Boston Scientific Corp (BSX) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the Boston Scientific Q1 earnings 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 to you at that time.

(Operator Instructions).

Also, as a reminder, today's conference is being recorded.

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

Sean Wirtjes.

Please go ahead.

Thank you, Perky.

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 Q1 2012 results, which included key financials and reconciliations of the non-GAAP financial measures used in the release.

We 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.

The duration of this morning's call will be approximately one hour.

Hank will begin our prepared remarks with an update on our business progress, and his perspectives on the quarter.

Jeff will then review our Q1 financial results and business performance, as well as Q2 and updated full-year 2012 guidance.

We'll 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'd 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 growth, market share, markets for our products, product pipeline and quality systems, new product approvals, launches and performance, clinical trials, cost reduction and growth initiatives, investments in emerging markets and business development opportunities, the timing and volume of share repurchases, free cash flow and its uses, our future financial performance, including sales, margins, earnings and other guidance for the second-quarter and full-year 2012, and 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.

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

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

Hank?

Thank you, Sean.

Good morning everyone, and thanks for joining us.

I'll begin today with some comments on the first quarter financials, and then move on to update you on the progress we continue to make on our key initiatives to drive revenue and EPS growth.

First-quarter revenue of $1.866 billion was down 3%, both on a reported basis and in constant currency, and excluded the neurovascular divestiture.

This was in line with both Street consensus and the midpoint of our guidance range.

Our PI, endoscopy, urology and neuromod businesses all delivered mid- to high-single digit growth in the quarter.

We expect to see continued good growth from these businesses, and improvement in our other businesses over the balance of the year.

We continue to see global pricing pressure in our IC and CRM businesses and lower defib procedure volumes in the US compared to a year ago, due to the factors you are already aware of by now.

However, the positive signs we saw in the US last quarter, suggesting possible stabilization in de novo implant volumes in the defib market and some easing of the pricing pressures in DES continued in the quarter.

With significant new products coming into the market in both of these businesses in 2012, we remain optimistic about our future outlook.

From an earnings standpoint, we delivered adjusted EPS of $0.15 in the quarter.

This was above Street consensus, and exceeded the high end of our guidance range of $0.11 to $0.14, and was driven by good gross margin improvement, continued cost control, and lower than expected tax rate.

Let me now move on to the progress we're making with new products.

We continue to be excited about our rejuvenated product pipeline, which we expect will help us return to growth later this year and support continued revenue growth after that.

In peripheral interventions, our increased investment in new products over the past few years is now paying dividends, and we believe that this will contribute to continued attractive growth moving forward.

We have regained our number-one PTA balloon position in the US on the strength of our recently-launched Mustang, Gladiator, Charger and Coyote devices, which continue to see strong acceptance in the marketplace.

We also began a full launch of our TruePath CTO crossing device in the US in the quarter.

We expect to move to full launch of TruePath in Europe and other international markets this quarter, and to begin the full launch of our OffRoad CTO re-entry catheter in approved markets this year.

In addition, we are seeing strong sales of our Epic self-expanding stent outside the United States, which by the way, just received FDA approval last week.

As a result, we now will be able to offer a complete line of advanced iliac solutions with both balloon expandable and self-expanding stents in the US market, commencing next month.

We believe these product introductions will contribute to continued above-market growth in this business.

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

We recently began launching our HeartSpan fixed sheath and Z Flex-270 steerable sheet which are designed to facilitate the introduction and placement of catheters for afib within the heart.

We also recently filed an IDE with the FDA for our afib clinical trial, 0AF, utilizing our Blazer open irrigated catheter.

In endoscopy, we began in both the US and international markets the full launch of our WallFlex Biliary Transhepatic Stent System for malignant strictures, as well as our Expect 19 Flex ultrasound aspiration needle, which is used for tissue acquisition, to diagnose GI malignancies.

Again, we expect these product launches to bolster our already-strong endoscopy above-market growth profile.

In urology and women's health, we began full launch of our BackStop Gel, designed to prevent stone migration during stone management procedures.

