ICD, I was wondering if you could just talk in a little bit more detail about some of the dynamics in the quarter.

For example, was there any pent-up replacement demand that's worth calling out?

I was wondering if you could clarify your comments on pricing in CRM.

Did ICD pricing deteriorate from the levels you're seeing previously and just any other comments you'd like to add on ICDs.

Thanks.

Sure, thanks, Bob.

A couple of things we are analyzing.

One of the reasons we've taken the approach of staying with that 25% year-end exit is there is some stock build and there were some physicians that were dedicated sufficiently to our products that if patients had long enough batteries and they were comfortable with patient safety, they literally did delay the surgery.

So we've tried to analyze that in detail and account for that.

It was not a huge, huge factor to be honest with you so I don't want to overly sway your thinking but it was enough of a factor to have us suggest that let's just stay with the 25% year-end exit at this point in time until we learn more.

On CRM pricing, no.

We haven't seen, I think as I recall some of our competitors and maybe a few analysts seem to indicate that we would use price to reenter the market and gain share.

I think my comments from the last time we did this were that we would not do that.

We did not and we have not seen deterioration in CRM pricing as it relates to Boston Scientific.

Let me just add, Bob, that from the work we've been able to tease apart on the quarter in terms of why we over exceeded expectations, the vast majority had to do with the fact we recovered in two weeks versus the six weeks.

That's over 80% or 90% of the over performance.

And in terms of quantifying that replacement demand and other factors is $20 million or $30 million a good number to use or do you not want to give that detail yet?

That's high, because there were other factors in there that are not negative on an ongoing basis so I don't know that we'll necessarily publicly quantify them.

I would suggest that you not think of them as substantial factors and at least until we update you in the third quarter stick with the idea that we're going to exit 25% but we'll get there quicker.

Thank you for that.

And then on gross margins, Ray, first of all, is there a time that you have in mind for an Analyst Day to provide some longer term thoughts on Boston Scientific?

And then specifically on gross margins you said I think 67.5% excluding the recall expenses.

As we think about the time frame going forward, before you have PROMUS Element on the US market do you think you can see any substantial improvement to that 67.5% level?

Let me comment on the Analyst Day and then I'll start off and Jeff can jump in.

Yes, we are planning in the fall.

I don't know that Larry has nailed a date down yet.

I don't think we have.

The reason we shifted it is because the ship hold obviously slowed everything down for us.

We just completed some really great work on a strategic plan.

I'm really pleased with that.

We actually finished a good chunk of that yesterday, strangely enough, and we have a board meeting coming up next week which we'll be sharing that with them.

So we wanted to do two things, Bob.

One is get a really exciting and communicatable strategic plan before running out and talking to analysts and I know its been a long time for BSC.

Secondly, we want to obviously communicate that to the board and get their backing.

Thirdly we wanted to communicate it to our employees before we talk to the public and we have major all employee meetings set up, I think some 6,000 people, in Minneapolis/St.

Paul on August 19th, and then go public after that.

So that's the order of events.

In terms of margins, I think the mix of new products going forward -- the concern, let me start with concern and I'll let Jeff jump in.

There's lots of positive contributing factors from restructuring and plant network organization and so on and so on that we've covered with you.

The one qualifying factor we're keeping a careful eye on is price and that's the one that we're not excessively concerned but it is eroding somewhat and that's the counter factor.

Jeff, did you want to?

Yes, so if you look at our revised guidance for the year, Bob, it's higher.

The margin is higher than it was previously, and that reflects the fact that the impact of the stop ship significantly reduces in Q3 and Q4 is we're obviously on the market for 100% of the time, so obviously that helps the margin.

The other dynamic we benefit as we circle through the back half of the year is our comparison in the fourth quarter from a mix perspective were much easier in the US, given the impacts of the compare study to the DES mix in the US.

The two most significant benefits, direct benefits that are tangible relative to gross margins are the plant network optimization where we're very far along.

We have a second of two low cost manufacturing facilities in Costa Rica that are operational and taking in product quickly.

We've talked about the end of 2012, that's worth roughly $100 million of gross margin benefit and more than 100 basis points of benefit.

And that facility will not be full so there's an opportunity to add to that facility so that's another component.

And then obviously the PROMUS Element DS mix.

We're continuing to enjoy a nice mix shift in Europe and that product is ahead of plan.

We're very bullish on that platform, both for Europe and Japan and for the US, so that is going to be a significant benefit for us in 2012.

Thank you very much.

Thank you.

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

Please go ahead.

Good morning.

Thanks for taking the questions.

Let me start with the non-DES, non-CRM businesses.

