Boston Scientific Corp (BSX) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Boston Scientific Q4 earnings call.

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

Later there will be an opportunity for questions.

(Operator Instructions).

As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host Mr.

Sean Wirtjes.

Please go ahead.

Thanks, Rochelle.

Good morning, everyone, thanks for joining us.

With me on today's call are Hank Kucheman, Chief Executive Officer, and Jeff Capello, Executive Vice President and Chief Financial Officer.

We issued a press release earlier this morning announcing our Q4 and full year 2011 results which included key financials and reconciliations of the non-GAAP financial measures used in the release.

We have posted a copy of that press release as well as reconciliations of the non-GAAP financial measures used in today's conference call to the comparable GAAP measures and other supporting schedules to the investor relations section of our website under the heading financial information.

Hank will begin this morning's prepared remarks with an update on our business progress and perspectives on the quarter.

Jeff will then review our Q4 and full-year 2011 financial results and business performance as well as Q1 and full-year 2012 guidance.

We will then open the call up to questions.

During today's Q&A session, Hank and Jeff will be joined by our President, Mike Mahoney, as well as our Chief Medical Officers, Dr.

Dawkins and Dr.

Stein.

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 market share, markets for our products, new product approvals, launches and performance, clinical trials, our cost reduction and growth initiatives, our investments in emerging markets, the timing and volume of share repurchases, our free cash flow and uses thereof, our future financial performance including sales margins and earnings guidance for the first quarter and full year 2012, and our future tax rates, R&D spending and other expenses.

Actual results may differ materially from those discussed or implied in these forward-looking statements.

Factors that may cause such differences include those described in the risk factors section of our most recent 10-K filed with the SEC as updated in the 10-Qs we've subsequently filed.

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

At this point, I will turn it over to Hank for his comments.

Hank?

Thanks, Sean.

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

Before I get started, I want to let you know that starting today, we are implementing a revised approach to our earnings calls which is intended to reduce call duration as well as to streamline and focus the information we provide.

And we look forward to your feedback on this revised format.

Now let me move on and share my perspectives on the fourth quarter and the progress we're making on our key initiatives to drive revenue growth and increase EPS including a glimpse forward and 2012.

I'll start with a couple of key points regarding fourth-quarter results and then move on to some of the more important product introductions we expect to benefit from in 2012 and beyond.

Fourth-quarter revenue of $1.848 billion was down 8% on a reported basis and down 5% in constant currency and excluding the neurovascular divestiture.

This decrease was primarily the result of continued weakness in some of our end markets particularly CRM in Europe, as well as some other factors Jeff will address in his comments.

We delivered adjusted EPS of $0.13 in the quarter which was in line with consensus and within our guidance range of $0.13 to $0.16 despite the fact that the negative EPS impact of inventory charges relating to the earlier than expected US launch of PROMUS Element Plus were not included in that guidance.

Jeff will detail our financial results and guidance as well as several positive developments which should help set the stage for BSC in 2012.

As you know, we are a global leader in a diverse $30 billion marketplace.

Some of those markets are growing, others are not.

But we continue to believe that the markets we are in are still good ones with long-term growth prospects supported by demographic and disease trends, underutilization, underpenetration and a growing middle class in emerging markets.

Our potential for future success starts with new products.

So let me share with you why I'm excited about our pipeline.

In CRV alone, we expect to launch 24 new products in 2012.

Our US PROMUS Element Plus stent launch is now fully underway and meeting our high expectations and we anticipate approval of PROMUS Element in Japan ahead of our previously announced timeline of mid-2012.

Once we have this approval, our Platinum Chromium Element drug-eluting stent series will be approved in all major markets worldwide and we should be well on our way to realize in the approximate $200 million profit opportunity that we expect to come with the conversion from PROMUS to PROMUS Element in the US and Japan.

In addition, we just received approval for PROMUS Element Plus in Canada much earlier than expected and have also begun our rollout of this new delivery system in Europe.

Although the worldwide DES market was relatively flat, it is still a large and profitable market, and a market where we expect to continue our share momentum on the strength of the Element platform.

In CRM, we've historically focused on the higher end of the market with single product offerings which often limited our ability to compete effectively in all segments.

We expect to change that with our new tiered defib and patient platforms.

In defib, we began the US launch of our INCEPTA, ENERGEN and PUNCTUA ICDs and CRTDs in earnest this quarter.

These new devices maintain our advantage in size and shape which is often a critical factor for patients.

They also offer improved programming options, our LHFM capability, 4-SITE VF4 Universal connector system built off our highly dependable RELIANCE lead platform and our market-leading battery longevity warranties of up to 10 years, are key platform differentiators.

To date we are very pleased with the rollout based on the positive feedback received from customers.

Turning to the pacing side, we expect to launch our Ingenio family of pacemakers and CRTPs in Europe and the US in the first half of the year.

Similar to our new Tachy devices, Ingenio incorporates clinically relevant features that offer tangible benefits to patients.

For example, Ingenio includes a feature called Right RAAT, which builds on our unique capabilities around the treatment of chronotropic incompetence.

The Ingenio platform will also be RF enabled, support remote patient monitoring, have advanced heart failure diagnostics, and be compatible with MRI systems, the last of which is planned for Europe in the middle of this year.

We believe that our new Tachy and Brady platforms will be a 1-2 punch for our sales teams who are very excited at the prospect of beginning to offer these new devices and targeting market share gains in 2012.

In PI, we have increased our investment in new products over the past several years.

We believe this strategy is starting to pay off and we expect a combination of new products and market dynamics to continue to drive good growth.

We now offer best in class balloons across all size platforms with our Coyote, Mustang and Charger devices which has enabled us to regain our number one PTA balloon position in the US.

We also began a limited market release of our recently acquired TruePath crossing device in the US and Europe and offer a reentry catheter to treat chronic total occlusions in international markets.

We expect to move to full launch of TruePath and OffRoad in approved markets this year.

In addition, following very positive results from the ORION trial in January, we expect to receive FDA approval of the Epic self-expanding stent this year.

Epic will allow us to offer a complete line of advanced iliac solutions in the US.

We also anticipate launching our Innova self-expanding stent internationally in 2012.

In our EP business, we continue to leverage our expertise in catheter and ablation technology as we execute our global afib strategy and our sixth internally approved afib focused products.

With NEP this quarter, we expect FDA approval for the ZFLEX 270 introducer sheath which is designed to facilitate the introduction and placement of catheters within the heart.

This device can provide more than 270 degrees of tip deflection allowing access to difficult to reach areas of the heart.

In Endo, we have an established track record of bringing innovative new technologies to market which drive above market sales growth.

Consistent with that history, we are pleased to receive clearance from the FDA in Q4 to markets the WallFlex Biliary Transhepatic stent system for malignant strictures.

We expect to begin full launch of this product as well as our Expect 19 Flex ultrasound aspiration needle which is used for tissue acquisition to diagnose GI malignancies this quarter.

In urology and women's health, we are looking forward to the expected 2012 global launch of our BackStop Gel designed to prevent stone migration during stone management procedures.

Despite what we expect to be a temporary headwind in women's health, we are focused on creating new and different differentiate technologies such as our Genesys HDA system to drive continued growth in this business.