We continue to believe this business has considerable above-market growth potential, and are planning to introduce several new and differentiated technologies in both our pelvic floor repair and sling product lines later this year to help realize that potential.

In neuromodulation, our unique SmoothWave technology platform and consistent flow of innovative additions to our product set continue to help differentiate our offerings from those of our competition with physicians and patients, and drive above market growth.

Physician reaction to our recently-launched Infinion Lead, the industry's first and only 16-contact percutaneous lead is exceeding our expectations.

In drug-eluting stents, our Platinum Chromium Element drug-eluting stent series is now available in all major markets worldwide, and we believe we are on track to realizing the benefit of the gross margin opportunity associated with the conversion from PROMUS to PROMUS Element, and our return to 100% self-manufactured stent margins.

Looking forward, we also anticipate receiving FDA approval for the 32-millimeter and 38-millimeter sizes of PROMUS Element mid-2012, which will complete our available size matrix and should enhance our current market share position.

From a clinical standpoint, our DES business had several important developments during the quarter.

At ACC, Dr.

Greg Stone announced that the positive outcomes reported at 12 months in the platinum trial comparing PROMUS Element to XIENCE PROMUS continued out to two years.

In addition, the landmark analysis Dr.

Stone presented demonstrated superior efficacy of PROMUS Element as compared to XIENCE PROMUS during the second year of follow-up.

These new data further enable our ability to clinically differentiate our platform and sets the new gold standard for DES performance.

In addition, based on the results of the HORIZONS-AMI trial, our Ion and TAXUS Liberte paclitaxel-eluting stent systems recently became the only DES systems in the US with an approved indication to treat patients with an AMI or heart attack.

The DES market is a large and profitable market where we expect to continue our strong leadership on the strength of the solid clinical data and differentiated product performance of the Element platform.

We also expect Element to be a growth driver for us in emerging markets, where the combination of strong underlying market growth and the potential to increase our current market share positions provides a significant opportunity.

Moving on to CRM.

We expect our new defib and pacer platforms to improve our ability to compete more effectively in all CRM markets.

In defib, the US launch of our INCEPTA, ENERGEN, and PUNCTUA ICDs and CRTDs is well under way, and we are very pleased with the roll-out based on the positive feedback we received from customers.

We're leveraging our advantage in size and shape, our latitude of heart failure management system, or LHFM, capability, our 4-SITE DF-4 universal connector system, built off our highly-dependable RELIANCE lead platform, and our market-leading battery longevity warranties of up to 10 years to differentiate this unique platform.

With heart failure management in the forefront of both physician and economic customer minds, including the LHF system, with all our high voltage devices, has really resonated with our key customer segments.

Our ability to offer the only solution that is aligned with industry guidelines is quickly gaining traction, and providing us with a unique opportunity to grow our high voltage business.

Before I move on from defib, let me make a few comments on the emerging issue of tachy lead or shocking lead reliability.

It should be noted that our RELIANCE family of tachy leads remains the industry gold standard for reliability and survivability, with a 99 success rate out to eight years, as documented by several peer-reviewed publications.

We feel this level of tachy lead reliability, performance and history is a strong competitive advantage for us in the current environment, as evidenced by the significant recent growth we've seen in RELIANCE sales, and expect it to become even stronger with the addition of Cameron S-ICD technology.

Now, turning to the pacing side, we began launching our Infinion family of pacemakers and CRTPs in Europe last week, and expect US approval this quarter.

INGENIO builds on our unique capabilities around the treatment of chronic competence, and is designed to be RF-enabled, support remote patient monitoring, have advanced heart failure diagnostics, and be compatible with MRI systems.

MRI compatibility is expected to be available in Europe by mid-2012, and we plan to start a related US trial later this year.

INGENIO is our first new brady platform in many years, and as such, we believe that its potential to drive share gains in the worldwide pacer market is under appreciated.

My final CRM-related comment relates to a recent announcement by one of our CRM competitors, that they're going to ramp up monitoring of their medical devices in order to catch potential safety problems.

That announcement surprised us, because we've been doing that for a long, long time.