The question here is you continue to struggle in these other areas which could be critical areas for the Company.

I think you said it was down 1% or 2% constant currency for the quarter.

You talked about a lot of products but in your guidance for the second half of the year can you give me a sense of the trajectory at which you're expecting the non-DES non-CRM businesses to grow or to accelerate?

Yes, I'll give you the front end and Jeff can jump into the back, Mike.

It is a new product story combined with a release of back order story offset by pricing pressure primarily on balloons and competitive products.

So the net effect of that we still think is positive growth in the second half.

But we have been struggling and we've been struggling for quite a while because some of those launches have been delayed, and of course we didn't anticipate the back orders.

So I think to the extent the good offsets the bad, that we get the growth there but we're keeping an eye on both price and in some level of procedural softness, although international offsets the US situation.

Jeff, did you want to add some comments?

Yes, so let me step through a few businesses.

Ray spent quite a bit of time outlining a number of new products that we have introduced within the peripheral intervention space.

That business has been flat to down low single digits end of last year through the first two quarters of this year, so we expect, based on those products which have been introduced and are in the market right now, to generate some growth.

We think that market is growing at least in mid single digits.

There's some debate as to whether it's a little higher or lower depending on some of the pricing dynamics, particularly in the US, but we think we can get into that range in the back half of the year.

Electrophysiology is a market that's growing in the upper single digits/lower double digits depending on how much you put into that in terms of the different techniques.

As Ray mentioned, we're back in the market with one of our products, one of the Blazer products.

We've got a number of new products in that space that we expect will generate some growth.

And then you've got neuromodulation.

That grew 10% in the first quarter and had been growing 15% pretty consistently.

And this is a bit of an unusual quarter although we did have an unusual quarter in the first quarter of 2009 where we had very low growth which we similarly expected and suspected it was due to timing and co-pays and reimbursements.

And later on in 2009 it resumed its double digit growth so we expect that that's going to come back to upper single digits/lower double digit growth.

So those three businesses alone, we've got the products, we've got the sales forces, and we think we can execute well in the back half of the year.

So we'll just have to see how it plays out as we get through the third and fourth quarter.

Yes, I think too, Mike and I'm going to go a little beyond the other non-core and PI and what-not, but I think this is one of the problems with a company struggling through some turnaround times and then the ship hold and other things over the last couple of three years, and not having analyst meetings.

I noted that one of our good competitors got a lot of newspaper coverage announcing 60 new products.

In fact if you look through our new products now we're going to be releasing over the next 12 to 18 months, there's 30 alone in CRV and probably at least 60, I haven't added them all up, when you look at all of the other categories.

So I think part of the problem is we've not been in a spot where we can communicate as effectively that the pipeline is stronger perhaps than people think.

And just a couple follow-ups here.

First question is do you think the public speculation about the potential sale of either the Neurovascular or Neuromodulation businesses impacted those businesses this quarter?

I know you aren't confirming or commenting on whether or not those are processes but do you think they impacted those businesses in the quarter?

And then having accomplished what you did during the end of the quarter on the debt side, do you think you're in a position now to start considering M&A more actively?

Thanks.

To your point, obviously we don't make any comments on the businesses.

But even if they were, other ones were, our analysis of the two businesses, you happened to mention don't show any indications of any subjects around that being a problem.

It was marketplace procedures, softness, co-pays, and of course we're way late with the Phoenix coil and that's killing us as good competitors come out with competitive coil products.

So to me it's a product marketing procedure set of issues and has nothing to do with M&A.

On the second one, I'll front it and if Jeff wants to add again or others, the answer is yes.

I think you'll see as we deliver on that analyst meeting, everybody in the world can do the math on this Company.

If 2/3 of your business is growing at 1% or 2% or 3%, how much do you have to grow the rest or what does your portfolio have to look like in order to be a 5% or 6% growth company and double digit bottom line.

So everybody can do the math and therefore we have to be in the growth M&A business and we have to find ways of growing our existing portfolio and shifting it around.

We're moving literally over a few years, hundreds of millions of dollars of traditional R&D into a dozen or so growth initiative platforms.

If we don't do that and we can't grow the top line and convince people there's sustainability, we don't get to have a higher stock price in a multiple expansion.

I hate to say Business 101 to you because I know you know all of this but it is as sample as that.

We just need to be able to communicate it as we get out on the analyst days and employee meetings.

Jeff?

I would 100% agree with that.

The only slight caveat I would put on it would be the structure of the refinancing package that we put in place was designed to put pre-payable debt in place so we could prepay it down fairly quickly.

I think we've said publicly that our desired debt to EBITDA range is somewhere between 1.5 to 2 times, and as Ray said we're in the high twos and that's because we want to make sure we have financial flexibility.