In neuromod, we believe we are the technology leader with SmoothWave and our constant cadence of innovation additions to our product set has helped to drive above market growth over the past several years.

We recently launched the Infinion Lead, the industry's first and only 16-contact percutaneous lead, and physician reaction has been enthusiastic.

This new lead is right in line with our strategy to introduce meaningful innovations that optimize the treatment of chronic pain.

So as you can see our pipeline is real.

Bottom line, our goal with these launches is to continue to further strengthen our current worldwide market positions which in my view is growing in importance in an era where economic buyers have increased in influence and purchasers are considering fewer vendors, not more.

Let's now shift to emerging markets which is one of our critical elements of our business strategy.

This initiative provides us with significant potential to expand and accelerate profitable growth while at the same time improving the scope and quality of global patient care.

We continue to make excellent progress in building our infrastructure and driving growth in these key markets.

Allow me to provide a few examples.

In the fourth quarter, combined sales in China and India increased by more than 70% over the prior year.

We also continued investments in our salesforce, clinical and marketing teams, distributor networks and infrastructure including progress under our announced $150 million investment to build a manufacture and training facility in China.

In China, we recently initiated several important product launches including PROMUS Element and our ALTRUA pacemakers.

In India, we launched the WallFlex stent, Dreamwire guidewire.

We also continued patient enrollment in the TUXEDO trial to assess the TAXUS Element, our ion stent in diabetic patients.

We now have a total approaching 500 patients at almost 40 sites initiated.

Earlier this week, we announced a creation of an Asia-Pac regional organization to help drive growth by leveraging best practices in the region assessing a strong pool of local talent and collaborating with local health care professionals and regulatory agencies.

We appointed Supratim Bose, an industry veteran with extensive experience in the region to lead this organization.

We are also doing well in other emerging markets where we have more of an established presence.

One example is Brazil, where we began introducing PROMUS Element in late 2010.

Since then, we rapidly converted our PROMUS share to PROMUS Element and increased our overall DES share by an estimated 800 basis points.

By the end of 2012 -- I'm sorry, 2011 -- we had grown our share to over 60% and we are optimistic we can push it even higher.

This spells growth.

Our strategy in emerging markets is to offer innovative leading technologies backed by a global respected brand.

One example is in DES where we currently have single-digit shares in China and India, which together represent a nearly $700 million market growing at around 20%.

We believe that we can increase these shares significantly and that this will be an important contributor to our growth going forward.

In summary, we are making real progress in generating significant year-over-year growth in our targeting emerging markets.

We feel we have the right structure, the right people and a clear path supported by products and investment that will allow emerging markets to be an important growth driver for us in 2012 and beyond.

Now let's shift briefly to the cost side.

Another key element of our plan is to optimize the Company and execute on significant cost reduction opportunities related to our organization, systems and infrastructure.

We have previously outlined $650 million to $750 million in operating profit improvement opportunities we expect to realize over the next several years.

Jeff will cover some of these later, but I want to reinforce here that efforts to realize these opportunities are well underway.

We are making excellent progress in all areas and we expect to begin to see tangible benefits from several of these initiatives including gross margin benefits tied to our PROMUS Element launch in the US and expected launch in Japan; our Plat network optimization program; as well as SG&A savings from our restructuring program as we move into 2012 and into 2013.

The bottom line here is that we're delivering on our commitment to improve efficiency and effectiveness across the organization.

Lastly, I would like to update you on several of the acquisitions that we have made under our priority growth initiatives where we continue to make good progress towards achieving meaningful revenue contribution to overall topline starting in 2013.

We are pleased with the progress we are achieving during our first full-year commercializing the Alair Bronchial Thermoplasty System, our proprietary device for the management of severe asthma.

Alair is now available in 92 sites across seven countries including the UK where NICE recently issued positive guidance supporting BT as a safe and effective treatment option for severe asthma sufferers.

We expect to be more than double the number of countries and sites offering this technology in 2012 and believe the potential market for this unique device could exceed $1 billion.

During Q4, we were also pleased to learn that CMS acknowledged that substantial improvement associated with the use of the Alair system for the management of severe asthma.

As a result, effective January 1, 2012, the Alair catheter is eligible for Medicare reimbursement through a separate pass-through payment when the procedure is performed in an outpatient hospital setting.

This is in addition to unique category 3 CPT codes that are now available for the procedure.

The combined Medicare payments for the catheter and procedures should provide a strong benchmark for private insurers to support establishing reimbursement for BT.

In structural heart, our Watchman left arterial appendage closure device is now launched in more than 20 countries in Europe, Europe, Asia Pac and Latin America.

Again we plan to double this number by the end of 2012.

In the US, we plan to complete the enrollment in the PREVAIL trial and cement our PMA by the end of the year.

This would set us up for expected FDA approval and launch in 2013.

Similar to Alair, this is a product that plays in market with a very large potential and we expect both of these innovative products to begin to positively impact revenue growth in a noticeable way in 2013.

Our other foray into structural heart is the Lotus Valve.

Now while this product is a little further out, we believe it provides us with an opportunity to become a major player in what most expect to be a multi-billion-dollar market for percutaneous aortic valves.

Development of the Lotus Valve is based on extensive clinical feedback and we expect it to bring true differentiation to the market that resonates with physicians and patients.

We plan to begin REPRISE 2, our CE Mark trial for Lotus in the second half of this year with European approval and launch expected in the second half of 2013.

Finally, I'll touch on three internal development products -- projects that we're extremely excited about.

We believe that these areas represent a next wave of revenue contribution commencing in 2014.

The first is our fourth generation Synergy DES stent which is built on our Platinum Chromium Element Stent platform and incorporates a thin bioabsorbable polymer coating on the outside edge of the stent.

At the TCT conference in November, we announced impressive clinical and angiographic results supporting the safety and effectiveness of Synergy.

CE Mark approval is expected as early as late 2012 with full EU launch anticipated in 2013.

We expect that the US IDE trial called EVOLVE 2 will commence as early as mid-2012.

As a part of the randomized trial, we will also formally investigate shortened dual antiplatelet therapy, or DAP, and as you know, the cost of DAP is significant and we believe the Synergy stent may be ideally suited to a shorter DAP treatment protocol potentially offering both patient benefit and healthcare system cost savings.

A second internal program is exploring multiple approaches to device-based treatment of hypertension.

These approaches leverage our core competencies in catheters, RF ablation and stimulation technology in an effort to address a market expected to reach $3 billion within the decade.

The first human use of one of our renal denervation devices is planned for this year.

We anticipate CE Mark approval and commercialization in Europe next year with the US trial expected to begin in 2014.

Another market with a billion plus potential that we are pursuing is deep brain stimulation, or DBS, which is also characterized by refractory patient population with a highly unmet need.

The initial indication we are targeting with our unique neuro stimulation technology is Parkinson's disease.

We are currently enrolling patients in ADVANTAGE trial in Europe to study this indication and expect to complete the trial in 2013.

Once approved, we expect to have the only available DBS system that incorporates multiple, independent, current control designed to enable greater customization of the therapy.

I've just laid out six high potential opportunities involving technologies that we have either acquired or are developing internally that we believe will provide us with competitive entrees into major growth markets.