Our post-market performance monitoring system provides us with early warning signals to take necessary corrective action to ensure product safety.

We then use these data to improve overall product quality and reliability, and convey important information to patients, physicians and regulatory agencies.

That is our responsibility, and is nothing new for us.

Let me now move on to emerging markets, where we continue to make solid progress on our plan to expand and accelerate profitable growth.

For example, in the first quarter, combined sales in our largest emerging markets of China, India and Brazil experienced strong double-digit growth compared to a year ago.

We have made significant progress in building out our regional leadership, sales forces, clinical and marketing teams, distributor networks, and infrastructure in those countries, and are also seeing increased productivity from the commercial resources we added in 2011.

In China, we recently received government approval and signed a lease for our planned manufacturing operations.

From a product standpoint, we've completed the platinum China trial, and we continue to roll out PROMUS Element, which was featured prominently at the CIT conference in Beijing last month.

Importantly, we also initiated the launch of our TELIGEN ICD, which is now the smallest and thinnest high-energy device available in China.

In India, we supported another very-successful India Live conference, which included live cases with PROMUS Element.

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

More than 700 patients have now been enrolled from 40 participating centers.

In short, we continue to make significant progress on emerging market strategy of introducing innovative leading technologies, backed by a global respected brand, and we believe we have major growth opportunities driven by underlying market growth and the potential to increase our below-average market share positions in key emerging countries.

Looking beyond 2012, let me start by outlining recent progress made with seven key technologies, the combination of which we believe have the potential to make a meaningful contribution to revenue growth starting in 2013.

In both the US and Europe, we continue to focus on driving commercialization and increased awareness of the Alair bronchial thermoplasty, or BT, procedure.

Just last month, two private payers in the US issued the first public postings of positive insurance coverage policies, providing their eligible members access to BT.

Just after these policies were posted, the California Technology Assessment Forum, or CTAF, announced that BT meets its assessment criteria, indicating that this procedure improves net health outcomes.

We view these recent developments as significant milestones, and believe they will lead to additional payers establishing BT reimbursement, and thus accelerated BT revenue growth.

In structural heart, we continue to expand the commercial presence of our WATCHMAN device outside the United States, while in the United States, we remain on track to complete enrollment in the PREVAIL trial and submit our PMA by the end of the year.

This would set us up for expected FDA approval and launch in the second half of 2013, which we expect will allow us to be the first to market in the United States with this novel technology for a considerable period of time.

In aortic valve replacement, we expect to complete the REPRISE Lotus Valve feasibility trial in Australia this Friday and we anticipate presenting the early results at EuroPCR in Paris next month.

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

We are developing multiple approaches to the device-based treatment of hypertension and are planning for the first human use of one of our renal denervation devices in the third quarter of this year, with CE Mark approval, and commercialization expected in Europe next year.

We also continue to expect CE Mark approval on our fourth-generation SYNERGY DES stent as early as late 2012, and anticipate completing our ADVANTAGE trial, studying deep brain stimulation for the treatment of Parkinson's disease in Europe as planned.

We expect both of these technologies to begin contributing revenues next year and do so meaningfully in 2014.

Finally, as most of you know, sudden cardiac arrest is one of our priority growth initiative areas, and we view the Cameron acquisition as a strategically-important addition to our CRM business.

We also believe that demonstrates our commitment to the CRM field by bringing in innovative technology to physicians implanting high voltage devices today.

We expect Cameron's unique SICD technology, when combined with our recently-launched family of new defib products, our highly reliability RELIANCE lead portfolio, our new INGENIO family of pacemaker products, and the Watchman device to create a compelling and unique portfolio of arrhythmia management products that will strengthen our ability to differentiate our value proposition to physicians, their patients, and healthcare systems around the world, and allow us to accelerate the commercial expansion of the SICD device in the global marketplace.

We also believe SICD will offer us the potential to expand the ICD market overall, as well as achieve above-market growth rates in our traditional ICD business over time.

Subject to customary conditions, excluding relevant antitrust clearance, we expect to close the Cameron transaction later this year.

To summarize, we are excited about the future growth potential of the products I have just reviewed.