As an organization we still have litigation and some tax risk we need to cover.

So at least in the short to medium term until we get through those, we want to have a reasonable leverage level.

So increased capacity of $1 billion on the balance sheet and the free cash flow will help us do both, will help us both delever the Company and position it more firmly going forward and also free up funds to grow the top line.

Great.

Thank you guys.

Thank you.

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

Please go ahead.

Good morning, everybody.

Good morning Ray.

Maybe if you could come back to your price concerns and maybe expand on your comments a little bit.

You're seeing a little bit in southern EU.

Where do you think the greatest risks are?

Is it on the price side or what about when you're thinking about Europe especially as you look ahead to 2011, what about the utilization pressures?

And maybe talk a little bit about since you see it coming how you get ahead of these maybe increasingly negative curves?

Yes, I think, Rick, although there is some utilization pressures that spread across the countries, and there is some consolidation of buying practices and regions, transparency, some of the things we're seeing in the US, the GPOs get bigger in places like Germany.

So there's a lot of that kind of activity but we're used to most of that.

There's probably more of it now, frankly, but we're used to dealing with and countering most of that activity.

What we're not used to seeing is -- and I'm referring primarily to Spain and Italy.

I said Southern Europe just to keep it general in the commentary but really obviously Greece is the other one, we all know what's going on there.

But Spain and Italy, we're accustomed to those being pretty price attractive markets, Spain more so than Italy, and I think we're starting to see the pressure in those two countries.

And I would regard that as a bigger watch out not just for us but for anybody with medical devices than I would utilization of other factors that are going on.

And we should assume that the new products you launch, are you anticipating that will help you offset some of the pressure?

Yes, I think to the extent that you can market those benefits.

I think what we probably have to do too is have fuller bags and more feet on the street over there and that's part of those investments I talked about in the second half.

We aren't going to make this all up with new products in Europe.

Our coverage in Europe is substandard compared to our competitors in terms of real feet on the street and hospital, institutional and physician coverage, and there's a bunch of reasons for that historically.

We're going to reinvest very clearly on feet on the street in Europe including Spain and Italy and that I think will help us a lot more than anything else we're doing.

A quick follow-up if I could maybe for Jeff.

I just want to make sure I understand, Jeff, the narrowed range at the upper end, why the $8 billion to $7.9 million if currency is minimal?

Maybe I missed that in the commentary.

Thanks.

Currency is a little bit more than minimal.

Currency is about $100 million.

And so that's the sole factor?

Yes, exactly.

Thanks so much.

Thank you.

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

Please go ahead.

Good morning.

Ray, given some of the near term strategic priorities behind the Company with debt refinancing as well as getting your arms around the ship hold there's a lot of talk about priorities.

I wonder if you could just force rank or give us a more granular view of the strategic varieties we should be thinking of for the business here over the next six to 12 months now that some of the near term priorities are somewhat more well in hand?

Yes, I think we mentioned some of them, David.

New products obviously are crucial to us.

The bringing together of the value proposition and executional strategy around CRV and completing the integration is huge for us.

The emerging markets program that we're putting together is huge.

Completion of restructuring and reinvesting those dollars for the most part, back into feet on the street in emerging markets.

The execution of our growth initiatives.

We have 12 target areas we're going after that include a combination of outside M&A work and inside internal R&D shifting.

Those would be some.

There's a pretty long list.

Jeff, I don't know if you want to add to that.

The only other one I'd add is as we look at our global footprint and our cost structure, we are not a low cost organization.

So as we think about increasing our commercial footprint in China and India, we currently have a handful of direct employees in India which is rather unusual for a Company of our size.

So I personally think there's a lot of opportunity from a distribution perspective to, as we grow our emerging markets, to grow our employee base disproportionately larger in those areas and actually get some productivity and cost arbitrage benefit that's coming up.

So I think that's another opportunity from a productivity perspective that the organization's never really looked at that we're actually pretty deep into and that's above and beyond the restructuring benefits that we've talked about.

Great.

That's very helpful.

Maybe just two more quick ones.

First, Ray, you've talked the last couple calls about reshaping the medical device delivery model, talking about a combination of the cardiovascular footprint.

I wonder if you've seen changes amongst other medical device manufactures as fast followers as you begin to execute that plan.

Are you talking about outside our product mix and segments?

Or even inside your product mix.

I just wondered given you've been talking about they should begin to execute that distribution model, whether you've seen other medical device peers beginning to emulate that model?

I think copy is the finest form of flattery so it didn't take long for other friends in Minnesota to make a CRV group so I was pretty excited about that.

