Boston Scientific Corp (BSX) 2011 Q1 法說會逐字稿

Welcome to the Boston Scientific Q1 2011 earnings conference call.

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

Later we will conduct a question and answer session.

Instructions will be given at that time.

(Operator Instructions).

As a reminder, the conference is being recorded.

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

Sean Wirtjes.

Please go ahead.

Thank you Tamia.

Good morning everyone.

Thanks for joining us.

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

We issued a press release yesterday announcing our first quarter 2011 results, which included key financials and reconciliations of the non-GAAP financial measures used in the release.

We have posted a copy of the press release as well as reconciliations of the non-GAAP financial measures used in today's conference call and other supporting schedules to the Investor Relations section of our website under the heading Financial Information.

The agenda for this morning's call will include a review of the first quarter financial results, as well as Q2 and updated full year 2011 guidance from Jeff, an update on our business performance in the quarter from Ray, followed by his perspective on the quarter overall.

We will then open it up to questions.

We will also be joined during the question and answer session today by Sam Leno, Executive Vice President and Chief Operations Officer, Ken Pucel, Executive Vice President, Global Operations and Technology, Mike Phalen, Executive Vice President and President International, Hank Kucheman, Executive Vice President and Group President CRV,David Pierce, Senior Vice President and President of our Endoscopy business.

John Pedersen, Senior Vice President and President of our Urology and Womens 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.

Keith Dawkins, Chief Medical Officer for our CRV Group, and Dr.

Ken Stein, Chief Medical Officer for CRM.

Before we begin, I would like to remind everyone that this call contains forward-looking statements within the meaning of Federal Securities laws, which may be identified by words like anticipate, expect, project, believe, plan, estimate, intend and similar words.

These forward-looking statements include among other things, statements regarding our expected market share, growth projections, markets for our products, new product approvals, launches and sales, competitive offerings, clinical trials, the regulatory environment applicable to us and our products, our liquidity and financial position, the strength of our balance sheet and cash flows, our future financial performance including expected net sales, margins, earnings and tax rates for the second quarter and full year 2011, our goodwill impairment charges, the timing and effect of our restructuring activities and power growth strategy, including our priority growth initiatives and our views on litigation.

We caution you that actual results may differ materially from those discussed or implied in these forward-looking statements.

Factors that may cause such differences include among other things, future economic competitive reimbursement and regulatory conditions, clinical trial results, intellectual property rights, litigation, financial market conditions, future business decisions made by us and our competitors, and the other factors described in the Risk Factors section in our most recent filed with the SEC, which we may update in our 10-Qs that we filed or will file hereafter.

These forward-looking statements speak only as of the date hereof, and we disclaim any intention or obligation to update them.

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

Jeff?

Thanks, Sean.

Let me begin by providing some overall perspective on the quarter before getting into the details.

We had a very good quarter, earning $0.22 of adjusted earnings per share, well above our guidance range of $0.07 to $0.10 and the Street consensus of $0.11.

Within the quarter there were a number of unanticipated benefits which I will describe in more detail in a few moments.

Excluding those unanticipated items we still had a very strong quarter which exceeded our expectations, driven by solid revenue performance in most businesses, and continued strong attention to cost control.

We also did record the anticipated gain on the Neurovascular business which generated a pretax gain of $759 million.

The one area of disappoint in the quarter was the trend in the CRM market.

Actual US defibrillator market data for the fourth quarter of 2010 which became available late in the first quarter of 2011, as well as the expected market trends in the first quarter point to a deterioration in the US CRM defibrillator market growth rate to a negative mid single-digit number including the impact of price.

Based on our market checks we believe a variety of temporary factors, including the recent JAMA article, DOJ investigations and rack audits, as well as physician alignment to hospitals, all contributed to putting short-term pressure on the defibrillator market.

Given the goodwill balance associated with the purchase of Guidant, we are required to evaluate the recoverability of that goodwill whenever indicators exist that an impairment may have occurred.

The recent pressures on the market forced us to perform an interim test of our US CRM goodwill in Q1, primarily as a result of the drop in the market size and short term market growth rate, we have lowered our assumptions for growth for our US CRM defibrillator business which resulted in an estimated goodwill impairment charge of $723 million in the first quarter.

We expect the final charge including the $723 million to be in the range of $650 million to $800 million once we finish the remainder of the work around this estimate.

As a reminder, this is a noncash charge with no tax consequences, and has no impact on our expected cash flows or our bank covenant ratios.

We will continue to monitor this and all of our goodwill balances for potential impairments as required going forward.

We continue to make very strong progress on a number of fronts in executing our strategy.

This progress is beginning to show in a number of areas.

Let me now move to a detailed review of the operating results to discuss the quarter, and highlight the progress being made.

Consolidated revenue for the first quarter was $1.925 billion versus our guidance range of $1.825 billion to $1.925 billion, and represents a decline of 2% on a reported basis, and 3% in constant currency compared to the first quarter last year.

Compared to the $10 million of fibrial foreign exchange assumed in our first quarter guidance range, FX had a $33 million positive impact on our first quarter sales, which positively affected our reported revenue by $23 million.

In addition the Neurovascular divestiture negatively impacted revenue growth by approximately 250 basis points, or $53 million year-over-year, and we estimate that the defib ship hold and product removal actions in Q1 last year increased our revenue growth rate by approximately 240 basis points or $51 million in the quarter after considering the estimated share impact on Q1 of this year.

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

Worldwide DES revenue came in at $379 million, including the negative impact of a $10 million sales returns reserve relating to the US launch of ION or TAXUS Element.

This exceeded our guidance range of $345 million to $375 million, and represents a reported decrease of 7%, and a constant currency decrease of 9% compared to the first quarter of 2010.

Our worldwide DES revenue includes $89 million for TAXUS and TAXUS Element, $193 million for PROMUS, and $97 million for PROMUS Element.

Our worldwide TAXUS/PROMUS/PROMUS Element split for the quarter was 24/51/25.

We continued to sustain our worldwide DES leadership during the first quarter.

Excluding the impact of the sales return reserve in the US, we estimate that our global market share was 36%, which we estimate to be about 8 percentage points higher than our nearest competitor and flat for last quarter.

US DES revenue was $184 million near the mid-point of our guidance range of $175 million to $190 million, and 13% lower than the first quarter of last year driven primarily by pricing pressure.

This includes $48 million of TAXUS and $136 million of PROMUS revenue, and represents a 26/74 mix of TAXUS and PROMUS in the US, compared to a 38/62 mix a year ago.

Excluding the impact of the $10 million sales returns reserve for the ION/TAXUS Element we estimate that our US DES share was 46% for the quarter, with 14 share points of TAXUS and 32 share points of PROMUS.

Our US DES share has been stable now for the last six quarters, and we continue to maintain drug eluting stent market share leadership in a competitive US market, with more than 15 more market share points than our nearest competitor, excluding the ION reserve.

Based on our estimates of the US market for the first quarter we believe that Abbott's share was approximately 31%, while J&J and Medtronic achieved approximately 10% and 13% respectively.

Given the success of our PROMUS Element platform in Europe coupled with both our commercial strength and the challenges facing one of our competitors, we believe we are very well-positioned to take share in the US with the introduction of the ION stent.

This will position us very well in the marketplace for our planned launch of PROMUS Element, which is on or ahead of schedule for a mid-2012 launch.

International DES sales of $195 million exceeded the high end of our guidance range of $170 million to $185 million by $10 million, and represent a reported decrease of 1%, and a decrease of 5% on a constant currency basis.

This includes $41 million in TAXUS, $57 million in PROMUS, and $97 million in PROMUS Element sales, and represents a 21/29/50 mix of TAXUS, PROMUS, PROMUS Element internationally.

We continue to run ahead of plan in Europe on the strength of continued strong adoption of the PROMUS Element platform.

We estimate that our DES market share in EMEA for the first quarter was approximately 33%, which is up one share point compared to the prior quarter.

TAXUS market share was approximately 7% with revenues of $17 million, and PROMUS market share was approximately 1% with revenue of $2 million.

PROMUS Element exited the quarter with market share of approximately 26%, and revenue of $62 million.

Together this represents a TAXUS, PROMUS, PROMUS Element mix in EMEA of 21/2/77.

We continue to be very pleased with the market acceptance of the Element platform in EMEA.

It now comprises 87% of our DES product mix in the region driven by its market leading alloy and stent design which improves ease of use.

Through the success of PROMUS Element and the TAXUS platform, we have driven 98% of our DES product mix in EMEA back to self-manufactured parts.

It is important to note that we believe that we continued to take share with PROMUS Element during the quarter despite not having the stent available in all countries, not being on all tenders, as well as not having the Platinum primary end point data.

With the recent introduction of TAXUS Element, the success of PROMUS Element coupled with the recent data and access to more accounts, we expect that our unique ability to deliver two different drugs via multiple stent platforms will allow us to expand our position further in that market.

Our DES share in Japan was an estimated 37% down 700 basis points from the first quarter of 2010 with revenue of $56 million.

On a sequential basis our share was flat to Q4 of 2010.

The decrease in share compared to the prior year was primarily driven by the number of accounts participating in the Abbott reset trial during the middle of last year.

TAXUS market share in Q1 2011 was approximately 6% with revenue of $8 million, and PROMUS market share was approximately 31% with revenue of $48 million.

Together this represents a TAXUS/PROMUS mix in Japan of 14/86.

We estimate that Abbott's share of 42%, Medtronic's share at 9%, and J&J's share at 12% during the quarter.

In the short-term we expect to face some incremental pressure on our share in Japan, as a result of the anticipated launch of a local competitor's stent in the coming months, until we gain approval of PROMUS Element, which is anticipated in mid-2012.

We estimate our intercontinental DES share increased 200 basis points to about 23% during the first quarter, with the share split 6% TAXUS, $16 million of revenue, 3% PROMUS with $7 million in revenue, and 14% PROMUS Element with $35 million in revenue.

Or a TAXUS/PROMUS/PROMUS Element mix of 28/12/60.

The growth in this region is being driven by the rollout and strong acceptance of PROMUS Element in key focus countries, such as India and Brazil.

The global DES market share of 36%, we maintain 8 percentage points of share advantage over our nearest competitor.

Our strong commercial team is focused on the only two drug platform in the industry, and when you couple that with the continued strong adoption of the PROMUS Element and TAXUS Element stents, and the upcoming launch of ION in the US, we expect to increase our market share leadership going forward.

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

We estimate that the worldwide DES market in Q1 at approximately $1.074 billion, which is down 2% on a reported basis, and 4% on a constant currency basis versus Q1 2010.

Our estimated worldwide market in the quarter includes a worldwide unit volume increase of approximately 8%, driven by a 9% increase in PCI volume, and a 1% increase in penetration,offset by a worldwide market decline in average selling prices of approximately 8% in the US, and the low-double digits internationally.

The US DES market is estimated to be about $422 million for the first quarter, representing a decrease of approximately 8% from the first quarter of last year.

This consists of a slight unit volume increase which includes a slight increase in PCI volume, and slight decrease in penetration levels.

This unit volume increase was offset by an approximately 8% decline in ASPs.

During the quarter we saw our US DES ASPs fall slightly more than the aggregate market declines, with TAXUS and PROMUS down about 12% and 9% respectively compared to the first quarter of 2010.

US PCI volume in the quarter was approximately 260,000 procedures, up 1% compared to the first quarter of 2010.

We estimate that the US DES penetration of 76% was down 1 percentage point compared to the first quarter of 2010.