Add in the momentum we are building with new product introductions, as well as in emerging markets, and you can see why we believe that we are positioned to drive top line growth in 2013 and beyond.

In closing, we continue to demonstrate progress in the execution of our business strategy, to return to sustainable revenue growth, and to deliver double-digit adjusted EPS growth.

We expect revenue growth to be driven by our pipeline through acquisitions and in emerging markets, and we have made solid progress in all three of these areas during the quarter.

We also continue to achieve key milestones relating to our cost reduction opportunities to drive earnings growth, and maintain the flexibility to balance investments in new markets and growth technologies, along with return of capital to shareholders, all of which Jeff will detail next, along with an updated guidance.

That's it for my comments.

Let me turn the call now over to Jeff.

Jeff?

Thanks, Hank.

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

We generated adjusted EPS of $0.15 in the first quarter.

Solid earnings performance in the quarter was driven by higher gross margins, due largely to the launches of PROMUS Element in the US and Japan, continued strong attention to cost control, and a lower than expected tax rate.

As a reminder, the adjusted EPS of $0.22 we reported in Q1 last year included $0.10 in positive one-time items including a true-up on our PROMUS supply agreement, bad debt recoveries in Greece, and discrete tax benefits.

Consolidated revenue in the first quarter of $1.866 billion represents a decrease of 3% on both a reported basis and an operational basis, the latter of which excludes impacts from foreign exchange, and the divested neurovascular business.

The actual headwind from foreign exchange on sales was $6 million, compared to the $10 million headwind assumed in our first quarter guidance range, and the divested neurovascular business contributed $5 million less than sales in the first quarter 2012, compared to the same quarter last year.

Let me now move to the detailed review of our business performance, and our operating results in the quarter.

Starting with DES, I'd first like to remind you that our results for the first quarter last year included a $10 million negative impact from the sales returns reserve related to the launch of TAXUS Element ION in the US.

In comparison, DES sales for the first quarter of 2012 and the fourth quarter of 2011 included a $6 million positive impact, and an $8 million negative impact respectively, related to the launch of PROMUS Element Plus in the US.

These reserves impact comparisons of worldwide and US DES revenues and market share between these periods.

Worldwide DES revenues came in at $363 million in first quarter.

Excluding sales returns reserves, this represents a constant currency decrease of 8% compared to the first quarter of 2011.

Our worldwide DES revenue included $79 million for TAXUS, $79 million for PROMUS, and $205 million for PROMUS Element.

Following its recent approval in Japan, our self-manufactured PROMUS Element stent is now available in all major countries, and we continue to see strong customer adoption of our broader Element platform.

In addition, we are building upon our momentum in the emerging markets of India and China, which we believe represents a significant opportunity for us.

Excluding sales returns reserves, we once again held clear DES market share leadership in the first quarter, with an estimated worldwide share of 34%.

US DES revenues were $176 million in the quarter.

Excluding sales returns reserves, this represents a decline of 12% compared to the first quarter last year.

This decrease was primarily due to lower ASPs, slightly lower share due to recent competitive product launches, and some continued softness in PCI volumes.

US DES revenue in the quarter included $80 million of PROMUS Element Plus, $50 million of TAXUS and TAXUS Element, and $46 million of PROMUS.

The launch of PROMUS Element Plus has been extremely well-received in the US marketplace, and we expect our conversion from PROMUS and return to self-manufactured DES margins in the US to be substantially complete by the end of the second quarter.

We estimate that our US DES share was 46%, excluding sales returns reserves, which was down approximately 100 basis points from the fourth quarter of last year, due mainly to the launch of competitor's product in the first quarter, which is earlier than we had anticipated.

From a pricing perspective, we were pleased to see some relief in the rate of ASP erosion continue again this quarter, and are hopeful that it may be sustainable going forward.

Either way, we are focused on leveraging the unique value proposition that the differentiating features of PROMUS Element now allow us to bring to all major markets worldwide.

International DES sales of $187 million represented a decrease of 3% in constant currency compared to the first quarter of last year.