It validates our decision, so that's a good one.

I think we're starting to see companies work together that fill each others' gaps in terms of a hospital calling basis.

So I think you're starting to see versions, and using this term in the proper way, bundling, between non-competing but people whose product gaps and lines fill each other.

We're starting to see some of that, more people working together.

I haven't paid as much attention in recent times to outside the world that Boston Scientific serves so I'm probably not as good at answering that but we're certainly seeing it within our own competitors for sure.

Just one last quick one and I'll jump back in queue.

Jeff, this is the second time or the first time Ray has mentioned specifically the impact that mid '12 PROMUS Element manufacturing could have in the business.

As you think about your GMs right now and the 66 level, what impact do you think that change alone could have on the business?

We've talked historically that that's worth probably $200 million come 2012, and almost all of that is through the gross margin.

If you just take that over the base of revenue you get a pretty good idea.

Okay, thank you very much.

A couple hundred basis points at least.

Thank you.

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

Please go ahead.

Hi.

This is actually (inaudible) for Larry.

Can you hear me okay?

You're going to have to speak up a little bit.

We can hardly hear you.

Great.

So my question was about the O-US ICD guidance, the $120 million to $125 million.

If I'm doing the math right it implies the Euro decline in the mid single digits.

Any commentary on what's driving that, I would be grateful.

I don't think so.

Are you looking third quarter guidance, is that what you're talking about?

Yes.

Yes, I haven't got it.

Jeff is just looking that up here compared to prior, but I don't know there's anything specific to that.

Is your question what's creating that number you mean?

Yes, it seems to be down sequentially.

Is it a combination of price, procedure volumes?

Sequential decline in O-US for a start of seasonality.

So what you want to look at I think, to help yourself, is take currency out of it altogether and look at the relative sales last year and in prior years between second and third quarter and compare this with that.

And I don't have it right in front of me but I would suggest looking at a chunk of it, if it's currency neutral, if you made it currency neutral, is going to be seasonality, obviously, particularly in Europe.

Thank you, that's helpful.

And one quick follow-up.

The (inaudible) CRV approval, any thoughts on when that might come through?

It's due literally any time now.

It would have been nice, frankly, to have that conveniently before this phone call so we could put it in the script, but that has not happened yet but it's literally any time now.

Great.

Thanks very much.

Coming back to your question relative to the guidance, I think the range is more mid single digit growth from a guidance perspective.

Thank you.

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

Please go ahead.

Thank you.

I have two questions.

The first has to do with, you talked about increasing pricing pressure in regions like Spain and Italy.

What percentage of your revenue were those two regions?

Sorry, Joanne, I'd like to help you with that but we don't break out individual countries.

Then we have to do it all the time.

Less than 5%?

Less than 3%?

Nice try.

Okay, can't blame me.

In the area of in the target therapeutics business, two of your competitors are working on ischemic stroke applications.

Is that an area you've looked at?

It is.

It is Joanne.

When we sorted through the new growth initiatives, we originally started out and end up with about 15 areas and we've weeded it down.

That target area was amongst the original group.

Whether it will survive the final growth initiatives in a priority order that we can get to in the next couple years, I can't answer right now, but yes it was in the initial screen when we got it down to about 15 growth initiatives.

Is there a section that you're particularly excited about in one area or another?

Is there a product line outside of CRM and DES?

Sure.

A couple of things I've talked about before.

Without sounding like the rest of the world, obviously structured heart is very interesting but if I went beyond that I would be looking to three areas I've mention many many times.

Hypertension, pulmonary and endo-based solutions for asthma, diabetes, and obesity we've mentioned.

And then a bunch of areas within Women's Health that I don't want to get too specific on because it will give too much information.

But those four areas we're spending an extraordinary amount of time on and we think are huge for the Company in the future.

Terrific.

Thank you very much.

Before we go on to the next question, I just want to clarify that O-US defib question.

The caller had asked the question looking at our guidance range.

That guidance is on an AFX basis, as Ray had mentioned, so if you adjust for the FX, it's quite a different story and the business would be growing, as I mentioned, mid single digit to upper single digit which is consistent with what it did in the second quarter, just to be clear.

Thank you.

The next question will come from the line of Tim Lee with Piper Jaffrey.

Please go ahead.

Hi, good morning, and thanks for taking the question.

On the CRM side, how disruptive do you think your ship hold was on the US end market dynamics?

Should we think of the impact as just maybe a short-term shift in market share or do you think it had a meaningful negative impact on procedures?

I don't think it had a negative impact on procedures because the physicians would only make decisions relevant to patient safety, so our competitors would jump in with our help or our request or the physicians' request.