Combined with stented procedure rates and stents per procedure, we estimate that the total market for US stents in Q1 2011 was approximately 349,000 units including the 267,000 units of DES.

We estimate that international DES market at $652 million for the quarter, up about 3% on a reported basis but essentially flat on a constant currency basis.

Compared to the first quarter of last year, this consists of a unit volume increase of approximately 13% which includes a 13% increase in PCI volume, and a 2 percentage point in increase in penetration.

This unit volume increase was largely offset by a decline in ASPs.

Procedures were strong in the quarter with approximately 666,000 PCI procedures, including 369,000 procedures in EMEA, 59,000 procedures in Japan, and 237,000 procedures in Intercontinental.

We estimate that international DES penetration of 63% was up 2 percentage points over the first quarter of 2010, including 58% in EMEA, 74% in Japan, and 69% in the Intercontinental region.

Worldwide CRM revenue was $559 million in the first quarter, representing a reported increase of 4%, and a constant currency increase of 3% compared to the first quarter of 2010.

We estimate that our worldwide CRM share was down 80 basis points sequentially at just under 20%.

US CRM revenue of $339 million represents a 4% increase from the prior year, principally due to the defib ship hold and product removal actions.

The year-over-year benefit of the ship hold was offset somewhat by lower than anticipated defibrillator growth as discussed earlier.

International CRM sales of $220 million were up 4% on a reported basis, and up 1% in constant currency compared to the prior quarter.

Worldwide defibrillator sales of $417 million were in the lower half of our guidance range of $410 million to $440 million.

This represents a reported increase of 7%, and a constant currency increase of 6% from Q1 2010.

US defib sales were $266 million which was below our guidance range of $270 million to $290 million, and represents an 8% increase from last year, impacted by the stop ship issue and the market softness.

International defib sales of $151 million exceeded the high end of our guidance range of $140 million to $150 million, representing a 5% reported increase from last year, and up 3% in constant currency.

The growth in international defib tips to be driven by very strong market acceptance of our cognizant intelligent devices, and our new Foresight lead, as we continue to advance these products in geographies around the world.

On a worldwide basis our Endoscopy business grew 8% in constant currency in the first quarter.

Growth in the US was 3% despite downward pressure from the softness in elected procedures and challenging comparables due to very strong product releases in Q1 of last year.

Internationally endoscopy sales grew 13% with broad-based strength across all geographies, driven by new product introductions, expanded indications, and strong sales execution.

Our Urology and Women's Health business grew 5% in constant currency terms in the first quarter.

The Urology business business delivered another solid quarter with 8% worldwide growth, while our Women's Health business declined 1%, due to a relatively flat elective procedure environment, and competitive new product trialing in our pelvic floor business, largely offset by very strong acceptance of our new Genesys HTA product.

Internationally Urology and Women's Health experienced double-digit growth driven by new product introductions, increased sales investments, and the penetration of new therapies into markets outside the United States.

Our worldwide Neuromodulation business grew 14% in the first quarter, driven by new product introductions and continued strong international growth.

It was a very strong start to the year for neuromodulation supported by the launch of our unique Clik mechanical anchor in the US, as well as continued robust reception of new technologies we introduced last year.

In constant currency terms our worldwide peripheral intervention business was up 4% in Q1, including international growth of 7%, on the strength of recently introduced new products, such as our epic self-expanding stent.

Nonstent interventional cardiology was down 14%, and electrophysiology was down 4%.

We have continued to see a lag in some of these businesses in recent quarters, as a result of procedural softness, increased pricing pressures, delays in our new products as well as competitive product launches.

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

Reported gross margin for the quarter was 57.2%.

Adjusted gross profit margin for the quarter excluding restructuring related charges was 67.8%, which was 90 basis point higher than the first quarter of 2010.

The 90 basis points relative increase from last year was primarily attributable to a positive impact of a $50 million true-up relating to historical amounts paid under a third-party supply arrangement for PROMUS, and to a lesser extent foreign exchange and higher sales of PROMUS Element in EMEA.

These factors were partially offset by the negative impact of the shift in DES mix from TAXUS to PROMUS, as well as lower volumes in margins related to the divested neurovascular business.

While the impact of the supply arrangement true-up drove Q1 gross margins above our previous guidance range of 65% to 66%, we expect gross margins for the remainder of the year to be more in line with this guidance.

Our reported SG&A expenses in the first quarter were $596 million.

Adjusted SG&A expenses excluding restructuring related items were $592 million, or 30.8% of sales, this compares to $627 million in the first quarter of 2010.

The primary drivers of the decrease were lower expenses due to the divestiture of the neurovascular business, and the release of approximately $20 million in bad debt reserves related to fully reserved Accounts Receivable collected in Greece.

Given the challenges occurring in Greece, we have taken a conservative stance on both existing receivables and the timing of revenue recognition on new sales.

During the quarter we took advantage of an opportunity to liquidate receivables that resulted in a better outcome than expected.

This was partially offset by higher spending on strategic growth initiatives primarily in emerging markets, as well as costs related to recently acquired businesses and FX.

Going forward we expect our SG&A spend as a percentage of sales to be closer to our guidance range of 33% to 34%, as we continue to ramp up our investment initiatives in key areas, such as emerging markets as well as the impact of acquisitions.

Both reported and adjusted Research & Development expenses were $212 million for the first quarter, or 11% of sales.

The reduction during the quarter related to lower expenses due to the divestiture of the neurovascular business, and the benefit of some of our restructuring efforts, as well as delays in some of our clinical trials.

This is partially offset by costs relating to recently acquired businesses.

We expect R&D spending to increase as we progress through the year given the timing of our initiatives ending the year closer to a $1 billion annual run rate.

Royalty expense was $51 million, or 2.6% of sales in both the first quarter of this year and Q1 a year ago.

We reported GAAP pretax operating income of $296 million for the first quarter.

On an adjusted basis excluding the net credits relating to acquisition and divestiture activity, restructuring related charges, amortization expense and the goodwill impairment charge, adjusted operating income for the quarter $451 million and 23.4% of sales, up 400 basis points from Q1 2010.

The increase versus the prior quarter is primarily related to lower SG&A and R&D expenses, as well as higher gross margins as discussed earlier.

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

We recorded a divestiture related gain of $759 million pretax, or $530 million after tax during the quarter.

We recorded a $723 million goodwill impairment charge on both a pretax and after tax basis related to our US CRM business.

We recorded $50 million pretax or $30 million after tax of restructuring related charges in the quarter, which are primarily related to severance, product transfer expenses, and certain other costs in connection with our previously announced plant network optimization and alignment for growth programs.

Total amortization expense was $132 million pretax or $114 million after tax.

We recorded acquisition related charges of $9 million on both a pretax and after tax basis.

We recorded favorable discrete tax items with an after tax impact of $4 million.

The net cumulative affect of all these items was $155 million pretax and $354 million, or $0.23 per share after tax.

Let me now move on to Other Income & Expense.

Interest expense was $75 million in the first quarter, which was $18 million lower than Q1 2010.

The lower interest expense is primarily due to $1.1 billion of debt repayment during the last four months alone, and a lower average interest rate as a result of fixed to floating swaps executed during the quarter.

Our average interest expense rate in Q1 2011 was 5.3%, or 40 basis points lower than Q1 2010.

Other net was $26 million of income in the first quarter, compared to $4 million of income in Q1 2010.

The first quarter 2011 other net included $4 million of interest income and $22 million of other income primarily related to gains on the remeasurement of preacquisition equity interests we held in certain companies we acquired during the quarter, offset by the write-down of certain investments.

Interest income for Q1 2011 was $4 million lower than Q1 2010, primarily due to lower collection of interest on past due receivables in Spain.

Our tax rate for the first quarter was 92% on a reported GAAP basis of 7.6% on an adjusted basis.

Our adjusted tax rate for the first quarter reflected a $23 million benefit from discrete tax items.

These discrete benefits were primarily attributable to the release of valuation allowances on both Puerto Rico R&D tax credits and Greece net operating losses.

Excluding these discrete benefits we had an operational tax rate for the first quarter of approximately 13.8%.

This rate reflects our full year operational tax rate of 18%, reduced by timing items in the quarter we which we expect to reverse in Q2 through Q4.

Resulting in an expected tax rate of 18% in Q2 and closer to 20% in Q3 and Q4.

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

GAAP results for Q1 this year included the previously discussed goodwill impairment charge, acquisition and divestiture related net credits, restructuring related charges, discrete tax items and amortization expense, as well as $38 million on both a pre and after tax basis, or $0.02 a share, and acquisition related credits including other income and expense.

Our adjusted EPS in the first quarter excludes these items was 22%, and was above the high end of our guidance range of $0.07 to $0.10 per share, driven by favorable operating expenses due to operating discipline and timing of events, as well as several items that we will discuss in more detail shortly.

Adjusted EPS for the first quarter of 2010 was $0.16 a share.

As a reminder, adjusted EPS in the first quarter of 2010 excludes $1.25 per share of goodwill and intangible asset impairment charges,$0.14 per share of acquisition related net credits, $0.07 per share of amortization,and $0.03 per share of restructuring related charges.

Stock compensation was $32 million, and all per share calculations were computed using 1.5 billion shares outstanding.

DSO was 62 days, two days unfavorable to the first quarter 2010.

The year-over-year increase was primarily due to unfavorable FX as well as some weakness in EMEA cash collections.

Days of inventory on hand were 119 days, down four days from prior year.

These improvements were partially due to inventory reductions attributable to the neurovascular divestiture.

We continue to work on reducing our inventory levels despite the required investments to support our new product introductions and plant network optimization initiatives.

Reported operating cash flow in the quarter was an outflow of $97 million, compared to outflow of $284 million in Q1 2010.

Q1 2011 cash flow included the $296 million of Minnesota DOJ settlement,$31 million in tax audit settlements, and $33 million of restructuring payments.

Q1 2010 cash flow included a $250 million receipt from Abbott related to the approval of the Xience stent in Japan, a $1 billion payment related to the settlement of certain patent disputes of J&J, and $33 million of restructuring payments.

Excluding these items Q1 2011 operating cash flow was $262 million, or $237 million lower than Q1 2010, primarily due to the lower net tax refunds, and the timing of the interest payments related to our December 2009 bond issuance,partially offset by higher adjusted operating profit.

Capital expenditures were $72 million in the quarter, which were consistent with Q1 2010.

Reported free cash flow was an outflow of $170 million in the quarter, compared to an outflow of $353 million in Q1 2010.

In January of 2011, we received over $1.4 billion of the total $1.5 billion proceeds from the divestiture of the neurovascular business to Stryker, and used a portion of the proceeds to acquire Sadra Medical, Intellect Medical, ReVascular Therapeutics, and Atritech.

We used $500 million to repay our $250 million 4.25% senior notes at maturity, and prepaid $250 million of our bank term loan, reducing our debt balance from $5.4 billion to $4.9 billion as of March 31.

In April, we repaid another $250 million of the bank term loan,further reducing our debt balance to $4.7 billion.

The sale of our neurovascular business and our continued debt repayment provide us with increased flexibility to fund our priority growth initiatives, accelerate revenue growth, improve our leverage and enhance our credit profile.

We are committed to delevering and achieving our total debt target of around $4 billion by the end of the year, due to our expected strong free cash flow generation.

At the end of Q1 2011 our credit facility covenant debt to EBITDA ratio was 1.7 times, well below the maximum permitted level of 3.85 times, representing over $1.6 billion of EBITDA safety margin.