They are all minimally invasive device-based procedures intended to address unmet clinical needs and help reduce overall healthcare system costs, characteristics we believe that are critical in our marketplace today as well as in the future.

Finally, we continue to generate strong cash flow in the fourth quarter and for the full year.

During the second half of 2011, we repurchased close to 500 million of our stock or roughly 5% of the Company under an estimated $1.25 billion in stock repurchase programs announced in July.

We expect to continue to generate good cash flow which should allow us to continue to both repurchase shares and acquire new technologies to increase our growth opportunities.

We like the bets we've placed so far and we continue to expect to be able to add new technologies through our business development initiative.

In closing, we continue to show measurable progress in the execution of our business strategy to achieve our goal of double-digit EPS growth.

We have built our pipeline and we are building commercial capabilities in emerging markets.

We are achieving key milestones relating to our cost reduction opportunities and our priority growth initiatives and we have improved our financial situation so that we now have added flexibility to balance investments in new markets and growth technologies along with return of capital to shareholders.

That's it for my comments.

Let me now turn the call over to Jeff for a review of our results and 2012 guidance.

Jeff?

Thanks, Hank.

Let me begin by providing some overall perspective on the quarter.

Despite global economic and end market conditions that continue to be very challenging, we generated adjusted earnings per share of $0.13 within our guidance range of $0.13 to $0.16 and in line with Street consensus driven by continued strong attention to cost control.

Once again, we also generated strong offering cash flow which allowed us to repurchase another 52 million shares in the quarter.

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

Consolidated revenue for the fourth quarter was $1.848 billion and represents a decrease of 8% on a reported basis and a decrease of 5% in constant currency compared to the fourth quarter last year.

Excluding the negative impact of the neurovascular divestiture which negatively impacted revenue by 300 basis points.

The actual tailwind from foreign exchange was $9 million less than the $18 million assumed in our fourth-quarter guidance range.

At this point I'll move on to address our sales results and drivers for our businesses.

Worldwide DES revenue came in at $356 million which included an $8 million negative impact from a sales returns reserve relating to the early US approval of PROMUS Element Plus.

Excluding the impact of the sales returns reserve, this represents a constant currency decrease of 4% compared to the fourth quarter 2010.

Our worldwide DES revenue included $101 million for TAXUS and TAXUS Element, $136 million for PROMUS, and $119 million for PROMUS Element.

We once again held clear worldwide DES marketshare leadership during the fourth quarter with an estimated global share of 34% which we estimate to be a full 400 basis points higher than our nearest competitor.

These figures exclude the negative impact of the PROMUS Element Plus reserve in the US.

With the continued strong customer adoption of our Element platform now including PROMUS Element Plus in the US, the expected launch of PROMUS Element in Japan, and building momentum in India and China, we are focused on growing our worldwide marketshare leadership going forward.

US DES revenue was $168 million including the $8 million negative impact of the PROMUS sales returns reserve.

Excluding the impact of this reserve, US DES sales declined 7% compared to the fourth quarter of last year.

The revenue shortfall compared to our Q4 guidance was primarily driven by some continued softness in DCI volumes.

The launch of PROMUS Element Plus has been extremely well received in the US marketplace in particular, physicians have remarked on the product's outstanding deliverability, informability and the improved visibility of the Platinum Chromium alloy.

Our PROMUS Element sales began exceeding our PROMUS sales in the US a few weeks ago and we expect full conversion and a return to 100% self manufactured DES margins in the US this year.

US DES revenue in the quarter included $69 million TAXUS and TAXUS Element, $89 million of PROMUS and $10 million of PROMUS Element Plus.

Excluding the impact of the PROMUS sales returns preserve, we estimated that our US DES share was 47% which was an increase of 100 basis points compared to Q4 last year off of the strong ION and early PROMUS Element Plus launches.

We continued to maintain drug-eluting stent marketshare leadership in a competitive US market with an estimated 800 basis points more marketshare than our nearest competitor.

During Q4, we experienced an improvement in year-over-year ASP erosion to down mid-single digits compared to the high single digits we've seen in recent quarters.

Although we believe it's a little too early to tell whether this will continue, we are encouraged by this improvement and expect to leverage the unique value proposition that the differentiating features of the PROMUS Element now allow us to bring to market.

International DES sales of $188 million represented a decrease of 1% in constant currency compared to Q4 last year due largely to continued pricing pressures.

Q4 revenue included $32 million on TAXUS and TAXUS Element, $47 million in PROMUS and $109 million in PROMUS Element sales.

The rollout of our Element platform continues to do very well internationally and we are starting to see some contribution from the launch of our Element DES platform in emerging markets primarily India and Brazil.

We expect this to accelerate in 2012 as we anticipate gaining additional important pricing approvals in India and expanding the recent launch of PROMUS Element in China.

Worldwide CRM revenue was $482 million in the fourth quarter, representing a constant currency decrease of 15% compared to the fourth quarter of 2010.

We estimate that our worldwide CRM share was down slightly on a sequential basis at just over 18%.

In the US, CRM revenue of $278 million represented a 20% decrease from the prior year quarter.

Worldwide defib sales were $348 million in Q4 which was down 18% in constant currency from Q4 of 2010.

In the US, defib sales were $214 million.

This was down 21% compared to Q4 last year due primarily to continued year-over-year market declines as well as replacement headwinds in our business.

Given the earlier than expected approval of our new line of ICDs and CRT-Ds, we purposefully managed to lower bulk sales in the fourth quarter to minimize customer inventory of COGNIS Intelligent as we prepare to aggressively roll out the new products in Q1.

The US defib market appears to be showing some signs of stabilization.

However, despite these encouraging signs, a number of factors are still at play and visibility remains very limited.

As a result, we expect it will take another quarter or two to confirm whether the market is truly bottomed out.

We believe that our de novo share in the US has remained stable over the last several quarters and are optimistic that our share outlook will improve further as we continue the launch of PUNCTUA, ENERGEN and INCEPTA in the US.

International CRM sales of $204 million were down 7% in constant currency compared to the prior year -- quarter despite a 3% constant currency increase in international pacer revenue off of continued strong double-digit growth in Japan and intercontinental.

International defib sales of $134 million represented a 12% decrease in constant currency from Q4 last year.

While international defib was below our expectations in the quarter, we are launching new products in many countries outside the US and expect improved performance as we move through the year.

Our worldwide peripheral and interventions business continued on its recent growth trajectory and was up 6% in constant currency in Q4 with 1% growth in the US and 10% constant currency growth internationally.

We continued to make excellent progress driven by our rejuvenated pipeline as all three PI franchises grew sales in the quarter on the strength of multiple products including the Epic self-expanding stent, the carotid Wall stent in Japan and our Mustang and Coyote PTA balloons and dilatation catheters.

In addition to these new products, we have a half dozen more in 2012 that we expect to support continued growth in this business.

Worldwide non-stent interventional cardiology was down 8% in constant currency.

Consistent with recent periods, this decline was largely attributable to some procedural softness, share declines in IVUS and continued price erosion in PTC balloons.

As we progress through 2012, we expect to see some improvement in vascular access, balloons and IVUS results due to planned new product launches.

Worldwide electrophysiology was flat at constant currency.

During the quarter, we experienced continued softness in the small tip market and a flat market in the large tip business.