So I don't think it had any effect on procedures.

There was not a lot of clamor that I heard about patients saying is this entire product line, regardless of who the supplier is, safe or whatever.

We did hear some of that in the past.

But I think it was very clear this was a paperwork problem on our part.

It was nobody else's fault.

It was no other manufacture's fault and it was not a safety problem with the product.

So we haven't seen anything and we've done some market research and reputation research and various things to assess our current status.

We haven't seen anything like that, Tim.

So when it's all said and done do you think US market will be growing low single digits on a dollar basis this quarter, or any thoughts on that front?

I don't know what the other guys look like.

In my brain right now it's 0% to 2% but the problem is without seeing the other folks I just don't have a feel.

You've got Medtronic with the unusual weak thing between their off quarters so it's hard for me to call it.

But I think that market, my guess is it's in the 0% to 2% and I'd probably settle on 1%, failing to see everybody else's numbers at this point.

Fair enough.

On the pricing question, in Spain and Italy, I'm assuming some of the austerity measures are having an impact on pricing, but are you seeing any impact on procedure rates in those countries?

And more importantly are you seeing any inklings of pricing pressure in other markets including Germany, France and UK?

Thank you.

No, I didn't see anything on procedures.

I don't think procedures is the issue and it rarely is in many of the businesses we're in because you need it to live, obviously.

I haven't seen anything unusual in the other marketplaces.

Germany is a tough pricing market but I don't think there's anything going on there that's extraordinary versus prior time.

I think if something were sensitive to, and I don't know to what extent you followed the pharma activities in Spain and the resulting over-the-counter medical device changes as opposed to institutional medical device sales, we were able to get away from substantial cuts relative to the government.

But the pressure is still on those countries because of their economic situation that they're in.

It's not Greece but Spain and Portugal -- and I should have included Portugal, it's really Iberia I'm talking about -- but they are struggling economically.

But in terms of absolute procedures I would say no.

Great.

Thank you.

Thank you.

Our next question will come from the line of Kristen Stewart with Deutsche Bank.

Hi, thanks for taking my question.

Just going back to the M&A commentary, coupled with some of the areas of interest you had mentioned, just wondering and going back looking at the market and how it's evolved of late, how much value do you still see here in a very well diversified model?

Clearly you listed off a laundry list of interesting areas but I'm just curious how active do you think you'll be in disposing some businesses and does it make sense to be a player in all of these from a bundling perspective of just really be concentrated in just a couple of key categories longer down the road.

I think that's for the most part.

So subject to Jeff's qualifying comments on insuring we properly deleverage the business as well, we do have, we're down to about a dozen growth initiatives.

We've just done a tremendous amount of work here on them on understanding how to get there.

Do I think we'll go big or be a big player in 2012?

The answer is no.

I think we'll probably double down our bets in two or three or four and really try and grow them.

I don't know perfectly at this stage which three or four it will be.

I know which ones I'd like it to be for the most part but you can't tell because you don't have absolute control of that external environment.

I don't think we're non-diversified right now.

The Company is pretty well diversified because there's a lot of subcategories -- cardiovascular.

Our problem is that 2/3 of the business is not growing anything more than very low single digits.

So our ability to go into these areas is under the theory we're trying to move the needle for the whole Company and get back to where we can be a substantial player on the top line with sustainable growth.

That's the whole ballgame here in terms of what we're trying to accomplish.

But we're not going to play in a dozen of them, if that's the question.

There's no way we could and be a winner in them.

We haven't got enough funds to invest those kinds of dollars.

So it sounds like then you'd be more willing to do larger transactions to have a greater foothold and presence in these select key markets that you define versus trying to do tuck ins, a little bit here, a little bit there?

I don't like responding yes to people who use larger transactions because that gets translated post-call into big problems and it suddenly becomes dilutive and all that conversation.

What I would prefer to say is that we've said we could do 100 to 300 and do some of those even prior to the refinancing.

We're certainly capable of doing that, doing a number of those and doing somewhat larger ones, but I don't want to get into commentary that leads people to believe dilutive transformational because that's just nothing but trouble if it gets translated that way.

And then just a quick product question.

Any update?

I know you mentioned a new ICD platform early next year.

I think that was a little bit delayed.

I had thought that that was coming more towards the end of this year.

And any update on MRI safe devices?

We have an MRI safe program that we'll be behind at least one of our primary competitors, if not two.

I'm not sure on the timing question.

I'd have to check previous scripts.

I thought we had said early next year but if we said late this year I don't recall that being in any scripts.

Maybe we did say it once or twice so if it's moved its moved a few months.