At March 31 we had access to significant liquidity of approximately $3 billion, including close to $600 million of cash and $2.4 billion of credit facilities.

Before we get into guidance let me highlight some specific items that benefited our Q1 performance and provide some perspective on our outlook for the rest of the year.

The items impacting Q1 performance included roughly $0.04 of combined benefit from third-party supply arrangement true-up and the Greece recoveries,roughly $0.02 positive impact from discrete tax benefits, approximately$0.03 positive impact related to the timing of certain operating expenses, and approximately $0.01 positive benefit from our Q1 performance in Japan.

Without these items we still would have exceeded both our guidance range and consensus for the quarter.

Looking out over the remainder of 2011 we do expect some operating leverage favorability to carry through from Q1 and are also pursuing additional opportunities to further reduce OpEx.

However, we are facing headwinds in several of our markets most notably CRM as discussed.

As a result we are being conservative in our assumptions regarding actual realization of benefits related to those operational cost savings opportunities until we see more of the year play out.

Let me now walk you through our guidance for the second quarter as well as revised guidance for the full year.

We expect Q2 consolidated revenues to be in the range of $1.920 billion to $2 billion, which is flat to up 4% from the $1.928 billion recorded in the second quarter of 2010.

If current foreign exchange rates hold constant through the second quarter the tailwind from FX should be approximately $76 million, or 4% related to the Q2 2010.

On a constant currency basis and excluding the impact of the 2010 ship hold and the neurovascular divestiture, consolidated sales should be in the range of flat to down 4%.

For DES we are targeting worldwide revenue to be in a range of $385 million to $410 million, with US revenue of $195 million to $210 million, and OUS revenue of $190 million to $200 million.

For our defibrillator business we expect revenues of $405 million to $425 million worldwide, with $255 million to $270 million in the US, and $150 million to $155 million outside the US.

For the second quarter, adjusted EPS excluding charges related to acquisitions, restructuring, and amortization expense are expected to be in a range of $0.12 to $0.15 per share.

GAAP EPS for the second quarter of 2011 is expected to be in the range of $0.05 to $0.08 per share.

Included in our GAAP EPS estimate is approximately $0.01 per share of acquisition related charges, $0.01 per share of restructuring related charges, and $0.05 per share of amortization expense.

For the full year the Company now estimates sales will be approximately $7.6 billion to $7.9 billion versus our previous guidance if $7.5 billion to $7.9 billion.

Assuming that current foreign exchange rates hold constant, we expect the tailwind from FX impact to be approximately $169 million.

On a constant currency basis and excluding the impact of the ship hold and the neurovascular divestiture, consolidated 2011 sales should be in a range of flat to down 3%.

Adjusted EPS for the full year is now expected to be in a range of $0.58 to $0.68 per share versus our previous guidance of $0.50 to $0.60 per share.

On a GAAP basis, the Company expects full year EPS in the range of $0.15 to $0.27 per share.

This GAAP estimate includes a charge of $0.47 per share related to the Q1 goodwill impairment, approximately $0.05 to $0.06 per share of restructuring related costs, amortization expense of $0.24 per share, and a credit of $0.34 to $0.35 per share related to the after tax gain on the neurovascular divestiture.

That is it for guidance.

Let me turn it over to Ray for review of the businesses in the quarter, as well as his overall thoughts.

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

Let's begin with our CRV Group, our CRV business is leading the industry in responding to the changes in the delivery of health care and positioning Boston Scientific as a company intensely focused on the care continuum for cardiovascular patients.

Recently a competitor announced that they are following us in moving to a sales structure similar to CRV, including a team focused specifically on the economic customer.

This further validates the rationale behind the formation of the CRV group, and putting us at least a year ahead of the competition.

Our Cross care program has been well received by customers and has already produced significant wins.

We have begun executing on the opportunities at institutions we identified earlier this year, where we believe our unique value proposition will grow BSC's market share.

We continue to involve our selling structure in strategies as part of the alignment for growth plan we announced in February of last year, including the execution of unique sales structured pilot models.

These models are sensitive to economic buyers ACOs, and the future potential for episodic bundled care.

With NCRV we have made real progress on multiple priority growth initiatives, including the acquisitions of Sadra Medical, Atritech, ReVascular Therapeutics, and SI Therapies, as well as an active 18-month old internal program to control drug refractory hypertension through the application of medical devices.

Technologies from some of these in initiatives are being or will be commercialized in 2011.

They are integral to the execution of our power strategy, while playing key roles in the realignment of our portfolio, and setting the stage for future growth.

Percutaneous aortic valve replacement is one of the fastest growing medical device markets, and through the Sadra acquisition we now have the Lotus valve, a truly differentiated repositional and retrievable product that we believe may potentially solve many of the limitations of the existing devices, including perivalvular leakage.

It is our intention to initiate REPRISE, the CE Mark trial for the Lotus valve during the fourth quarter of this year.

The acquisition of Atritech with its novel watchman left atrial appendage closure technology strengthens our cardiovascular product offering for patients with atrial fibrillation who are at high risk for stroke.

The Watchman is a classic Boston Scientific CRV device.

It is a technology that allows to us leverage both the IC and EP facets of the CRV infrastructure to bring Watchman to more patients worldwide.

To date we are ahead of our planned integration of the Atritech team, and we are fully focused on commercialization efforts in international markets.

The Watchman device has a CE mark and regulatory approval in more than 20 countries with case volume growing month over month.

In the US we are on plan with patient enrollments in the PREVAIL confirmatory study.

As we mentioned at our Investor Day last November, we have an internal team focused on the interventional management of patients with drug refractory hypertension.

This fast track dedicated team is focused on producing novel technologies for renal denervation using our proprietary catheter and energy device expertise.

Since this question is often posed, I would emphasize the word proprietary.

Extensive animal studies have been initiated or completed, and we are currently on track to commence our first in man trial in the second half of this year.

We have demonstrated our commitment to realigning CRV for growth with the investments we have made so far.

However, we are not done.

These four are only a subset of the seven CRV related priority growth initiatives discussed at Investor Day last November.

We continue to actively develop internal projects in nearly all of these areas, while also pursuing many external opportunities.

The execution of the Power strategy is a reality at CRV.

Looking at CRM, worldwide defib revenue came in it at the lower end of our guidance at $417 million, in the US we came in slightly below our defib guidance.

While a disappointment and reflected further in the CRM US goodwill charge, we believe our shares essentially remain flat over the last few months.

These estimates are based entirely on our own models, and do not reflect the reporting of all of our competitors.

Japan delivered strong CRM growth during the first quarter, compared to first quarter last year, driven by our Foresight cognizant intelligent products.

In addition to these new products driving growth, we are poised for continued strength in Japan and growing our market share through our partnership with Fukuda Denshi.

Fukuda Denshi will fully ramp up distribution of Boston Scientific CRM products in the second half of this year.

Our technologies continue to prove their importance in the marketplace.

COGNUS and TELIGEN which are still the smallest, thinnest, high energy devices in the world with excellent longevity, continue to be well received.

We also continue to see very positive responses to our Foresight DF four lead system in international markets.

This new lead system is built on our highly effective Reliance defib lead platform and reduces the required implant area within the body, making COGNUS and TELIGEN even smaller.

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

We expect to launch our next generation INCEPTA, ENERGEN and PUNCTUA defibrillators in Europe this quarter, and in the US late this year depending upon final FDA requirements.

These products enhance BSC's position in size, shape and longevity along with advanced algorithms to minimize right ventricular pacing, reduce inappropriate shocks, and apply new heart failure diagnostics in our ICDs.

They also represent our first-tiered CRM product offering, giving physicians and their patients more options while allowing Boston Scientific direct access to lower priced tender segments.

Additionally we expect to launch our next generation INGENIO wireless pacemaker platform, built on the same platform as our existing high voltage devices in Europe and the US late this year or early next year, depending once again on final regulatory requirements.

This new platform is intended to be the start of a series of low voltage Brady launches, and represents our first major new technology introduction in this category in many, many years.

Our worldwide EP business was down 4% in constant currency versus a year ago, due principally to continued product availability constraints with our Chilli II catheter line.

This situation has now been rectified and we have resumed shipments in the US this month.

In addition, we have received CE Mark on our Blazer open irrigated catheter, this product represents our entry into the rapidly growing open irrigated catheter market, and is the only system with total tip cooling design.

This approval is a significant step in the execution of our global afib strategy, and one of 6 internal approved afib focused projects.

We expect these products plus the expansion and development of BSC's global EP sales force and increasing market share of Blazer based products to be drivers of growth for the future.

Now turning to Cardiovascular.

Worldwide DES revenues of $379 million exceeded the top end of our guidance, including continued strong performance from our platinum-chromium platform, with almost $100 million in revenue for PROMUS Element.

During the first quarter we maintained our worldwide DES market share leadership with 8 percentage points more than the nearest competitor.

In the US, DES revenue of $184 million was near the middle of our guidance range.

We reached another major milestone with the platinum results at ACC earlier this month as our PROMUS Element stent met the target lesion failure primary end point of non-inferiority to the PROMUS stent, while showing remarkably low clinical event rates.

We have followed our PROMUS Element PMA with the FDA, and expect to complete our two drug strategy with the Element platform in the US on schedule in mid-2012.

We also expect to launch ION in the near future.

ION is our first US introduction of the Element platform.

We believe ION can grow Boston Scientific's DES share in the US, due to its acute performance advantages, broad sized matrix, and the proven performance of Paclitaxel.

Our market research indicates that around 80% of US interventional cardiologists will try it.

In addition the PERSEUS ATLAS case matched analysis presented at ACC earlier this month, further demonstrated the significant benefits of ION.

In EMEA approximately 98% of our DES revenue in self manufactured product in the first quarter, including more than 87% on the Element platform.

We expect to free grow our DES market share in EMEA this year not that we have PROMUS Element in all countries, and the platinum primary endpoint results have been released.

Last month we also launched Omega, our new bare metal stent on the platinum-chromium Element platform in European countries.

We expect to take share with Omega and believe that this will happen more quickly than with DES products since there are fewer approvals required, and it is easier to get onto the tender processes.

We expect to start the US IDE trial for Omega during the third quarter.

Our EVOLVE clinical trial, which is designed to assess the safety and performance of our fourth generation Synergy stent, completed enrollment four months early, and is now in follow-up in Europe, Australia, and New Zealand.

We look forward to presenting the primary endpoint data from this trial at TCT in November.

Our next steps will be to gain CE Mark approval for Synergy and start the US pivotal trial.

We are excited about Synergy's potential to reduce existing DAPT regimens, and we plan to evaluate this in a future trial.

Turning to our other CV product lines.

Our worldwide nonstent IC core business was down 14% in constant currency in the first quarter, consistent with prior periods.

This decline is largely attributable to share declines in IVUS, and continued price erosion in PTCA balloons.

We maintained our US and worldwide PTCA balloon leadership positions in the first quarter, with 54% and 36% share respectively, and expect to see modest improvements to IVUS results due to technical improvements in the near future.

In our peripheral interventions business we continue to be pleased with our number one worldwide market position.

During the first quarter we generated overall growth of 4% on a constant currency basis, with 7% growth internationally, and 2% growth in the US.

Our worldwide PI stent franchise grew 7%, and was driven by international growth of 13%.

The increasing success of our Epic self-expanding stent in international markets, the crowded WALLSTENT launch in Japan, and the expressed LD vascular launch in the US provide additional momentum.

In our core PI franchise which includes PTA and vascular access we grew sales 3% in the first quarter with 11% growth in vascular access.