However, we did see growth in Intracardiac Echo, or ICE, capital and diagnostic product categories in the quarter.

Sales of the recently released Blazer open-irrigated catheter continued to ramp in Europe.

As we have previously stated, this launch is a significant step in the execution of our global Afib strategy.

On a worldwide basis, our endoscopy business continued to have solid growth, with sales up 6% in constant currency in the fourth quarter.

Growth in the US was 4%, while our international sales grew 8% in constant currency, with strength across all geographic regions, driven by continued strong new product introductions, expanded indications and increased adoption of our single-use products.

This performance was led by strength in our biliary device franchise, supported by continued growth in the Advantix biliary plastic stent for the treatment of biliary [obstructions], our metal stent franchise, led by our WallFlex biliary Rx fully-covered stent, and our hemostasis franchise on the continued adoption and utilization of a resolution clip for GI bleeding.

In constant currency, our urology women's health business declined 1% on a worldwide basis but was up 8% internationally.

The urology business maintained its leadership position and delivered 4% worldwide constant currency growth driven by an 8% increase in our international core stone management business.

The women's health business declined 8% on a worldwide constant currency basis as continued procedure -- pressures on electoral procedures due to the weak macro -- macro economic environment and the recent FDA public health notice update on the use of urogynecologic surgical mesh for pelvic organ prolapse, more than offset strong double-digit growth of our next generation Genesys HDA system for the treatment of abnormal uterine bleeding.

Outside of the US, our international women's health business continued to experience good growth and was up 13% in constant currency driven by new product introductions, increased sales investments, and the penetration of new therapies.

In neuromodulation, we grew our worldwide business 6% in constant currency during the fourth quarter despite continued weakness in macroeconomic conditions.

The growth was driven by our differentiated product portfolio and strong commercial execution strategies.

Let me now briefly address full-year 2011 revenue.

On a reported basis, consolidated 2011 revenue was $7.622 billion, which represents a 2% decrease from the prior year on a reported basis.

In constant currency and excluding the impact of the neurovascular divestiture and the Ship Hold, sales decreased 4% compared to 2010 driven largely by the decline in the US CRM market.

For the full year, foreign currency positively impacted reported full-year sales growth by approximately 260 basis points or about $204 million.

Moving on from sales, adjusted gross profit margin for the quarter was 64.8% or 280 basis points lower than Q4 2010.

In the quarter, margins were negatively impacted by the neurovascular divestiture, pricing pressure, an inventory charge related to that US launch of PROMUS Element and unfavorable foreign exchange somewhat offset by the positive impact of manufacturing efficiencies and a continued mix shift toward self-manufactured product in DES.

For the full year 2011, adjusted gross profit margin was 65.7%.

Adjusted SG&A expenses were $620 million or 33.5% of sales.

This compares to $677 million in the fourth quarter of 2010.

The decrease was primarily due to the divestiture of the neurovascular business and the benefit of expense discipline and recent restructuring activities partially offset by higher spending on strategic growth initiatives primarily in emerging markets, and costs relating to recently acquired businesses.

For the full year 2011, adjusted SG&A expenses were $2.478 billion or 32.5% of sales.

Adjusted research and development expenses were $230 million for the fourth quarter or 12.4% of sales.

This compares to $225 million in the fourth quarter of 2010.

R&D spending was relatively flat as lower expenses due to the neurovascular divestiture were offset by costs relating to recently acquired businesses.

For the full year 2011, adjusted R&D expenses were $895 million or 11.7% of sales.

Royalty expense was $33 million or 1.8% of sales for the quarter compared to $37 million in Q4 last year.

For the full year 2011, royalty expense was $172 million or 2.3% of sales.

On an adjusted basis, pretax operating income was $[315] million or 17% of sales, down 370 basis points from Q4 2010.

As a percentage of sales, the decrease in adjusted operating income was due to lower gross margins and the impact of lower sales on operating expenses.

GAAP operating income, which includes GAAP to adjusted items that had a negative effect of $145 million on a pretax basis was $170 million in Q4.

Now I'll move on to other income expense.

Interest expense was $72 million in the fourth quarter, which was $35 million lower than in Q4 2010 primarily due to substantial debt repayment since December 2010 and a $[15] million accelerated interest charge which occurred in Q4 2010 related to the prepayment of our June 2011 bonds.

Our average interest expense rate in Q4 2011 was 5.9% or about 50 basis points lower than Q4 2010 primarily due to the prepayment of our bank term loan during the first half of 2011 which had a lower average interest rate than our public bonds.

2011 interest expense was $281 million which was $112 million lower than in 2010 primarily due to the debt repayment and accelerated interest charge I just mentioned as well as a benefit from interest rate swaps executed on some of our public debt in 2011.

Our adjusted tax rate for the fourth quarter was consistent with our previously forecasted Q4 rate of around 20%.

During the quarter, we recognized a $24 million benefit from discrete tax items relating to our operating businesses.

This benefit was offset by a slightly higher than anticipated full-year operational tax rate of 19.3% due to the timing and geographic mix of sales generated under new product launches.

For the full year, our tax rate was 12.2% on an adjusted basis and 31.3% on a reported GAAP basis.

Fourth-quarter EPS was $0.13 on an adjusted basis and $0.07 on a GAAP basis, both of which were within our respective guidance ranges despite the fact that the negative EPS impact of inventory charges of approximately $42 million or $0.02 related to the earlier than expected US launch of PROMUS Element Plus were not included in that guidance.

GAAP EPS for the fourth quarter included $0.01 of acquisition-related net credits, $0.01 of divestiture-related net credits, $0.01 of restructuring related costs, and $0.02 of litigation-related charges as well as the normal $0.05 of amortization expense.

Stock compensation was $32 million in the fourth quarter and all per share calculations were computed using approximately 1.5 billion shares outstanding.

At the end of 2011, we had approximately 1.45 billion shares outstanding.

For the full year, we reported adjusted earnings per share of $0.67 per share.

This included a total of $0.12 of net one-time benefits.

On a reported GAAP basis, 2011 EPS was $0.29.

GAAP earnings per share for 2011 included $0.47 per share of goodwill and intangible asset impairment charges; $0.02 per share of acquisition-related net credits; $0.35 per share of divestiture-related net credits; $0.06 per share of restructuring-related costs; $0.02 per share of litigation-related charges; $0.02 of discrete tax benefits; and amortization expense of $0.22 per share.

Moving onto the balance sheet, DSO of 62 days was up one day compared to the fourth quarter 2010 due to weakness in EMEA partially offset by strong US collections.

Days inventory on hand was 130 days in Q4 which is one day higher than the prior year quarter.

Higher inventory to support new product releases was partially offset by the benefit of inventory reductions attributable to the neurovascular divestiture and finished goods reduction programs.

Adjusted operating cash flow was $374 million including the receipt of $76 million from Abbott in the quarter in settlement of our outstanding PROMUS cost adjustments in the US.

This compares to $377 million in Q4 last year.

On a reported GAAP basis, operating cash flow was $349 million compared to $449 million in Q4 2010.

For 2011, adjusted operating cash flow was $1.45 billion which is $377 million lower than 2010 primarily due to lower tax refunds and lower operating profit partially offset by lower interest rate payments as a result of our recent deleveraging, the benefit from the termination of our fixed to floating rate interest rate swaps on our public bonds and the receipt of the settlement payment from Abbott in 2011.