I think what we'll do is talk with people when we do the Analyst Day and employee meetings about what the features and benefits and what those products would look like rather than try and cover it here in a 30 second answer.

Okay, thanks very much.

Thank you.

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

Please go ahead.

Thanks, this is actually Mike Duncan for Bruce.

Could you talk about some of the impediments to regaining more US ICD share in the back half of the year?

Or, asked a different way, are there any segments of customers that are particularly weary of switching back to Boston Scientific completely?

It's a good question.

We segment our customers into many many different categories, but in the ship hold we did some segmenting that's somewhat more unusual in that you start to look at how people are feeling about this new segment and according to their view towards us, if you will, or Guidant in prior times.

There aren't any customers that don't like our products that have been with it but there's customers, a small percentage of customers, that are weary of the sort of repetitive recalls, problems, in this case it was paperwork, but a history of five or six years.

So you do have some of those and the weariness would cause you to at least lose them temporarily.

The other issue is you have some sales force disruption caused either by some of the disciplinary actions or disciplinary plus the ship hold where they don't want to stay, we don't want them to stay, they aren't comfortable, whatever reason you want to come up with.

And of course in relatively stickier businesses you lose some sales that way.

I don't know that the people that have really become completely weary will ever get that business back is hard to tell.

I think our mind is and our heads are built around the idea that we'll rebuild our base from 25% as a new base with new products and new technologies and the CRV horsepower and cardiovascular service line, and move on from there.

There's a part of that I don't think you probably do get back.

And then do you expect new ICD products in the US to eventually drive your market share back to '09 levels?

I wouldn't want to give you a long term guidance through a strap plan.

I think we'll try and cover that with you in an Analyst meeting because if I do that I end up giving you long term five year market share guidance and I don't really want to do that at this point.

Thanks so much.

Thank you.

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

Please go ahead.

Hi.

Thanks for taking my question.

Let me start with going back to guidance, if you will.

So you effectively increased the mid point of your annual guidance up by $0.03 for 2010 But you beat the Q2 guidance you'd previously given by $0.04.

So does that imply that there's some incremental degree of caution that you have on the back half of the year that you didn't have when you previously set this guidance or is there a better way we should be looking at this?

I think -- and I'll let Jeff comment too -- part of it is a question we were asked earlier that we're not completely -- I think Mike Weinstein asked about how much is bulk, how much is delay, and do we have enough data to really completely understand that at this point.

And we don't completely, although we're doing pretty thorough analysis.

And I think we just want to be careful not to get ahead of ourselves and then realize that some of that was stock filling and delayed procedures.

Again, we don't think it's a huge issue.

In fact we're pretty sure it's not but we're just not convinced at this point we have complete data on it.

The other thing that I would highlight was the point that Ray made that we stepped back and looked at a number of areas including the emerging markets, China and India, and, quite frankly, all regions of the world.

We have such a strong pipeline of products coming out that we feel we can put investments in the back half of this year, feet on the street, and other types of investments to drive revenue growth.

We're going to do that so that incrementally added another $20 million to $40 million of SG&A that wasn't previously contemplated when we gave out guidance back in the first quarter, so you have to factor that in.

That cost us a couple pennies.

Okay, thanks.

That's helpful.

My next question is on the transition of PROMUS to PROMUS Element in Europe.

It looks like you still are selling and implanting PROMUS in Europe.

How much supply do you have left there and when do you expect that supply to fully run out because that's not being replenished, correct?, since the supply agreement ran out last year?

So when would you expect all of the PROMUS to be gone and supply have to switch to either TAXUS, TAXUS Element or PROMUS element?

I'll answer that one as soon as I'm sure all of the folks from Abbott, Medtronic and J&J have hung up the phone.

When I hear all of the clicks I'll answer that one for you, okay?

Right.

So is it fair to say that that transition then is moving along to your expectations?

Yes, the transition is going really well.

In fact, some of the data testing over there by people doing research, one of the things they are missing is the fact that there is a huge number of tenders, and I had this briefly in my script but it probably didn't pop out at you.

There's a huge number of tenders and opportunities that have not annualized out yet.

And therefore in the midst of those tenders under most of those countries' rules, you would not be able to supply PROMUS Element because it's disallowed from a legal point of view so the opportunity for us -- first of all, we're doing very well with it.

It's $51 million overall, obviously O-US.

But the opportunity to substantially grow that PROMUS Element business is large because we're only servicing part of the market.

Are you surprised at all that you're seeing more of a conversion from TAXUS to PROMUS Element rather than PROMUS to PROMUS Element or is that not surprising to you?

I think the share position on TAXUS is a little lower than we thought it would be and some of that, of course, is the ramblings of the studies and what not that have been done, and the effects of the various meetings.