The 2010 launches of our Sterling SL and Cryolong PTA products provided share stabilization in our PTA franchise.

Our interventional oncology franchise produced 5% worldwide growth on a constant currency basis, driven by 10% growth in the US.

We are pleased to see the strengthening of growth trends in all three PI segments on a global level in the first quarter, and expect to see continued progress throughout 2011.

Our performance was clearly boosted by the new product launches and multiple geographies mentioned earlier.

We have made very good progress with our PI pipeline over the last quarter.

Our next generation SFA stent INNOVA received full ID approval, and we completed our first patient in the US pivotal trial SUPERNOVA during the quarter.

We also received CE Mark for INNOVA in late March, and began the launch in CE Mark countries in early April, and are core franchise, our Mustang workhorse 035 PTA platform is on track to launch in the second quarter.

We also believe we are on track for a late second half launch of our Panther workhorse 014 PTA platform.

We are making excellent progress with our two acquisitions focused on chronic total occlusions.

Our ReVascular Therapeutics CTO device, now called TRUEPATH received 510-K clearance in the first quarter, and is on track for a mid-year launch.

Our SI Therapy CTO device, now called OFFROAD, is on track for an OUS launch in the fourth quarter.

Recent feedback from the FDA indicates that we will need to conduct a clinical trial to support our 510-K filing.

We expect to begin that clinical trial in early 2012.

In our interventional oncology franchise our Renegade Fathom system launch occurred in the first quarter as planned, our Interlock 035 coil received 510-K clearance in the first quarter, and we began our limited launch in mid-April in both the US and EMEA.

Early feedback on Interlock's performance has been outstanding.

We are now beginning to see the results of our PI rejuvenation strategy, and expect continued strength driven by our robust PI pipeline, and a substantial number of new product launches.

Moving to our Endoscopy business.

The endo business continued to have solid growth in the first quarter, posting an 8% increase worldwide with a 3% growth in the US, and 13% growth internationally.

During the first quarter the metal stent franchise gain had strong results recording a 10% increase internationally.

This performance was led by our WallFlex Biliary RX fully covered stent, which received CE Mark approval for the treatment of benign biliary strictures, as well as the strong adoption of the WallFlex duodenal stent in Japan.

Worldwide growth of 7% was also recorded in our biliary device franchise, supported by growth in our broad portfolio, and driven by the recent launches of both the Advantix biliary plastic stent, and the Expect endoscopic ultrasound aspiration needle.

We plan to launch additional devices in our EUS-FNA platform this quarter.

The hemostasis franchise delivered strong double-digit growth of 15% on the continued adoption and utilization of our current and next generation Resolution Clip technology.

We are pleased with the progress of the integration of our Asthmatx acquisition, and the success we have had with the first full quarter of commercialization of the Alair Bronchial Thermoplasty System.

Let me move on to Urology and Women's Health business which delivered 5% constant currency growth in the quarter.

Our international business continued to gain momentum, with double-digit growth in all four regions.

Our Urology business continued to expand its leadership position, and delivered worldwide growth of 8%.

Our Women's Health business was down 1% in the first quarter, as procedures remained relatively flat compared to last year particularly in the US.

The persistently high US unemployment rate and increasing employee insurance deductibles and cost sharing continue to put pressure on several of these elective procedures.

Additionally, competitive new product launches in both slings and pelvic floor repair impacted our growth, as hospitals initiated new product evaluations.

The US rollout of our next generation Genesys HTA system for the treatment of abnormal uterine bleeding, exceeded our expectations for the first quarter, we continue to believe that the significantly enhanced user interface and ease of operation will enable the business to grow its share of the $400 million worldwide endometrial ablation market.

In Neuromoduation, our spinal cord stimulation franchise achieved an excellent 14% constant currency growth in the first quarter, with 14% growth in US markets and 19% growth in the small underpenetrated international market.

We were excited to announce the launch of the Clik anchor in the first quarter, continuing our momentum in new product introductions.

In fact, in the last 12 months we have launched a total of six new products in Neuromod.

Our latest innovation provides a quick, simple and secure solution to the problem of lead migration.

Together with the splitters we widely launched last year we are driving growth and market gains in spinal cord stimulation by offering Best in Class solutions to physicians and pain patients.

Furthermore we continue to see the benefits from our targeted sales force expansion in the second half of 2010, which has allowed us to grow revenue faster than the overall market and gain market share.

We expect further market share gains during the year as the Clik anchor launch progresses, and builds on the momentum we have seen to date.

As usual I will finish with some overall perspective on the quarter, with we liked, what we didn't like, and some hot topics for take-aways.

I will start with what we liked, number one, we like the continued progress in our priority growth initiatives.

In the quarter we completed our previously announced acquisitions of Sadra and Atritech, providing important new platforms in structural heart and atrial fibrillation.

We expect to begin enrollment in REPRISE for CE Mark trial for Sadra's LOTUS valve in four countries late this year.

For Atritech, enrollment the US PREVAIL trial is on schedule.

This randomized multi-center study compares Watchman to long-term orphan therapy, and will be used together with the PROTECT AF trial to support FDA approval.

Also in the quarter we acquired important neuromodulation technology from Intellect Medical to support our Vercise deep brain stimulation system.

Enrollment in the VANTAGE trial to study the Vercise DBS implant is progressing well.

We also added two new technology platforms from SI Therapies and ReVascular Therapeutics to treat peripheral chronic total occlusions.

Both of these acquisitions complement our world-class portfolio of devices for lower extremity peripheral artery disease.

Finally as mentioned previously the commercialization of Asthmatx is progressing well, in approved markets including the US the Alair Bronchial Thermoplasty System continues to gain awareness and acceptance as a long-term treatment option for severe asthma sufferers.

We launched Alair in Canada during the first quarter, and plan to launch in the UK this quarter, with several other country roll-outs planned this year.

These developments coupled with the sale of our neurovascular business show the strides we have taken over the past six months in realigning our portfolio for future growth.

We also like how we have structured these deals, with an average of less than 50% up front on a series of primarily sales related milestones, that given their target thresholds, we would be thrilled to pay in full.

Our acquisition criteria are consistent and sound.

We will continue to buy or build products we understand, sell them through sales forces we already have.

These products will be least or less invasive,cost or comparatively effective, and where possible reduce or eliminate refractory drug regiments.

Number two, we like the excellent clinical data presented at the recent ACC Conference, and the continued momentum for our platform-chromium stent platform.

ACC 2011 was the most positive cardiology conference we had in recent years, with several clinical presentations supporting the excellent performance of our Element platform, most importantly, we met the primary endpoint of our platinum workhorse trial, moving us closer to approval for PROMUS Element, and a return to self-manufactured PROMUS margins in the US and Japan in mid-2012.

The enhanced acute performance characteristics, including reduced geographic myths and bailout stenting confirms the relevance of improved radiopacity of platinum that is only available with Element.

The results presented at ACC also included a propensity matched analysis of patient level data from the PERSEUS and ATLAS trials that demonstrated significantly lower event rates for the TAXUS Element ION stent compared to TAXUS Liberte.

These data reinforce the clinical benefits of the Element stent, that we have seen in our physician experience in Europe, and demonstrate the successful transfer of both Everolimus and Paclitaxel to the platinum-chromium alloy.

Number three, we like the pace of new product approvals achieved this past quarter, which spanned across multiple businesses and geographies.

Our Omega bare metal stent was approved and launched in CE Mark countries, representing the third offering in our platinum-chromium portfolio.

Initial response has been very favorable, and we believe the acute performance benefits of platinum-chromium on our bare metal platform will continue to be well-received, particularly in the European market where bare metal stents still play a larger role.

In India we launched PROMUS Element to be closely followed by TAXUS Element this quarter,bringing our third generation platinum-chromium technology to an important emerging growth market.

The feedback has been extremely positive to date.

This quarter we also announced the availability of Renegade high-flow Fathom preloaded system used in peripheral embolization procedures.

It offers vascular and interventional radiologists excellent deliverability and torque to provide efficient access in tortuous vessels.

Also in our PI business, we received CM Mark and began European launch of the next generation INNOVA stent for SFA and PPA lesions.

The first INNOVA patient in the US was enrolled in the pivotal SUPERNOVA trial to support FDA approval showing continued progress for our internal PI pipeline.

In neuromodulation we launched the Clik anchor for the Precision Plus spinal cord stimulator.

It is designed to improve the speed and consistency of lead anchoring procedures.

While our six acquisitions have made headlines, we have also nearly doubled the number of internal pipeline projects to more than 150 in less than two years, while making both clinical spend and R&D productivity significantly better.

We expect to continue with a number of critical new product introductions in the second quarter including the US launch of the ION platinum-chromium stent, as well as the full European launch of our next generation INCEPTA, ENERGEN, and PUNCTUA defibrillators.

Number four, we like the continued improvement in the strength of our balance sheet, including the prepayment of another $250 million this week.

We now reduced the gross debt balance to $4.7 billion, which is clearly within range of our target of $4 billion.

We are also ever closer to achieving our leverage goal of 1.5 to 2 times debt to EBITDA, which is consistent with a strong investment grade credit rating.

Our increased financial flexibility has enabled us to act upon several strategic goals, including targeted priority growth acquisitions, R&D spending, reallocation and investments in emerging markets.

Continued discipline will help us achieve our Power strategy and fulfill our broader goals of restoring profitable growth and increasing shareholder value.

Number five, we liked our continued progress in emerging markets.

Revenues and operating income in our two most important markets China and India, were well above plan in the first quarter.

Our investment there in people and infrastructure is proceeding rapidly, and we are on-target to meet our ambitious hiring goals for the year, including almost 100 employees hired and roles filled in the first quarter alone.

We are actively involved in physician training, customer outreach events, and cardiology congresses that are building brand strength and key opinion leader confidence.

One prominent interventional cardiologist said that India Live, which is India's largest IC Congress, should have been renamed BSC Live with our 2011 return to prominence.

We are sustaining a strong cadence of new product approvals and launches including COGNUS, TELIGEN, and PROMUS Element in India, and our ALTRUA pacemaker in China.

We are also investing some $4 million of India and China based clinical trials to support product approvals and indication expansion, we have strong enrollment in the platinum China trials to support approval of PROMUS element in that country.

In India, the 1,800 patient TUXEDO trial will begin later this year, comparing TAXUS Element to Xience Prime head-to-head in diabetic patients.

Because more than 40 million Indians have diabetes, we feel the advantages of paclitaxel and the platinum-chromium platform could be a success story, that will reverse the diminished view and market share, not only in India but in many countries.

If the trial proves to be positive, the TAXUS comeback could be the stuff of legends and stories of its death are not only premature, but simply wrong.

We are also waiting approval to begin enrollment in an allcomers registry to evaluate the safety and performance of the PROMUS Element stent in India.

Under dislikes the number one and really only serious dislike is the disappointing growth in the US CRM market.

As mentioned earlier we now expect this market to decline in mid-single digits in the near term, but return to flattish growth medium term.

Pricing pressure continues to be a challenge but we are now also seeing evidence of weakening implant volumes in the US.

We believe physician reaction to JAMA study results in early January, and the DOJ and local inquiries into ICD implant appropriateness of use, is contributing to this, but we don't believe they will be long lasting.

While our US CRM share remains stable sequentially, the US market is down mid-single digits compared to the first quarter of last year.

We have taken the US CRM goodwill write-down predominately as a result of our future view of the market in its entirety, including all of the various players.

Let me finish with some hot topics I would like to cover before we move on to Q&A.