On a reported GAAP basis, operating cash flow was approximately $1 billion or $682 million higher than 2010.

Capital expenditures were $81 million in the fourth quarter.

For the full year, capital expenditures were $304 million or $32 million higher than 2010 primarily due to the ongoing automation of our largest distribution center and increasing manufacturing capacity for the launch of PROMUS Element in the US and Japan.

Based on the above, adjusted free cash flow was $293 million in Q4 and $1.27 billion for the full year of 2011.

On a reported GAAP basis, free cash flow was $269 million in Q4 and $704 million for the full year.

As I mentioned earlier, we repurchased 52 million shares or over 3% of the outstanding common stock of the Company for approximately $300 million in the fourth quarter.

At a current stock price we estimate we have over $700 million of capacity remaining on our current stock repurchase program.

We continue to believe that our stock price is undervalued and currently expect to use approximately one-fourth of our free cash flow to repurchase shares in 2012 subject to applicable law, market conditions, our stock price, business development opportunities and other factors.

We remain confident that we can balance our priorities of investing in growth and returning capital to shareholders all while improving our investment-grade metrics on the strength of solid cash flows.

Let me now briefly provide some perspective on our outlook and walk you through our guidance for first quarter and full year 2012.

As we enter 2012, we continue to phase headwinds and limited visibility in several of our markets most notably CRM (technical difficulty) and we plan to continue to invest in emerging markets and other targeted areas.

However, we also expect to start seeing an increasing level of benefits from several key components of our $650 million to $750 million in cost saving and profit enhancing opportunities as we progress throughout the year.

Having considered those factors, we estimate that consolidated 2012 sales will be between $7.3 billion and $7.7 billion.

Assuming that current foreign exchange rates hold constant, we expect full-year headwind from FX to be approximately $86 million.

On a constant currency basis, consolidated 2012 sales should be in a range of up 2% to down 3%.

The upper end of this range assumes that the US defib market does not deteriorate further and therefore year-over-year comparisons improve progressively through the year.

We expect our adjusted gross margin for the year to be between 66.5% and 67.5%.

Although we expect to continue to see downward pricing pressure, we expect this headwind to be more than offset by lower costs due to our anticipated conversion from PROMUS to PROMUS Element in the US and Japan as well as our plant network optimization and manufacturing value improvement programs.

The impact of these benefits should ramp as we progress through the year.

As a result, we expect Q1 margins to be below the full-year range and margins in the second half of the year to be above it.

With respect to SG&A expenses, we expect to continue to make investments in emerging markets and additional selling investments in other international markets.

In 2012, the cost of these investments should be partially offset by restructuring savings although we expect most of the benefit of these savings to be realized in the second half of the year.

For the full year, we expect adjusted SG&A as a percent of sales to be between 33% and 34% with much of the increase compared to 2011 due to one-time benefits realized in the prior period.

We expect to be near or above the high end of our SG&A guidance range in the first half of 2012 and closer to the lower end in second half for SG&A.

We continue to transform our R&D organization and refocus our spending to drive innovation and growth.

In 2012, we expect R&D spending to increase slightly and to be between 12% and 12.5% of sales as we ramp spending in several of our priority growth initiative areas.

We currently expect other income expense to be relatively flat with last year.

Royalty expense is expected to be slightly lower in 2012 compared to 2011 due to product mix changes involving products and incur royalties at different rates.

We expect our adjusted tax rate for the full year 2012 to be approximately 17% excluding any discrete tax items that may arise during the year and assuming that the US R&D tax credit will be retroactively extended for the full year 2012.

We are subject to tax authority examinations in many jurisdictions that are scheduled to conclude in 2012.

The final resolution of these exams may result in additional favorable or unfavorable discrete tax items during the year that are difficult to forecast but may impact our full-year adjusted tax rate.

As a result, we expect adjusted EPS for the full year of 2012 to be in a range of $0.60 to $0.70 and would encourage you to model the midpoint of that range.

Excluding any one-time items that may arise, we expect adjusted earnings per share to increase sequentially as we progress through the year driven by the timing of the cost benefits we expect to realize.

On a reported GAAP basis, we expect EPS to be in a range of $0.25 to $0.38.

Lastly for 2012, we expect adjusted free cash flow to exceed $1 billion which we believe to be conservative but appropriate given the uncertain economic environment and prospects of additional austerity particularly in Europe; CapEx of approximately $300 million; pretax amortization expense of roughly $100 million per quarter; and stock comp expense of around $130 million.

Now turning to Q1 2012, we expect consolidated revenues to be in a range of $1.825 billion to $1.9 billion.

If current foreign exchange rates hold constant, the headwind from FX should be approximately $10 million or 50 basis points relative to Q1 2011.

On a constant currency basis, we expect consolidated Q1 sales to be in a range of flat to down 5%.

On a worldwide basis, we expect DES revenue to be in a range of $365 million to $385 million and CRM revenue to be in a range of $480 million to $510 million in the first quarter.

For the first quarter, adjusted earnings per share is expected to be in a range of $0.11 to $0.14 per share on an adjusted basis and reported GAAP EPS is expected to be in a range of $0.02 to $0.05 per share.

That's it for guidance.

So with that, I'll turn it back over to Sean who will moderate the Q&A.

Sean?

Thanks, Jeff.

Rochelle, 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.

Rochelle, please go ahead.

(Operator Instructions).

Mike Weinstein, JPMorgan.

First, I want to make sure, Jeff, that I caught a couple of your comments correct.

You are assuming that your free cash flow would be about $1 billion in 2012 and then on the repurchase you would use about a quarter of your free cash flow to buy back stock, is that right?

That's correct, Mike.

And what is defining the percentage that you're assuming on a buyback?

What -- why a quarter versus a half or some other number?

Well, I think as we said, the strategy revolves around primarily driving the top line of the Company.

I think Hank did a good job of outlining our internal programs particularly the ones that we expect to kind of start to get some traction in 2013.

Having said that, our aspiration is to drive the growth rate of the Company up to kind of the mid-single digits if not higher.

So from a shareholder perspective, I think you're going to see us get a little bit more aggressive from a business development perspective to try to drive some new technologies into the business to drive the revenue growth.

However, I think we can do both and the 25% is just an estimate at this point in time and we'll wait and see what happens as we work our way through the year in terms of what assets are available and an appropriate price.

With the pressure you have on the pricing site in DES and CRM and some other parts of interventional cardiology bag.

Can you just give us your thoughts on how gross margins play out beyond 2012?

You're getting a [benefit] in 2012 -- obviously the conversion from PROMUS to PROMUS Element across US and Japan.

But if we look beyond 2012 in that step up, do you think you can hold gross margins in the face of those pressures assuming they don't moderate at some point?

Yes, and that's a good question.

If you go back and look at the Investor Day material we laid out in 2010 and kind of look at the different factors and look at what's different one way or the other, clearly price is a little bit more of a headwind than we anticipated and we were starting with 68% margins and we assumed that price would be like 400 basis points of headwind.

That has become a little stronger although we saw some benefit in the fourth quarter.