But we're a little lower in Europe and Japan on TAXUS than we would have expected to be.

Conversely (in the case of Europe, obviously we don't have Element in Japan), we are doing better and I think Jeff correctly said we're ahead of our own plan substantially on Element.

So there's a tradeoff there but the answer would be yes to your question.

Just to add on your PROMUS Element question, obviously we had a very strong first half of the year in terms of market acceptance of PROMUS Element.

The expectation in terms of transition from PROMUS to PROMUS Element really accelerates the back half of the year to the point that by year-end in Europe, our share is almost fully converted to PROMUS Element.

So supply issues are not going to be a problem and they will not apparently materially impact us at all.

The other dynamic is we anticipated we would have had TAXUS Element at the beginning of this year.

It really would have helped us with the TAXUS transition.

Now that we have it and it's in the market almost a month now, our expectation is that really does a very good job of abating some of the market share erosion and give people a good opportunity to take their business onto the leading edge stent platform, the Element platform.

Just quickly, on Neuromodulation, Mike, how is the trialing looking?

Are you seeing that as a leading indicator that maybe the market's going to pick up next quarter?

And when is the next generation IPG going to be coming out?

Derrick, I don't know whether you meant to say Mike or not but I'll give it to Michael to answer that question, if he would?

Yes, Derrick.

The trials for the last couple of months have been soft and we're starting to see the upward trend towards the back half of the year.

The timing between when somebody does a trial and when they get their permanent seems to have been stretched a bit compared to what we're normally used to seeing in this business.

And a lot of that has to do with the fact they've got to come out of pocket with their co-pay, so we're seeing a little bit of a delay.

The trials are still fairly strong for the year and heading the right direction for us.

What was the second part of your question?

The next gen IPG?

We're not ready to comment on that.

We obviously have been working on a product for a while and the progress and the milestones are being hit on a timely basis but we're not ready to talk about when we'll be releasing that yet.

Thanks a lot guys.

Thank you.

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

Please go ahead.

Good morning, thank you for taking the question.

I was wondering, Ray, if you could spend a couple minutes on the peripheral business.

Obviously that business was growing pretty well last year and seems to have slowed down this year.

Maybe walk us through what the dynamics are there, whether that's market or market share, and then what's the timing of a potential turnaround.

There's two or three things there.

One is competitive new products.

Two is the delay of some of our new products although we just put a bunch of them out and I tried to list them in the script.

Thirdly, there's definitely more balloon pricing pressures.

And fourthly, as a US comment only, there's procedural softness, at least at this point in time, offset by a little more strength international.

So that's the scenario we're living with.

As we look to the second half and we look at the new product releases, the entries we have, how they compete in those marketplaces and the relief of the back orders hopefully that are plaguing us in the first half on a comparative basis, I think it leads us to believe that we can get to market kinds of growth or a little better and I think we're using mid single digit numbers as market growth.

Does that help?

Yes.

And then maybe just more broadly, as you look at new product launches across your portfolio, is there something that's changed about the way those products are accepted, the timing of penetration of new products?

I think you have been giving a statistic before about the number of new products, percent of revenue that from products that were introduced in the past 24 months.

As you look across some of your competitors we are seeing slower uptick of new products.

Is there something that's changing in the buying patterns of your customers that we should be aware of?

No, I don't think so.

I don't think it's customers.

We're starting to run some pretty high numbers and pretty attractive numbers relative to percent of new products to sales for virtually any major med device.

So if you think of anything over a third of your business -- in our case, we're running about 44%.

So the strength of the pipeline and the dollar values to total in prior 24 months and so on is high.

I think if we run any risk, and it's not Boston Scientific, it's industry, is obviously the messages we're getting in general from the FDA, reevaluation of 510(k) and so on and so on around reform, I think could cause us all some substantial delays in new products reaching patients.

But our performance as of right now, no.

I'm happy with that aspect.

We've just got to make sure our sales execution matches up with that.

Okay, and then lastly, you alluded to this a couple times on the call about the long term growth rate or opportunities for revenue growth given where you think the markets you compete in, that 2/3 of sales were growing.

As you maybe over time provide more details on R&D allocations, should we expect to see R&D get allocated to more of the growth businesses where you have an opportunity or absolute R&D dollars come down with more of that investment allocated to external investment?

No, it's absolutely the former.

We intend to be around the $1 billion mark, rough numbers.

Out of that you've got to take your clinical and some quality and other related spendings.

And as you get to a net R&D number, we expect to shift from right now -- and I've been public about this number so I'll share it again with you -- but we look at our growth initiatives that we have planned right now and we look at the corresponding spending we have today against those initiatives, it's about 6% of spend.