First I would like to address the ongoing crisis in Japan.

We were all shocked five weeks ago to hear the news of the devastating earthquake and tsunami that struck northern Japan.

Coupled with the ensuing aftershocks and nuclear fallout, this has been a tragedy of unprecedented scale.

On behalf of the entire Company, we wish to express our sincere condolences to the people of Japan, as they cope during this difficult time.

We are extremely grateful that all of our employees in Japan have been accounted for, and that none were killed or injured.

The safety of our employees and their families remains our top concern, and we continue to focus on addressing their needs and those of the physicians and patients we support.

Our employees and the Japanese people have shown remarkable bravery, resilience and fortitude in dealing with the stress and uncertainty of the disaster.

For example, shortly after the earthquake two of our employees drove into the hard hit area of Sendai, to deliver emergency food, water and medical supplies to many of their stranded coworkers.

They were able to move some of the affected families and offer much needed assistance, and comfort to others in need.

In addition, they provided a first hand damage assessment, and helped determine how best to set up temporary office space.

We are truly grateful for such incredible individual efforts, and proud that they are part of our global family.

Our team in Japan has shared dozens of other stories of employees interrupted from their daily routines and asked to perform tasks well outside of their areas of responsibility or expertise.

True to all of our Japan team has proved that our supply chain is Best-in-Class by continuing to deliver much needed product with minimal disruptions.

We are proud of what they have done, and how they continue to persevere through this crisis.

Our focus remains with our people but Japan's first quarter sales were nothing short of remarkable given the circumstances.

We remain optimistic and hopeful for their continued recovery.

Second hot topic relates to recent developments in GPO contracting, while we are aware of GPO contract cancellations by our CRM competitors, these actions have not impacted our overall strategy.

First of all, we are not aware of the circumstances that drove our competitor's decisions with regards to GPOs, contract negotiations between product suppliers and GPOs are complex by nature, due partly to issues of contract compliance, pricing issues, fees and recent demands for greater price transparency.

However through candid discussions we have always found ample common ground and value to reach agreements with the majority of our GPOs.

Regardless, the GPO business model is increasingly being challenged by its own members to require the ability to negotiate locally, especially for physician preference items, which include many of our products.

Based upon our recent analysis, Boston Scientific continues to benefit from positive long-term relationships with our GPO customers.

Third hot topic is the recent CMS proposal to establish new rules for Accountable Care Organizations, or ACOs.

Under health care reform enacted last year, Congress established the shared services program to encourage the formation of ACOs, through participation in them, healthcare providers would be incentivized to work collaboratively to improve the quality of care for Medicare patients while reducing overall spending.

In return, ACOs will be eligible to receive a portion of the realized savings, encouraging providers to optimize care and resources.

The proposal details how ACOs may be created, operated and organized.

Asexpected the rule allows ACOs to share savings they generate below a specific spending target set by CMS for each ACO.

However, CMS is also proposing that ACOs be accountable for downside risk, forcing them to repay Medicare for a portion of the losses, or spending above the set target.

The new rules will also have implications for manufacturers like Boston Scientific.

Under an ACO the incentive to control costs could lead to increased pressure on pricing and service terms for medical devices, on the other hand, if the intended policy objectives are realized, ACOs will facilitate greater coordination of care between primary care physicians and specialists, improved coordination could increase screenings and referrals, leading to an increase in procedures.

Incentives to improve quality outcomes and avoid reemissions may become stronger, potentially providing leverage to highlight our technologies and services that help provide or achieve these quality metrics.

We believe our ability to address bundled episodic care with a single payment, the execution of cross care, and our new sales models, as well as 24 number one or number two product segment market share positions, will provide us with a unique edge in this brave new world.

As a last hot topic I would like to address St.

Jude's new Quadripolar lead.

It is designed to work with their CRT devices to reduce phrenic nerve stimulation or PNS, which is a common complication of CRT therapy.

It was recently introduced, rightly so, with much attention and fanfare.

Unfortunately, there appears to be a number of misconceptions regarding its capabilities and performance, particularly compared to our own current Boston Scientific Bipolar LV lead.

First let's look at the facts.

In the published election trial data, we see that Boston Scientific's Bipolar LV leads and devices, which feature electronic repositioning and three proprietary pacing configurations, have the same if not less PNS than St.

Jude's quadripolar LV lead system when compared to their own published data.

Patients with our leads and devices successfully avoided PNS more than 95% of the time.

In contrast according to St.

Jude's own data, they were successful with their quadripolar lead between 89% and 95% of the time.

In terms of dislodgement rates, current Boston Scientific bipolar LV leads have an acute dislodgement rate of less than 1%, based on real world performance data.

In comparison, St.

Jude's quadripolar lead according to one published study had a dislodgement rate of 3.7%.

Furthermore the quadripole data to date shows that physicians essentially program the product as a bipolar lead 96% of the time anyway, bringing into question the real value of this technology for the physicians in the first place particularly at any sort of premium price.

In addition there is no published data to suggest that having a quadripolar lead will improve hemodynamic outcomes, as mentioned earlier, the sametwo poles that are available in our bipolar leads are used with pacing 96% of the time.

Given this and the fact that St.

Jude has no system for interoperative optimization, it would be implausible to suggest that their system achieves better hemodynamics at this point.

This completely negates the unsubstantiated claim that quadripolar leads improve CRT efficacy by reducing the rate of nonresponders.

Furthermore, with BSC's system a patient can benefit from a market leading ten heart failure diagnostics versus only three with the quadripolar and zero physiologic measurements or heart failure alarm.

Our diagnostics include two physiologic measures, weight and blood pressure monitoring, that are clinically proven, physician reimbursable, and lined with guidelines.

Finally we have been hearing claims that the quadripolar leads simplifies the implant procedure, and St.

Jude's own published data there is no significant differences in implant time, fluoroscopy time, or LV lead implant time between their quadripolar and bipolar LV lead cases, once again putting to rest those claims of a so-called simplified procedure.

Physicians consider an entire system when choosing which device to implant.

Boston Scientific has the smallest thinnest device on the market with excellent longevity by about a year and a half versus quadripolar and the most reliable leads.

We have a remote monitoring system that is both reimbursable and has published clinical evidence that demonstrates improved patient outcomes.

Physicians also carefully consider relationships, service and pricing when making an overall implant decision.

While we expect many physicians to try this lead we believe it is very unlikely to result in major market share shifts especially when given time to consider the misconceptions outlined above.

LV lead implantation is one of the most challenging parts of the device implant, requiring implants physicians to have many tools and options.

We believe quadripolar LV leads may compliment but certainly not replace the portfolio of other available options.

In fairness, some of the quadripolar hype does provide real marketing curb appeal initially, but the facts are very different.

The discussion reminds me of a friend of mine on the golf course when I asked him if my remaining 2-foot putt was good, he said it was nice.

Quadripolar is nice.

A simple one page chart summarizing my comments is posted on our website for your ease of reference.

The Boston Scientific turnaround has begun to show its face.

Leadership changes are mostly complete.

The Power strategic plan is being executed along with the priority growth initiatives, both internal and external that support it.

Compliance, litigation and warning letter enterprise risk mitigation is improved and in place.

Debt and operating expenses are down and will come down further.

Our Investor Day aspiration of double-digit EPS growth in the near term, and6% to 7% sales growth in the median term remains intact.

R&D is more efficient and will be more so.

Internal R&D projects nearly doubled to $150 million, while almost $300 million has been shifted to growth.

We have integrated Guidant to form CRV, targeted new sales models for a changing market place and an emerging markets team for a changing world.

The turnaround's heavy lift willing be complete by year end 2011, and much to everyone surprise excluding us, BSC will be back stronger than ever.

With that, I will turn it back to Sean to moderate the Q&A.

Thanks, Ray.

Let's open it up to questions.

In order to enable us to take as many questions as possible in the time we have left, please limit yourself to one question and a related follow-up.

Ray and Jeff will be joined during the Q&A session by Sam and our business presidents and Dr.

Dawkins and Dr.

Stein.

Please go ahead.

Alright.

(Operator Instructions).

And we will begin with the line of Kristen Stewart with Deutsche Bank.

Please go ahead.

Hi.

Thanks for taking my question.

I was just wondering if you could just go back over the goodwill impairment charge just in terms of commenting on what specific growth you are expecting within the CRM market.

Seems that obviously something has significantly changed in your mind, and you talked a little bit about JAMA and the DOJ's being more transitory, but yet the goodwill impairment suggests that there might something more permanent.

So maybe just walk through any additional detail there?

Sure, Kristen.

This is Jeff, so as I mentioned in kind of my introductory comments on the charge, as we received the competitor's data for the fourth quarter which happened in late in February or early March, because Medtronic releases later, and looked at kind of the rate of implants in the US, particularly within the defibrillator business in the US, and as we watched the quarter unfold, and did some market checks, we saw a softening of the rate of implants that had us go back and look at our assumptions that we had done a year ago.

We believe that as a result of some of these which we believe are temporary pressures whether it is the JAMA article or DOJ or the rack audits, or what have you, that those are putting some temporary pressure.

We reduced our expectations for the next couple of years relative to CRM growth, after which point we believe that these temporary pressure is relieved based on the fact that these technologies are underpenetrated in the market, and they come back to a more normal growth, so the CR market in the US would kind of come back to flattish to slightly positive, which is not far off what we assumed originally.

Really kind of a temporary blip in the next couple of years, followed by a return to more normal environment as we expected before.

And Jeff, Kristen it is Ray, I think it is worth commenting too, if you look at the impairment modeling system that is based on a 20-year database, you don't have to tweak the first two or three years very much in order to cause a fairly substantial step two requirement in the impairment process.

So I wouldn't overread it, but just because of the nature of the kind of model that you used which is a requirement.

So for the next couple of years you guys are expecting CRM market growth to be negative is that correct?

US, yes.

US?

Yes.

And how should we take that in terms of the context of your kind of longer term or even medium term growth rates that you have provided at the Analyst Meeting last fall?Seems like since then you have had more negative pricing pressures within the stent business and non-stent IC.

This is an incremental negative.

Do you still feel a high level of conviction on maybe some of the pipeline that it can overcome what seems to be more negatives emerging in the last four or five months.

Kristen, this is Jeff.

It is important to note that we are talking about the US CRM market.

If you look at our US CRM business as a percentage of the total, and you reduce that growth rate but the numbers we are talking about, you are talking about an impact to the total Company's growth rate of approximately 50 basis points.

So our assumptions for the next couple of years are that we a low single-digit growth company, but in all of the factors that we have discussed previously.

Certainly in the short-term that provides a bit of headwind in terms of our assumptions.

However, as we outlined today our DES business is extremely strong.

Stronger than we anticipated that it was going to be.

We certainly have taken more share with PROMUS Element in Europe, we think that there is further upside.

Some of the challenges that our competitors are going through in the US provides us with confidence to say that we think we will take more share when TAXUS Element comes out, and we think that PROMUS Element is on or ahead of schedule.

If you look at all of those factors, there are a number of positive factors that were not reflected in our estimates when we did the Investor Day preparation.

So this thing is going both ways.

And if you think about what we said at the Investor Day, and by the way, nothing has changed from Investor Day.

I have said it many times, I will say it again, nothing has changed.

To Jeff's point, it is low single digits.

We are not 50 basis points smart.

We are not even 100 basis points smart for a start.

There is no implication there.

In the early years, as you recall from being at the Investor Day the first couple of years, are focused on getting to double digit EPS growth and expense control and productivity and R&D, and growth initiatives, and so on, and then, of course, the sales growth comes later.