What's important to recognize, however, is that despite the pricing pressures, unit volumes are actually increasing in Europe and in other locations relative to the DES market and other markets.

So we're getting fixed cost leverage.

So if you go back and look at the Investor Day model, we get a volume benefit even though revenues are not where we want them to be.

In some sectors they are growing and the volumes are growing quicker.

So we get fixed cost leverage which helps offset some price.

We continue to do very well on the productivity side.

We have an objective to take out 5% of the standard cost every year.

We continue to do very well on that front so that's another positive headwind -- tailwind rather.

The PROMUS Element -- if you look at kind of the distribution of the $200 million, we will get the majority of that call it two-thirds-ish here in 2012.

There's another third to come though in 2013.

And then we've got the plant network optimization program which a lot of it will happen in 2012.

We'll get a little bit of a tailwind in 2013.

But also that doesn't count -- so those are all positive factors that help offset price.

The other dynamic that happens is as some of these new technologies come in, Mike, they're all designed to have much higher gross margins than our average.

So there should be a mix benefit as Alair kind of starts to be a bigger piece, Atritech comes in, and Sadra.

These are all designed to be -- have gross margins north of our average so there will be a mix benefit that will start in 2013 and accelerate in 2014.

Glenn Novarro, RBC Capital Markets.

Two questions, one on ICDs.

It seems like in the quarter you may have taken some reserves or pulled inventory here in the US in front of the Progeny launch.

Can you quantify that and then provide any commentary on pricing?

You gave pricing on stents but I don't recall getting pricing on ICDs.

And I just had one follow-up.

Okay, Glenn, this is Jeff.

I don't think we are going to be as specific perhaps as you like but as you look at our performance for ICDs, we still think that the market US ICD market was down kind of midteens, if you will.

I think that's consistent with what the competition was saying.

We were down kind of in the 21% -- 22% -- 20% if you will.

That delta is split between kind of our -- some replacement headwind that we had that will start to dissipate as we work our way through 2012.

And the other piece of it is kind of what we call less bulking or placing less inventory on the shelves, which is driven by a dynamic that we have a new exciting technology coming that we didn't want to put more COGNIS Intelligent on the shelves and have it come back in returns.

And pricing?

Pricing, as you look at pricing domestically and internationally within the CRM market kind of mid single digits and not much change domestically.

Outside the US, a little bit -- we identified in the third quarter that pricing was a little bit more of a challenge in Europe.

That is still the case.

And in DES, I think we called kind of lower kind of mid-single digit price erosion in the US which was very encouraging, still kind of up single-digit erosion outside the US though.

Okay and then just maybe for Hank, I'm just curious how he sees your business playing out in the ICD market in 2012.

In the single and dual chamber segment of the market, you have St.

Jude having to deal with their Riata issues that could be an opportunity for take share.

But conversely, they've also launched their quadpole which suggests you may be losing -- you could lose share there.

So maybe talk to us about how you see yourself positioned in the ICD market particularly in the US in 2012?

Glenn, thanks.

That's a great question.

I believe it's somewhat of a mixed bag.

We believe that with the platform that we're launching that we are actually going to take share.

And one of the things that I'm not sure that's well appreciated yet in terms of differentiation factors is the growing importance of our latitude heart failure management system, one.

And then two, battery longevity.

Now within the healthcare system environment today, you can argue that battery longevity has been a headwind for us due to the impact that it has on replacements.

But I think there's a growing recognition on the part of various healthcare systems that as time marches on -- and actually some systems are beginning to anticipate this fact this year -- is that that actually can work to their advantage and our advantage in a world of value-based pricing.

So we're seeing the key differentiators of ICDs beginning to change a bit perhaps in our favor in ways that historically have not acted on our behalf.

That would be quite candidly the essence of what I would respond to your question.

And I think it needs to play out.

We're very excited by the platform, the three tiers, the features that we have, the DF4 connector tool that we have, we call the green machine, that is a very key ease-of-use feature that the EPs are really attracted to.

And we are getting some great feedback on it.

So I think we will have to see how the execution plays out here over the coming quarters but basically what I see so far, I'm very, very encouraged.

Kristen Stewart, Deutsche Bank.

I was just curious on the -- within the context I guess of cash flows, you had mentioned that you did receive money from Abbott on the adjustment.

Was there any impact on the gross margin this quarter or any P&L impacts with the true up with PROMUS?

No, Kristin, we made that true up back in the first half of the year.

Okay, so that was not fourth-quarter specific for cash flows?

No.

And then can you also just comment generally on Europe?

You mentioned a couple of different times that the market is more challenging, it sounds like it got worse within the quarter.

So what are you saying?

It sounds like it's tougher in CRM, doesn't sound like it's getting any better in stents either.

So any comments on Europe would be helpful.

Yes, Kristen, it's Jeff.

So I think what we saw in the quarter particularly in Southern Europe is we saw instances of certain facilities either restricting procedures or not doing any procedures as we worked our way through the fourth quarter because of budgetary issues.

And that had an impact on our sales for certain.

As we've opened up now for the new year, we are seeing a little bit less pressure with some of the budgets being kind of freed up again for the new year.

So that's not unusual for Europe to do.

The issue here is that we've got a lot more of a difficult situation ahead of some of those Southern European countries.

So the answer is we're just going to have to wait and see what happens and how things play out.

Rick Wise, Leerink Swann.

Yes, good morning, everyone, it's Miroslava for Rick today.

Let me start by asking about the gross margin.

Can you help us tease out the impact of divestitures, the inventory changes that you had with the Progeny line, price, etc.?

And how should we think about your key assumptions for gross margin expansion heading in 2012, how much of that is PROMUS Element versus these other factors reversing perhaps?

Well, let me start with the fourth quarter.

So as you look at the gross margins for the fourth quarter on a percentage basis if you look at kind of the impact to gross margins, you can also almost think of the value improvement programs and the cost initiatives pretty much offset price and really the big deltas year over year.

So price was negative, we take out costs every year; that's positive.

Those two more or less offset one another from a margin percentage perspective.

And so what we were then left with was a $42 million reserve, which is a sales returns reserve of $10 million and an inventory reserve of $32 million.

That had a 200 basis point impact to gross margins negative kind of one-time impact to gross margins.

We also had the divestiture of neurovascular which we've consistently said has weighed on gross margins by about 170 basis points.

So it's really those two factors that compress gross margins.

The good news is heading into 2012, those two things go away and we get the benefit of about 100 -- call it 150 million-ish operating improvement and gross margin improvement for the introduction of PROMUS Element.

So if you do that as a percentage of revenue, that's a couple hundred basis points.

So that's why our guidance for gross margins we've kind of guided to 65 to 66 for this year and absent kind of the benefits in the first quarter and the negative things in the fourth quarter, we pretty much hung in that range.

Now we're putting out a slightly higher range for 2012 and we will end -- we expect we will end 2012 above the high end of that range and be able to build off that gross margin trajectory.

David Lewis, Morgan Stanley.

Hank, I wanted to come back to some of your earlier introductory comments.

You talk a lot more about the pipeline and much more specifics and I guess it's been about a little over a year since the introduction of the POWER Strategy.