Any major medical device company that's going to spend internally on growth initiatives needs to be 25% to a third of their spending on an annual basis.

So you can easily run the math.

If it's 6% today, let's say we're spending $50 million, we've got to be at $250 million to $300 million a year in order to support those programs and shift it to that.

So absolutely we're doing.

In fact we're doing that as we speak and we've done it in this strap plan we just finished.

Okay and maybe just one quick maintenance question for Jeff.

The tax rate for this year on the 19% number, is that a good number to use on a go forward basis?

No.

I would say that's where we keep going back and forth between the operational rate versus the adjusted rate, so a better number is probably more like 20%, 21% going forward post this year.

That's very helpful.

Thank you very much.

Tonya, we've got time, if there's just a couple more questions we've got time for a couple more.

Okay, thank you.

The next question comes from the line of Adam Feinstein of Barclays Capital.

Please go ahead.

Hi, this is Matt for Adam.

Thanks for taking the questions.

Quick one on TAXUS Element and Neurovascular.

Did you give a TAXUS Element revenue number in the quarter?

No, too early.

And on Neurovascular, are you still expecting approval of the coil in the second half?

Late in the second half, near the end of the year is our current best thought on that is correct..

And then a quick one on stents.

You were dinged a little bit by the trialing of Abbott products in Japan.

How quickly do you expect that to ramp back up and where do you think share might shake out there?

Yes, we weren't dinged a little bit.

It's 22% of the entire Japanese market is now locked up in these Abbott trials.

So I don't know what dinged a little bit means to you but that's dinged a lot to me.

And we expect, we don't know what they are going to do.

If they restart another one of these Adventure trials we'll be on for another six months of locking out 20% of the marketplace, so it's hard for us to tell at this point.

What we do know is what I mentioned in the script.

Because we don't control what they do and we're not going to play in that world.

But what is important is of the open marketplace that's available to us, where you can buy PROMUS, Xience, or anybody else's stent that's approved there, we're gaining 50% market share in those accounts.

That's what excites me.

The market study stuff I can't do anything about.

Okay, thank you very much.

Thank you.

Our last question will come from the line of Steve Lichtman with Oppenheimer & Co.

Thank you, hi guys.

Ray, I was wondering if you could talk to the state of the CRM sales force.

You alluded to it earlier, you went to the ship hold and the disciplinary actions.

Do you see the sales force as stable now?

I think it's too early to be stabilized.

I think we'll probably go through a little more turmoil, I would guess.

I hope that's not true but I would think we will because the combination of the two, and for some of these people they've been through this three, four times.

I think it's pretty tough.

So I would like to see it stabilize through the end of the year, but I don't know it can be completely stabilized at this point.

To the extent we do have that issue, we have to get out there with our strategic plan story, get it public, do the Analyst Day and obviously attract or be more easily able to attract some great folks back in to replace those roles.

I think that's probably where we're at.

Thanks, and one follow-up on ICD.

In terms of market growth how much do you peg right now initial implants are contributing in the US versus replacements?

And any concern that your replacements could see a slowdown as you get to the five year anniversary of the Guidant recalls?

I don't have the current percentages in front of me to answer the first part of your question.

We can dig that out for you and try and have a look at that after the fact.

The only concern we would have is we ran the graphs and numbers on the period of time when we went through some of the recalls when it was Guidant and so on.

And obviously we do get hurt by some of that through the replacement period.

However, we've calculated that into our planning and we've offset that by what we feel is going to be the beginnings of the take up as we get the indication.

And of course on a dollar, sale and basis and margin, you're talking about $6,000 or $7,000 uplifts in price versus some decline in replacements due to those prior year periods, so the net effect, Steve, for us, is not unduly negative.

I think people just focus on that replacement old Guidant story, do the math and say, gee, these guys at Boston will be down on replacements.

I think they forget to add in that second part because again at $7,000 apiece at these margins, that more than makes up for replacement losses.

Got it.

Makes sense.

Thanks, Ray.

Tonya, with that we'll conclude the call and I'd like to thank everybody who joined us today and for your continued interest in Boston Scientific.

Prior to you disconnecting, Tonya will give you all of the pertinent details relative to the replay of this call.

Thank you.

Thank you.

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You may access the AT&T executive playback service at any time by dialing 1-800-475-6701 and entering the access code 161762.

International participants may dial 320-365-3844.

Those numbers again are 1-800-475-6701 and 320-365-3844.

The replay access code is 161762.

That does conclude the conference for today.

Thank you for your participation and for using AT&T executive teleconference service.

You may now disconnect.