The simple answer to this is the 50 basis points here although nobody likes taking goodwill write-downs since absolutely no change in what we have told you, nor do we see anything that would cause us to change it.

Great.

Just real quick, Jeff, the positive $0.01 from Japan, what was that exactly that you called out?

We had the benefit in Japan of two things happening.

One, some of our competitors within the endoscopy space manufacture in Japan, so those competitors were off the market for a quarter.

So we had a one-term benefitin terms of, we were called upon we were happy to supply their customers with product, and hopefully that will continue going forward.

We are assuming that doesn't continue.

The other benefit we had relative to the expectations is the local competitor coming out with the new stent was delayed a couple of quarters, therefore we did not have the negative headwind from that.

Excuse, me, a couple of months.

Not two quarters, two months.

Two months, sorry.

Thank you very much.

You are welcome.

Next we go to the line of Bob Hopkins with Bank of America.

Please go ahead.

Hi, thanks.

Can you hear me okay?

Yes, good morning, Bob.

Great, good morning.

Two things.

A question on top line growth and then a question on just understanding the moving parts and margins a little bit.

First of all, on top line growth, you guys just talked about being a low single digit growth company, and that is the aspiration here in the near term.

Right now you are not there.

Right now you are shrinking in the low single digits, even excluding the divestiture.

From here, can you talk about what gets better because your nonstent, nonICD businesses are doing well.

What is it in your view that really gets better that gets you from where you are right now to low-single digit growth?

Well, it is two big things Bob.

One is in the near term, one is DES, where we feel we will fare much better given all of the circumstances going on that we have described, and the other is simply the raft of new products coming out that are going to allow us to perform at a higher level.

So if you look across every division, I don't see a nonIC core, other than some return to prominent of IVUS because we had some technical problems.

I don't see that situation changing dramatically, it wont be there, but DES, CRM in the sense of new product launches in Europe and the products mentioned, and then virtually every other division with new products, if you look at what we just outlined in PI as an example, I haven't written that much material in PI since I have been here, and I doubt if Jim did before that, because there simply wasn't the products to talk about.

So if we execute to plan on DES, if we deliver on the new products, we will be there but a couple of areas or one area for sure like IC core I just, with PTCA Bloom pricing and what not, I just don't see how that area comes back at any time in the near future.

Okay.

The other dimension is geographic.

We announced when we did our guidance at the beginning of year of putting in a substantial investment, $30 million to $40 million in the emerging markets, as well as putting into some of the more mature geographies, to put feet on the street.

A lot of those resources are in place, and as I am sure that you can appreciate, there is a training and orientation period that occurs after which you get the benefit.

As Ray had mentioned in the opening comments, we have made a lot of progress in places like India and China, but a lot of those people have just come through the door and are in training.

We have yet to see the benefit of that, we will start to see that as we hit the back half of the year, and then for next year we will be a much bigger year for the emerging markets, as we have significantly more feet on the street, we have clinical trials that have been done, PROMUS Element has been approved in India, we expect to get approval in China.

There are a number of things that are happening that are expected to drive up the growth rate internationally.

That is a good point, the aspirational goal for, because I think that we have mentioned this number before, for India and China, in terms of sales reps is about 225 people, and we have got more than 100 in house now.

Once you get that filled up and rolling with markets that are growing at 15%, and then add that to the comments I made previously, we should be there consistent with what we advised you.

And then on the operating margin side, can you just, thinking about the adjusted margins for this quarter, and you mentioned there were a few one-timers in there, including that $50 million true-up and such, can you talk about what the gross margin and operating margin would be this quarter excluding those one-time items?

Let's just walk through the P&L.

If you look at the, start with the gross margin line.

We had 67.8% gross margins for the quarter.

If you exclude the $50 million benefit from the supply arrangement from that you come back down to 65%.

Not far off you kind of what we had kind of mention and guided to.

So not really any surprise.

The surprise was that the cost to manufacture that product for kind of the ramp up period was lower than we anticipated.

So that one wasn't far off.

Then as you step through kind of the other elements of the P&L, SG&A was lower, SG&A came in at 30.8%, versus our guidance of 33% to 34%.

So a couple, 200 or 300 basis points, call that a $60 million difference.

Of that $60 million, $20 million was Greece.

The situation in Greece we have been watching for three years now carefully, we and took a very conservative posture based on cash was not coming in.

Receivables were getting longer and longer.

We made a prudent, a conservative decision to reserve some of those receivables, and deal with that business on a cash basis.

What has transpired here is we had a window where the government agrees to offer to buy back receivables at roughly $0.75 on the dollar, and we made a decision to go ahead and liquidate our receivables, which I think will prove to be a pretty good decision.

That was about a $20 million benefit, a third of let's say the delta.

The other two pieces.

One piece is due to in the first quarter we typically have lower expenses due to when merit kicks in, and there is timing of trade shows and other expenses, acquisitions and other things that come through, so that is roughly $20 million.

There are a lot of little pieces in there.

The other $20 million is we have managed our cost base better.

So as we look going forward of you compare our beat, let's say the $0.12 beat relative to the high end of our guidance, so $0.22 versus the $0.10 is a $0.12 excess.

We think roughly $0.10 of that, which I walked through my comments wouldn't necessarily carry forward.

$0.02 might.

Multiply that by $0.02 by 3 and get $0.06.

If you get to the midpoint of our range, we are giving ourselves credit for a penny, on the basis, or $0.03.

$0.01 a quarter, half of that in the event that there is more of a challenge on the top line, or some of those costs are more difficult to kind of keep out of the P&L going forward.

I think we are being a little conservative on the OpEx side.

I was just going to say the same thing.

Internally we don't view this, The $0.22 is great from a cash point of view, so we shouldn't ignore it completely, but we don't view it internally as a $0.22 quarter as you might imagine.

We view it as a $0.12 quarter, a one penny beat against the Street, and two pennies over the top of our own on a decent sales quarter.

That is internally how we not only would discuss it, it is how we do discuss the quarter.

That is very fair to view it as a good sales quarter, notwithstanding the tough CRM in the US.

It is still a good quarter overall in sales relative to guidance and a one penny beat of the Street is how we look at it.

Great, thank you very much.

Bob, the final component is R&D.

Let me finish with that because it is important.

Sure.

R&D was $212 million for the quarter.

In my comments I mentioned by the end of the year we expect to be close to the $1 billion run rate.

That would suggest a step-up over the next three quarters up to kind of a $240 million to $250 million number as we exit the year.

We have a number of programs which we terminated due to our focus on higher growth.

Benefit in the fourth quarter and a little bit more benefit in the first quarter.

So we have a number of new initiatives that are kind of kicking in.

We have the acquisitions that we did.

We have done six acquisitions, some of those from a clinical trial perspective.

We expected to start a little earlier in the first quarter.

We are going to ramp up in the second quarter but we still feel good about these.

There is a bit of a timing issue where you will see the $212 million kind of creep up throughout the year closer to the mid-240ish million range as we end the year.

We have got that by project, and kind of the people are eager to get going on those projects.

There could be some favorability in R&D, but I you don't think a lot of favorability because we have got a lot of things that we are working on.

Great, appreciate the color.

Okay.

The next question from Mike Weinstein from JPMorgan.

Please go ahead.

Thanks guys.

Chris Pasquale here for Mike.

First question in the CRM business, did you have any benefit in the quarter from inventory stocking related to the Fukuda distribution agreement in Japan?

No.

No.

None.

Okay.

Do you expect any as that rams up or is that just going to be a wash?

Go ahead.

We will expect some as they kind of set up their network and their distributions centers and their sales force, but I think as one of our competitors pointed out I think it had negative impact on their business, we think that relationship is going to be a great relationship for us.

That significantly increases our reach into the Japanese market, in terms of feet on the street with a very established player and a very respected distribution partner.

We will see some ramp up as we work our way through the year, but we watch our inventory levels pretty carefully from an accounting perspective, so we don't let kind of inappropriate stocking influence our results unnecessarily.

I think, too, Chris, we would take strong consideration to deferring the revenue if it is over 30 days anyway.

So you wouldn't see a loadup that exceeded that from an accounting point of view.

Okay.

And then, DES pricing seems to be getting incrementally worse over the past couple of quarters.

Do you think that we will see any moderation in that trend as next gen products launch in the US?

And if not, how does that impact your ability to grow gross profits in that business over the next few years, even as you get the positive benefit of the PROMUS Element transition?

I don't know that it is getting that much worse.

I will ask Hank to comment on this as well.

It may be getting a little bit worse but I think we do believe obviously the ability to differentiate product, and all of the competitors are in a very different position right now, in the shifting sands.

Hank, did you want to add some comments to that?

Chris, as I said at the ACC Meeting, I believe that it will continue at pretty much the rates that we are experiencing today.

One of the things that I continue to believe in is that the geography aspects of what we talked about earlier, specifically India, initially are going to help us in terms of increased share, and I believe that with the launches of ION here in the States, here in the near term that is also going to help us in terms of share capture.

If you look at all of those things, there is some pluses and this are some minuses, puts and takes, but I think the net/net of that hopefully will be positive.

And the other thing I would add, Chris, is that when we put together the Investor Day materials, we assumed that the pricing environment would stay pretty challenging in DES, both domestically and internationally at least for the next couple of years.

So I don't think anything we are seeing yet is really causing us much angst on the pricing front.

The vast majority of that was priced into our assumptions.

Okay, thanks.

Our next question comes from Rick Wise from Leerink Swann.

Good morning, everybody.

Hi, Rick.

Let me start off with the balance sheet.

Ray, you and Jeff are both emphasizing the significant progress, the dramatic debt reduction just in these last few months alone, and where you are going to end up.

Can you help us think about when you might get back to investment grade, and the opportunities that might present in terms of, I mean is there an opportunity to refinance debt and get interest expense down further?

Could that be some upside as we look over the next few quarters?

Rick, this is Jeff.

We are riveted on getting back to investment grade, and we have spent quite a lot of time with the rating agencies over the past six to nine months.

And I would say obviously S&P agrees with us, we are already investment grade.

The two ones that are behind we think are Fitch and Moody's.

Having said that, Fitch has us on positive outlook, which means that they feel pretty comfortable that we are going to be investment grade in short order, and I don't think Moody's is far behind.

So I don't anticipate that we would get back to investment grade, I would go out on a limb and say by the end of this year I think is a realistic assumption, perhaps earlier.

We are significantly ahead of where we thought we would be, or at least committed to be by a delevering perspective.

So by the end of this year we expect to be down at $4.1 billion of debt, so on our $4 billion target, which would put us at roughly 2.3 times debt to EBITDA by the end of the year which is clearly, it is not the first notch above investment grade, it is probably two or three notches.

It is BBB+ where those statistics kind of line in.

And as you go through the statistics across most of the rating agency parameters, we are there already.

I don't think there is any debate on that.

I think they are waiting to see some stability in the cash flows, in terms of and revenue for this year, and there is no disagreement that we are not investment grade, and we won't be investment grade in the short-term.

In terms of refinancing the debt, I would sat that once we get down to the $4.1 billion of debt outstanding with a 5.6% average interest rate, that is a pretty good rate, and the cost of buying out the debt in terms of the new debt you could put in place, I am not sure that equation would work out that favorably for us.

I would say that we will get down to the $4 billion worth of debt.

We start to pile up cash.

We look for opportunistic bolt-on acquisitions, and I think that the topic of the share repurchase program comes back on the table with the Board.

Okay.