I guess as you think about this plethora of products in the pipeline and you think about the strategy and your stated goals of driving leverage, do you think you have allocated the appropriate amount of spend either in sales and marketing and R&D to drive the execution across those timelines and still deliver the same type of margins that you laid out a little over a year ago?

Yes, I believe we have, David.

I think the pipeline that you are beginning to sense and see is a result of -- we've gotten past -- if you go back in time a little bit where the organization was internally focused a lot in terms of some of the quality challenges that we've had, a lot of the organizational resources that we had at our disposal were focused on remediating that.

They have now transitioned of getting back to what we love to do and that's a focus on innovation.

So saying that, we are spending roughly about 12% of -- on R&D.

I think that's an appropriate percentage.

The infrastructure that we have in terms of commercial channel is strong particularly in the US.

We're making incremental investments in the commercial infrastructure especially in emerging markets as we talked about previously.

So one of the things I love about our situation is the fact that we have especially in emerging markets, Asia Pac, we have the products.

And I think you know both those markets if you talk specifically about India and China are very much interventional cardiology market.

What we have lacked historically is the commercial infrastructure to deliver those products to the customer base.

That infrastructure is building, it's being trained and I think in the days and months and years to come, we will see good execution that will drive growth.

And then just maybe one quick follow-up for Jeff.

I mean, Jeff, last year emerging markets was incrementally a surprise headwind.

I wonder could you update us in terms of the investments in 2011 versus the investment in 2012 and is emerging market investments still a relative EBIT headwind or do we start getting leverage in the emerging markets or contribution leverage in the back half of 2012?

Yes, it's a good question, David.

So we will continue to invest.

That's one of the reasons why you will see slightly higher SG&A percentage in the first half of this year.

We still have plans to add incremental reps particularly in countries like India and China where we've gotten approvals or we expect to get approvals for certain regions.

So you see a little bit more heaviness with respect to OpEx after which the back half of the year you should start to see both acceleration and revenue growth which you really haven't seen yet despite the fact we had pretty good results in India and China.

We are not seeing the results that we expect in terms of getting more of an acceleration and we are seeing signs that that will occur in the back half of the year and start to take off.

The other dynamic is I think that people are aware that we announced plans to build a manufacturing facility in China.

So we have a little bit of headwind relative to costs to get that factory up and running in 2012 but that's more in the gross margin side.

Bruce Nudell, Credit Suisse.

Jeff, one of the things -- or Hank -- one of the things that was never totally clear to us and maybe you could kind of like frame for us is back at the Investor Day, there's about 800 basis points of operating margin improvement.

What sort of top-line assumption went with that over that period and if let's say over that initial three or four year period, revenues are more like 2%, what does that 800 basis points become?

Bruce, that's a good question.

So, we were clear with people that our short-term objectives relative to revenue growth were kind of in the 2% to 4% range back in 2012 and then kind of the medium term were kind of 6% to 8%.

So the period of time we're talking about in terms of the expansion of margin are more 2% to 4%.

That was before the CRM market -- that was when the CRM market was growing in low single digits.

Now we think it's kind of contracting globally in the mid-single digits.

So I think we have come out recently and said kind of zero to 3% is kind of our objective in terms of the short-term in terms of growth, which is consistent with the range of guidance we've given out for 2012.

So as long as we can drive revenue growth in that low single digit perspective, we ought to be able to get a lot of the margin expansion because some of it, for example, PROMUS Element is driven by just converting our PROMUS Element.

The plant network optimization is driven by taking our existing volumes and converting them over and the value improvement programs are 5% of gross cost.

So where we will get hit a little bit will be on the volume side.

We won't get quite as much fixed cost leverage through gross margins.

Conversely through the SG&A line, a lot of the benefit is coming out of our restructuring initiatives which really are not volume dependent at all.

So we announced a $225 million to $275 million restructuring plan in the second quarter of 2011 that really is agnostic to revenue.

So we expect to be able to get a lot of that -- some of that we will get 2012; really the majority starts to come through in 2013.

So we still think that there is ample opportunity even in a difficult environment to expand margins, and as Hank has outlined in his presentation, we have everybody riveted on doing that.

One other question I had is could you give us the PCI growth rates for the US, Japan and the other international markets?

Sure.

So if you look at from a year-over-year perspective, units in the US were kind of down in the low single digits; Europe they are actually up in kind of the high single digits; Japan down low single digits; emerging markets up in kind of the mid teens.

So worldwide there was a lot of price pressure?

Worldwide the price pressure was consistent although we saw a better fourth quarter from a price erosion perspective in the US than we've seen in the last -- in the three years that I've been here.

So that's encouraging.

Tao Levy, Collins Stewart.

Just want to be clear in the US this year, are there any PROMUS sales or are you completely done with PROMUS sales?

You mean in 2012?

Yes in 2012.

Well in 2012, we began the rollout.

The rollout will take some time and we anticipate probably by the end of the first quarter or early second quarter we will have full roll out.

So we'll still have some sales in the first quarter with PROMUS and probably a short tail end of the second quarter.

And then when you look at the international ICD market, you did indicate it was a little bit weaker.

Do you feel like you lost share there?

I mean obviously you went (inaudible) report but based on St.

Jude's results, it looks like things fared a little bit worse for you there.

And I just -- if you had any reasons behind that.

Yes, I think that's fair.

And I think part of that is we're in the midst of rolling out a whole new refresh of our ICD, CRT-D platform and I think in the rollout of that, we probably didn't hit the ground as hard and as fast as we thought we would have.

So I think that's one factor from an execution perspective which we're addressing right now.

The other factor is other competitors have come up with some technology.

So part of that is we expected some headwind relative to some other technology competitors had brought out and now with the full rollout of our INCEPTA, ENERGEN and PUNCTUA lines, we expect to kind of take some share now back now that we have it fully rolled out.

Raj Denhoy, Jefferies.

I wonder if I could ask one on the drug-eluting stent side.

With Cordis exiting the market, obviously that was an opportunity but you at several times talked about the ability perhaps to go after this additional part of their interventional cardiology business.

Are you starting to see any of that come through for you yet?

I think, great question.

In the US, the answer to that is yes.

We had a goal set for ourselves in terms of what we wanted to garner from their departure from the market and we hit that goal, in fact exceeded it.

In the international markets, it's a ball in play.

What I mean by that is the tender process in many of the regions outside the US kind of gate when you can take advantage of those opportunities, those tenders will come up over the course of time and we think the full potential of what we can garner from the Cordis opportunity outside the United States will be realized starting this year and quite frankly in some regions moving into 2013.

And maybe just ask a bit of a broader question.

Part of the strategy you guys laid out back in 2010, the CRV idea with the combining of the interventional cardiology and the CRM sales management and ultimately sales forces, as you see that play out, have you seen much of an impact in a sense in your ability to perhaps sell in the US market?

Is there perhaps a risk that maybe you've been a little too aggressive in pursuing that as to what's actually happening on the ground with actually individual clinician behavior?

Well I think the -- a great question again.

I think my answer is going to be multi-dimensional.

First, in terms of I think what you're alluding to is the alignment of physicians within healthcare institutions.

Actually from the standpoint of why we did what we did in terms of CRV, that was one of the trends that we saw on the horizon that we wanted to address.

And what we are seeing and I think this is evident by the success that we've had with our cross care program, where we have increased the number of cardiovascular service line deals or specifically kind of a bundle deal between CRM and CV -- that's increased fairly dramatically over the past year.

So I would say I consider that a success.

Secondly, if you look at how we've organized ourselves, we have a good percentage of the CRV sales organization in the United States that are now engaged in cross-selling.

And one example I'll give you is one of our reps on the IC side in the fourth quarter had 11 implants.

Historically that has not been in play.

But it's more of a team orientation that I think is growing in its importance within the commercial channel and has been well received by our customers.

Bob Hopkins, Bank of America.

Jeff, just to start out, I'd love it if you could continue with your 2012 guidance, you could give us a sense as to how much of the $650 million to $750 million is -- you anticipate being realized in 2012 and if you're willing to break that out between COGS and SG&A?

Give me a minute here.

I've got that right in front of me if I can find it.

On a gross basis.

Yes, sure.

I'll do it in total and then try to give you some detail relative to gross margin and SG&A.

So as you look at 2012 just going through the pieces, the 5% reduction in cost of goods sold is a program we have every year.

It's an ongoing program and frankly I think we've got one of the best manufacturing organizations around.

So you can consistently count on them taking out 5% of cost of goods sold.

That stays in all years so that was in 2011, that will be in 2012.

The PROMUS profit share, we said it was a $200 million opportunity.

The vast majority, said $150 million that won't be far off for 2012, that will sit in 2012 and then we'll get a benefit for that relative to 2013 kind of tail of that.

Those are the two big pieces relative to gross margin benefit for 2012 and 2013.

And then as we look at that restructuring, which is more of an SG&A, it really started a little bit in 2010.

We will get a piece of the $225 million to $275 million in 2012, a small piece.

And then we'll get the lion's share in 2013 in 2014.

So as you look at what I think some people have said, well, all the benefit of $650 million to $750 million it really happens in 2012.

That's really not accurate.

The benefit -- the large benefits of PROMUS Element will occur in 2012 but the vast majority of the restructuring benefit will happen in 2013 and then into 2014.

And you've got to remember that the VIP programs continue every year as well.

And then you've got project transformation which is reducing R&D costs; that is spread almost equally over the year.

So we do have -- we always said that the $650 million to $750 million would start in earnest at the end of 2011 and be kind of 2012 and 2013 and part of 2014 benefits and that is still the plan.

As Hank has highlighted and I'll reiterate, that is still the plan.

And plant optimization?

Yes, in the plant network optimization program, the majority of that really hit in 2012 and there will be a small tail of that in 2013.

And then just as my follow up, I was wondering if I could get a couple little just a little data points.

Could you give us the EMEA PROMUS Element share in the quarter?

And then I just want to make sure I heard you right on that bulk order for ICDs, is it -- that's in the $10 million to million range that it was a negative impact this quarter?

So we're not going to get in on the specifics on bulk, we are not going to comment on.

I don't think anybody is doing that so we will pass on that comment.

Relative to the share, our share was relatively slightly unchanged relative to DES sequentially from the third to the fourth quarter and the vast majority of that is PROMUS Element.

And then buybacks, could you just comment on why those seemed to tail off so much in 2012?

Do you anticipate acquisitions?

Is that just a function of what you have authorized or just -- you bought back more in this quarter than you're anticipating for next year, so just wanted to put some perspective around that.

Yes, I think as we continue to roll out the strategy and get more specific with some of the targets we're looking and given the environment that we're in, we're anticipating that it may become a slightly better environment from a business development perspective in terms of targets that are available that not might not have been available historically.

I think why I threw that out there is we are getting a lot of questions saying will you buy back?

I think we will buy back and I think we're comfortable saying we use at least a quarter of our cash flow to do buybacks.

And then thereafter, it will all be governed by what's available and what we can get done at an appropriate price from a business development perspective.

Derrick Sung, Sanford Bernstein.

I wanted to go back to your outlook for the ICD market in 2012.

I thought I heard you say that the upper end of your guidance assumes the ICD market doesn't deteriorate further.

So are you implying that mid-point of your guidance your baseline cases that the ICD market does deteriorate further?

And maybe if you can just kind of give us your baseline just kind of outlook for pricing and volume for the ICD market?

So, Derrick, it's Jeff.

So relative to our guidance, the upper end of the guidance assumes that from an ICD perspective that that market flattens out in the back half of 2012.

So it started kind of eroding in the second quarter.

We thought it was down midteens in Q3 and Q4.

We are assuming that we have headwinds in Q1 and then partially Q2.

And then almost like on a same-store sales basis against a comparable low benchmark, it kind of flattens out in the back half.

So that is what we have assumed relative to that.

Okay, and how about price -- you sort of your pricing assumptions for the market as well?

And then maybe you could do the same -- you could do the same for the drug-eluting stent market as well is my follow-up.

Thank you.

Yes, so pricing -- we are assuming pricing is down mid-single digits here in the US, a little higher than that outside the US in CRM.

And then relative to DES, we have assumed kind of upper single-digit price erosion both in the US and outside the US.

Okay, thank you.

And one other question on -- in 2013 as you look forward toward the Med Tech Tax, can you talk a little bit about how you expect to offset that and do you still expect to be able to see the same growth trajectory and absorb that tax or what are your thoughts relative to that?

Thank you.

Well, I think we've been very clear from the beginning that this tax is going to put a lot of pressure on all corporations and assuming that we are going to be able to pass it through to a hospital group that is under pressure that's going to get their own tax, I think is optimistic.

So we're assuming going we are going to have to be tighter from an OpEx perspective and that was always in our plans back when we did the Investor Day and that's one of the reasons why we're being pretty aggressive on the cost side is because we are assuming we are going to have to manage our way through that.

Matthew Dodds, Citigroup.

Just one quick question, Jeff, for you.

On amortization interest, is the current run rate for the fourth quarter, the $96 million amortization, is that a good carry through for 2012?

Yes, when you say amortization, amortization of intangibles not interest, right, that's what you are looking for?

Yes.

Okay.

Amortization is about $100 million per quarter.

Okay.

And then for interest it seems like when you said other would be roughly flat, you are assuming the interest is also a run rate around $70 million for next year per quarter?

Exactly, flat with the current run rate.

Okay then just two quick product questions.

For US in 2012, do you expect to start clinical trials for an MRI compatible pacemaker and Quadripolar leads or are they 2013?

Right now we do not have a plan to start a clinical trial MRI conditional in 2012.

And how about on Quadripolar leads for ICDs?

I don't believe so.

Dr.

Stein, are you on the phone?

Can you confirm that?

Yes, I'm on.

Not a chronic study.

We already have started some acute testing of Quadripolar leads.

All right, thank you, Ken.

Thank you, Hank.

Thank you, Jeff.

Thank you, Matt.

With that, we will conclude the call.

Thanks for joining us today.

We appreciate your interest in Boston Scientific.

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

Okay, thank you.

And ladies and gentlemen, this conference will be made available for replay after 11 o'clock a.m.

today until February 16 at midnight.

You may access AT&T Executive Playback Service at any time by dialing 1-800-475-6701, entering the access code 231996.

International participants dial 1-320-365-3844 and again, that access is 231996.

And that does conclude our conference for today.

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

You may now disconnect.