And that was sort of where I was going to go next, you answered the share repurchase possibility.

Ray, maybe you could just update us on your latest thoughts about the portfolio evolution from here, as the balance sheet gets better should we expect another year of acquisitions the way we saw the last 12 months, and are you basically done with divestitures at this point?

Just your latest thoughts, thanks.

Well, on the acquisition side, no, we are not done, but the scale and size hasn't changed on the scoping that I have already provided.

First of all, that is the size of acquisitions that happen to be in the areas we want to be in.

There isn't big, big stuff out there.

I always sort of disclaim that one.

Because it isn't really out there for us that aligns with our growth initiatives.

We will continue to make the $100 million to $400 million type acquisitions certainly in fulfilling out the 12 growth initiatives.

So far, we are virtually six for six.

I don't know that we are going to win them all necessarily either, but we are in good shape right now.

In terms of divestitures, I wouldn't comment on that.

I mean we are always looking at opportunities within product lines certainly to monetize things, so you may see us part with some product lines, or monetize some things as the opportunity comes up.

We will continue to move forward.

We are not done, Rick, if that is what the question is.

And just I am going to sneak a last one in, just the combining of CRM and cardiology, are you pleased with how it has gone so far?

And I would just be curious to hear whether you are getting the benefits that you expected, in terms of your dialog with hospitals and your customers?

Thanks.

I will let Hank answer the second part of that.

I want to answer the first part.

It has been tough slog getting it done, and a lot of people putting a lot of effort into it.

The fact of the matter is Guidant should have been fully integrated four or five years ago, or whatever the appropriate time frame.

It is not really a case of that, it is a case of we had to do it in order to extract value, and we had to do it in order to reset ourselves up for the future, in terms of the approaches Hank wants to take and what is a new environment.

So Hank, maybe you want to give them just a real short update, and your comments on it.

Rick, I think there is a growing appreciation for the CRV value proposition.

If you recall what we shared with you back in November at the Analyst Day, we had about a 4 to 1 what I call competitive bid ratio.

So a very competitive bid situation we lost, we won four.

And that ratio, quite frankly, is continuing.

And we are on track year-to-date to achieve our aspirational goal of doubling the number of contracts, cross care contracts that we have.

Having said that, I think when you get out and talk to various healthcare systems, and this kind of links back to Ray's comments about ACOs and value based pricing, there is a growing recognition that the types of services both clinically, economically and operationally that we can offer a healthcare system, a system in that new world.

That recognition, that awareness varies by institution.

But it is increasing as time marches on.

Thanks again.

Our next question comes from David Lewis with Morgan Stanley.

Please go ahead.

Good morning.

Good morning, David.

Good morning, David.

Maybe or Ray or for Hank.

Outside of the US, DES penetration was obviously much stronger than you were expecting it, sounds like that is going to carry through the remainder of the year.

You did sneak in a competition about local competition in Japan.

I wonder if you could talk about, is that the Nobori stent from Terumo, and I guess my real questions is that stent has had really nominal penetration in Europe, and if you are seeing an effect in Japan, have you seen that broader outside of Japan?

Hank, do you want to take that one.

That is the Nobori stent, David.

I believe in Japan at least the way we handicap it, that you going to get some degree of what I call homefield advantage impact, as it relates to other regions outside of the world, I haven't seen any significant uptick.

Okay.

Very helpful.

And two more quick ones.

Ray you talked about the pressures in the US ICD business and maybe some of those can get a little better.

Sounds as the primary volume pressure is coming from JAMA, but on the price side is where I want to spend more time.

Do you think new product introductions from yourselves and competitors begin to helping that pricing environment, do you think that there has been price discounting because of the lack of innovation, any innovation should help to improve ASPs in the next 18 months?

I wouldn't say any innovation because for the reasons Hank just described with the prior answer, relative to changing environment, I think the pressure will be on your ability to take a premium depending upon your ability to improve the quality of outcomes in a proven way, in a comparatively effective way, advanced patient outcomes, reduced rehospitalization, and there is a long list of things there that I covered in my remarks, and Hank just referred to.

I don't think it is going to be as simple as, I don't want to be flippant about it, but adding a bell and a whistle and suddenly expecting you are going to knock out a couple of, three, four points of negative price or even get a positive premium.

I just don't get where that world is ever going to return.

There was a time where that was true, maybe not so long ago.

I would like to tell you I thought it was going to come back.

I just don't believe it.

I think you have to have substantial innovation that is measurable and provable at the patient and hospital and economics level.

One last one for Jeff.

Thank you, Ray, for those comments.

Jeff, emerging markets, obviously significant investment discussion at the Analyst Day, and heading into 2011 guidance.

Didn't hear a lot of talk today about that investment.

Can you just help us understand the investment in EM across the quarters this year, Is it stronger back half than first half?

Was there a significant EM investment in this quarter?

We talked a little bit about this already, but just to go over it, we have significantly ramped up our position in India and China.

It did happen kind of part of the way through the quarter.

As you hire people we didn't get them all on the first day of the quarter.

The ramp started at some of the clinical trial programs have now been kind of cemented if you will, in terms of locations, number of patients, so we will start to see that ramp up.

The pieces have started and we are starting to see some revenue benefit, but in Q2 you will see a fuller impact with SG&A on the impact of that, and then in the back half of the year you will see some real, as it relates to the commercial piece in terms of feet on the street more of a revenue benefit.

It will be back end loaded in terms of the SG&A.

Very helpful, thank you.

Yes.

The next question from Larry Biegelsen from Wells Fargo.

Please go ahead.

Good morning, thanks for taking the questions.

Good morning, Larry.

One quick clarification.

The ship hold if I remember correctly I thought it was a $72 million impact in Q1 of 2010.

Today I think you said $51 million.

Was there a change?

No, I think it was $72 million.

I think the $51 million is the net differential, because we were off the market for the number of days in the first quarter, and then we assumed we would lose a couple hundred basis points of share, and so I think the $51 million is the net of being off the market in the first quarter of last year versus the let's say permanent share we feel we have lost.

So it is the net of those two, Larry.

Thanks.

And Japan, go ahead, I am sorry, did I interrupt?

No, go ahead.

The impact from Japan, one of your competitors called that out.

The impact from the earthquake and tsunami.

Are you guys assuming that it has a negative impact on your business in 2011?

As we mentioned we actually had a beneficial impact in the firing, because we were called upon within the endoscopy business to help a couple of competitors to supply products because they manufacture in the country.

So we were more than happy to do that, and we would be more than happy to do that going forward.

They won't be very happy about that.

So we will see how that plays out.

We are not assuming that a lot of that favorability continues.

What does happen we think is in the tsunami region plus the Tokyo area, we are seeing a lower level of implants for a variety of reasons.

Therefore we are assuming that continues, and that is one of the reasons why we don't continue to see a benefit relative to what we saw in the first quarter for the rest of the year for Japan.

It is a slight negative for us.

We don't manufacture there, so from an exposure perspective I think we have done better than most.

And as Ray had said, our organization has just done a tremendous job responding to a very difficult situation, and so we are very thankful to them for that.

Last question on the US ICD market, I think the negative 5% or so for the market in Q1 is not too far off from where most people expected it to be.

How confident are you it doesn't get a little bit worse from here?

Thanks.

I think that plays into, I guess the first part of your comment certainly the negative single digit performance in the first quarter is different than from what we expected, and perhaps our competitors expected and still expect.

Having said that, there is still some risk in terms of the environments, some of the factors that we identified, and that is why we will be a little more conservative about letting too much of the OpEx favorability flow through until we see how that plays out.

We think we have a done a reasonable job based on everything that we know, assessing what we think the impact is.

Thanks for taking my questions.

Okay.

The next question from Glenn Novarro from RBC Capital Markets.

Two questions.

Ray, appreciate your commentary on the quadipolar lead.

You have Medtronic out now with Protecta on the ICD side.

So my first question is, how does your sales force market against the launch of Protecta?

What are the features in COGNUS and TELIGEN that may be an offset?

The second question is on your new ICD line.

Obviously St.

Jude will be out there marketing the quad polar, Medtronic is out marketing Protecta for unnecessary shocks.

Are there any marketing angles that you can play with your next generation ICD systems?

Thanks.

Thanks, Glenn, I am glad you appreciated my comments because a guarantee half of the twin cities won't have appreciated it.

It is good that you did.

I am going to let Ken Stein come in.

It is not so much how COGUS and TELIGEN plays against Protecta, because we know what the benefits of COGNUS and TELIGEN are, it is more a case of the reality of how Protecta really will serve in an MRI environment.

So maybe, Ken, if you want to pass a few comments on that.

Thanks, Ray.

I think the thing to emphasize about the Protecta offering, in some ways it is like the quad pole story.

I think St.

Jude's [chud] pole lead is better than their previous version, and it sort of starts to catch them up to where we are right now, and I think our feeling is the same thing as to Protecta, Protecta helped with some problems that Medtronic has experienced with some of their prior devices.

We think it catches them up to get close to where we are right now, in terms of inappropriate shocks.

We have published real world clinical trial data from the ALTITUDE study, that shows that with optimal programming our inappropriate shock rate is as low as 2% per patient per year.

Obviously we would like to be able to do better than that in the long run, we are working on some things to accomplish that, but we will hold that up against any one's competitive device, and right now with COGNUS and TELIGEN we still have some--[inaudible-microphone inaccessible]the best battery longevity, with PUNCTUA, ENERGEN, and INCEPTA, we will be able to improve on that platform.

Just as one follow-up.

Do you assume in your modeling going forward some share loss to Medtronic because of Protecta, or share loss to St.

Jude because of the quad polar?

No, not really.

Probably minimal.

I shouldn't say no, not really.

That is not quite true.

Minimal share loss in both cases.

The answer is yes, but minimal share loss.

Nothing like sort of what some of the conversations have been.

So maybe 1 point or 2 points of share loss in the US?

Well, minimal.

Okay.

Thank you for taking my questions.

Okay.

Next question comes from Tao Levy, Collins Stewart.

Please go ahead.

Hi, how are you guys?

Hi, Tao.

I was wondering if you could maybe talk a little bit about if you look at the expenses in the quarter and you said $20 million seemed to be potentially ongoing, in terms of savings on SG&A line.

Could that accelerate going forward?

You have got several restructuring programs going on, and maybe you are thinking of additional programs, is that a number that we should be thinking of, 20 plus or--?

Jeff correctly described the current situation but what you have to take into consideration they are down some of that is real, some of it will be picked up later in the year.

So Jeff's characterization was quite accurate.

However, the big however is our current expenses do not include the effects of project transformation, which is a $200 million cost reduction program relative to R&D efficiency and productivity.

It does not include the effects of a major zero based budgeting program that Sam is running, that will have multi-millions of dollars of reduction effect on our cost structure.

It does not include any of the effects of our emerging markets initiative that we are deeply into now, in terms of labor arbitrage and changing the cost structure and format of many of our transactional work that we do.

And it does not include the residual effects of any of the remaining features of alignment for growth.

I have said from the beginning the expenses in the Company are high.

I have had people, peers of yours argue with me that we can't get much lower.

I disagree completely.

There is a tremendous amount of dollars here that need to come out, and will come out and are not currently included in the trends, because those programs are just in relatively early stages of execution.

Okay.

And in terms of the European drug eluting stent market with PROMUS Element, is there sort of a percent you can provide, as to the number of accounts and markets where you feel you are not in because of tenders or other reasons?

There is a rough number that our marketing folks use over there, but it is a combination of everything.

I wouldn't know how to break it out.

But there are tenders are very important, there are countries or partially missing countries and/or areas within countries that hadn't yet provided reimbursement, and then there is the, what is the other part I am missing?

I just lost it there for a second.

Data.

Sorry, data, thank you.

There is a number of people in Europe that simply will not use a product that doesn't have sufficient published clinical data.

When you add all of that together, it is my understanding it is high single digit to as much as 10% of the marketplace that we absolutely were not in at all.

Got you.

Okay.

And he then just the last question.

On the Neurovascular side of the business, that came in a little bit better.

Why was that higher than what you guys had talked about in the prior quarter?

I think it was like $25 million a quarter.

And is the increase still, is this a zero margin business for you guys?

Thanks.

You would have to phone Steve McMillen if you really mean Neurovascular.

I assume you mean in Neuromod?

The divested business that you still have that you are recording in the--?.

Oh I thought you meant Neuromod, I thought you just slipped on your wording.

Yes, exactly.

Yes, those are the effects of TSA programs, support programs that we do with them, and things that we have agreed to receive revenue for.

It is also distributor countries where we continue to do the distribution support on behalf of Stryker as well.

So there are a number of things in there.

The TSAs are not in the revenue line, the distributor support is.

It is all about Stryker's timing and timing against their plans to get things done, and move things forward as quickly as they can.

There is no magic to it and nothing to read into it.

But there is no magic to it, there is nothing to read into it.

Okay, thanks.

The next question from Adam Feinstein from Barclays Capital.

Please go ahead.

This is Matt for Adam.

Thanks for taking the question.

Can you hear me?

Yes.

Great.

Good morning, guys.

I just wanted to get some more color on your comments around CRM.

It seems like there is a little bit of a disconnect between you are talking about some temporary pressures from JAMA, versus competitors saying really no impact, and wanted to hear how you think it is impacting the market?

Hank, do you want to start in on that?

Well, I think I can't really say anything much different than what Ray and Jeff have shared with you earlier, other than to say anecdotally just to give you some color commentary, in a recent meeting with about 28 healthcare systems, EPs representing each of those 28 healthcare systems, going around the room asking the individual representatives of those systems what impact was JAMA, rack audits, DOJ investigations, scrutiny of the industry having in your institutions.

80% of the hands in the room said it is having an impact.

And I would say of that 80%, roughly over 50% saying it is having some impact on the number of implants being done.

Now if you couple that with the fact that you have growing alignment with EP implanters, as they become employers of institutions, there is a dynamic that happens, and it is on a case by case basis, institution by institution basis, of where the implantation historical practices begin to modulate a bit.

And so we picked up on that as well.

So it is very mixed across the United States right now but there are enough signs there that have given us pause Matt.

Okay.

And Adam, it is Ray, I don't think, there is only a near term disconnect.

If you think about because we haven't heard from Medtronics, so if you think about specifically what St.

Jude said, they have been saying 3 to 5 growth, they are now saying 2% globally.

If you take a look, we can't send you our model.

But if I did send it to you what you would see past the first couple of years is about 1.5 points of growth in our model.

So the disconnect on a global growth basis other than the near term between ourselves and St.

Jude is zero, and then we will see what Medtronic has to say about things when they come out.

But I don't really think there is a disconnect.

Thanks.

Great color.

Just follow-up on stents.

At ACC you guys had nice results from platinum, but I think maybe it was a little bit more surprising was Medtronic's Resolute results were good, and Marty Leone gave a plug and said that he thinks there are three good stents out there.

Wondering if that surprised you at all, and changed your thinking how the US DES market might play out in the future?

I will ask Dr.

Dawkins to comment on that.

I think it wasn't a surprise to us.

Obviously we had the data from the European Resolute study, which showed the issue of early stent thrombosis.

It was a narrow group of patients in the US study, and we also saw the high late loss of 0.3 with the Resolute study.

I don't think it changed our view at all.

We were very impressed with the platinum data.

As you know, platinum was a non-inferiority trial, but some of the acute performance characteristics, low geographic miss, and the issue about low bailout stenting is important, both to patients and the health economy.

So we were very impressed with the platinum data, and not surprised by the Resolute data.

Thanks for all of the color, guys.

Okay.

The next question from Derrick Sung from Sanford Bernstein.

Please go ahead.

Good morning.

Good morning, Derrick.

Two questions.

One on the CRM market and then another on guidance.

First just explain further that your belief that the CRM market has decelerated, or has commanded pressure in the near term.

Looking at your own growth rates, and if we add back the I think $69 million impact that the ship hold had on your Q1 2010 ICD numbers, it looks like your CRM adjusted growth rate this quarter was down in the US, or your ICD adjusted growth rate in the US was down 8% in the US this quarter, and that compares to a down 11% that you saw in Q4 2011.

So we are actually seeing kind of a sequential improvement here in your own growth rate.

Can you help reconcile that sequential improvement that you are seeing, with your views that the market is sequentially declining?

And also can you just reconfirm your views of the global CRM market, or ICD market again, I am sorry.

I would have to go back and look at those numbers.

Those are not necessarily consistent with where mine was at relative to the US CRM performance relative to our expectations.

Clearly there has been, it shows up in our numbers.

And the thing you need to be a little careful about, is there are differences among the replacement side and the denovo side, which we are not going to spend a lot of time on here.

I would have to go back and double check the numbers on that front and get back to you on it.

We have seen, the point that I made at the beginning was that we didn't have the data for the fourth quarter until really mid to the end of the first quarter.

So the deceleration did start in the fourth quarter which created the angst, and we feel it was there as well as in the first quarter.

I would have to go back and check those numbers.

We can do that offline but certainly--

Do you have an adjusted growth rate for your US ICD business adjusting for the ship hold from your perspective?

Yes, we do.

We do.

And as we look at it, that is the number we are quoting.

We think it is down mid-single digits.

It will be down mid-single digits this year.

No, for your own sales in Q1 2011.

I think we have already given that to you what the results were, and you can compare that to a year ago.

That is fine.

That is what I thought we were doing but we can take that offline.

I think you ought to be careful too, of making sure you are accounting for price in there as well.

Because it is not a unit commentary.

It is a dollar value commentary, so there may be differences in price, certainly would be one other thing.

And then on the second part of your question was asking us to confirm what we believe the ongoing growth rates are.

Did I hear you correctly?

Globally.

I just want to confirm that.

Yes, that is the question that I think I just answered, and that is that St.

Jude is at 2 and we are at 1.5.

Once we get past the first year or two we may differ with them in the next year or are two because we think it is more negative perhaps, I don't know you would have to ask them the next two years versus the five years after that.

In the years in our model after the short-term effect of what we are talking about, we are at 1.5% growth, and I believe their commentary was at 2%.

Great.

If I can sneak in a quick one on guidance here, Jeff.

So if I look at your sales guidance, you beat the mid-point of your previous Q1 guidance by $50 million this quarter, and you raised your overall mid-point for 2011 by $50 million.

When I think about what you guided that FX at, per your numbers I think FX adds an additional $90 million to the remainder of the year.

So from that perspective, and I appreciate that you are being conservative on your sales guidance, but from that perspective would this actually imply that you are viewing sales to be sort of on a constant currency basis more negative than you were previously expecting, and then similarly on earnings, on EPS you beat by $0.13 this quarter, only raised your mid-point by $0.08, similarly does that imply actually more than just conservativism, but sort of a more negative view on guidance moving forward?

So, on the revenue side, yes.

I mean foreign exchange is more favorable than we anticipated, and it is approximately $100 million, so that would push the range up, but as we have been talking about for two hours now, that we have seen some softness in our CRM business in the US, and therefore our revenue is not going to be as high as we anticipated.

Yes, we have taken down our expectations for CRM revenue growth.

The effect overall, Derrick is 50 basis points in terms of the CRM effect, and you already said it and Jeff said it in his commentary, we are being purposely conservative because we are not comfortable at this point with some of the things we are seeing in CRM, and we want to let the year play out a little further, to allow us to update guidance one way or the other.

There is nothing hidden here if the answer is are we being conservative the answer is yes, and the same is true on the earnings.

Because of the flow through impact of CRM given its margin to our OI is pretty substantial.

So usually when you get in these conversations, people say you are being conservative, we all ignore that and don't answer it.

We have answered it for you very blatantly.

Yes we are, because we are uncomfortable with some very recent trends in CRM.

It is as simple as that.

There is no hidden message here.

Thank you.

We have time for one more caller, please.

The next question have from David Roman from Goldman Sachs.

Please go ahead.

Thank you for squeezing me in here.

I know it has been a long morning.

In a couple of your comments, you referenced investments in emerging markets, and while you did bring up the potential impact of global competition in Japan from the Nobori stent launch, I was hoping you could comment on how you are seeing the competitive landscape unfold in some of those emerging markets that you highlighted as key growth drivers?

As an example, I think we know that 75% of the drug eluting stent market in China is dominated by local players.

Maybe sort of help us put in context the investments you are making versus the opportunity with local, versus local competitors?

Well, we will focus our efforts because of the reimbursement profile and a number of other business reasons, we will focus our effort on multinational competition for the most part.

That is not to say that we won't come out with tiered product to compete where we can, but there are a lot of issues that go beyond just being local and being reimbursed differently and being viewed differently.

That is one aspect, but the key to this is we have 3% share depending on what you are using as an emerging market and what you are using as our product lines.

At least in a number of published reports, and they are accurate, we have 3% market share in major product lines driven by DES in emerging markets excluding Brazil, and particularly focused on China and India.

So the opportunity for us and the demand we have heard from ICs and the registration of our products over there, and the speed with which that is the fastest registration anybody has ever seen of a major medical device in India, we had PROMUS Element registered in no time.

So the opportunity for us is gigantic, in part because we are so insignificant right now is part of it.

There is lots of opportunity there, and if you can recall back to the Investor Day, what I said on the emerging market slide that I presented is, we anticipate being a sort of $400 million to $600 million sales player within the next three or four years, and I don't think that is an unrealistic expectation, given the quality of our products.

Okay.

And then maybe a follow-up to the question that Rick asked earlier on cross care.

As we kind of look over the next six to 12 months what are sort of the metrics that you think that we will be able to use to define whether cross care has been successful or the degree of that success?

Is it going to be your combined market share in CRM and interventional cardiology?

Is it going to be improving margins?

What are sort of the key tenets that we can look for to kind of assess that program from a reported numbers standpoint?

I am not so sure, I am going to ask Hank to answer the question obviously.

From the reported numbers we would probably give you glimpses into it but I don't think we would be breaking it out, as opposed to just updating.

So just to qualify you on that.

Hank, do you want to make some comments.

The way we will look at it is what is the year-over-year growth in cross care counts versus noncross care counts.

That is one way we will look at it.

That coupled with how the aggregation of the various franchises, product franchises are able to fare in terms of incremental market share gains because of the bundle.

Okay.

That is very helpful, thank you.

Okay.

With that, we will conclude today's call.

Thank you for joining us.

We appreciate your interest in Boston Scientific.

Before you disconnect, Tamia, will give you all of the pertinent details for the replay.

Ladies and gentlemen, this conference will be available for replay after 1 PM today through May 5, 2011.

You may access AT&T Executive Replay system at any time by dialing 800-475-6701 and entering in access code 193699.

International participants can dial 320-365-3844.

Again those numbers are 800-475-6701 and 320-365-3844.

Access code is 193699.

That does conclude our conference for today.

Thank you for your participation, and for using AT&T Executive Teleconference Service.

You may now disconnect.