Q1 revenue included $29 million in TAXUS, $32 million in PROMUS, and $126 million in PROMUS Element sales.

In Japan, we initiated the launch of PROMUS Element in early March, and its acceptance in the marketplace has been extremely positive.

In the first four weeks alone, we converted over 75% of our PROMUS volume to PROMUS Element, and increased our estimated market share from 32% to 42%.

We are also continuing to build momentum with our Element platform in emerging markets including India, Brazil and China, and expect this to accelerate through the year as we anticipate gaining additional important pricing approvals in India, and expanding the ongoing launch of PROMUS Element in China.

In CRM, worldwide revenue was $501 million in the first quarter, representing a constant currency decrease of 10% compared to the first quarter of last year.

We estimate that we maintained our worldwide CRM share on a sequential basis at close to 19%.

In the US, CRM revenue of $292 million represented a 14% decrease from the prior-year quarter.

On a worldwide basis, defib sales were $368 million in the first quarter, which was down 11% in constant currency from the first quarter of last year.

In the US, defib sales were $229 million.

This was down 14% compared to the first quarter of last year, due primarily to continued year over year market declines, replacement headwinds in our business, and a lower level of bulk sales.

However, these factors were partially offset by a significant increase in sales of our highly-reliable RELIANCE defib lead platform in the quarter.

We began aggressively launching our new line of defibrillators in the US in the first quarter, and we believe this innovative new tiered product offering helped drive the sequential increase in our defib share in the quarter.

We also believe that there are opportunities to secure additional share gains, based on the features of these products, and plan to promote them heavily as we continue the launch.

Looking at the broader US market, de novo defib implant volumes continued to show signs of stabilization in the first quarter.

Based on the data we have so far relative to the first quarter, it appears market de novo implant rates have continued to be relatively stable sequentially, now for the past two quarters.

However, we want to see how the rest of the market reports and plan to continue to monitor market conditions carefully, before calling a bottom on implant rates.

International CRM sales of $209 million were down 4% 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, boosted by our partnership with Fukuda Denshi.

International defib sales of $139 million represented a 6% decrease in constant currency from the first quarter of last year.

We are launching new products in many countries outside the US, and expect improved performance as we move through the year.

Our peripheral interventions business continued delivering strong growth, including double-digit increases in key regions of the world such as Japan, and the rest of Asia-Pacific.

Worldwide revenue was up 8% constant currency in the first quarter, with 7% growth in the US and 9% constant currency growth internationally.

We continue to drive higher growth from our refreshed pipeline in all three PI franchises, and sales growth came from the continued strength of multiple products including stents, balloons and peripheral embolization devices.

We recently launched two new CTO devices and new below-the-knee accessories, and have several other key product launches planned that we expect to help continue to drive growth in 2012 in the $700 million-plus business.

Worldwide non-stent interventional cardiology was down 4% in constant currency as procedural softness and ASP erosion persisted in the quarter.

However, this business grew sequentially and year over year performance improved in every geographic region.

We plan to launch new products in vascular access, balloons and IVUS later this year, and expect to see continued improvement in this business as a result.

Worldwide electrophysiology was up 1% in constant currency during the quarter, as some softness in both the small tip and large tip business was more than offset by growth in other segments.

Our endoscopy business had another solid quarter, with worldwide sales up 5% in constant currency, led by 9% growth in the US.

This performance was a result of growth across several of our key product franchises.

Our biopsy business, our biliary device franchise driven by continued growth in our Expect EUS needles and access products, our metal stent franchise, led by our industry-leading WallFlex product family, and our hemostasis franchise, on the continued adoption and utilization of our Resolution Clip for GI bleeding.

In constant currency, our worldwide urology women's health business was flat versus Q1 last year, but was up 5% internationally.

The urology business maintained its leadership position, and delivered 7% worldwide constant currency growth driven by an 8% increase in our core stone management business.

Our women's health business declined 11% on a worldwide constant currency basis, as continued pressure on elective procedures due to the weak macroeconomic environment, and concerns around the use of surgical mesh for pelvic organ prolapse more than offset strong double-digit growth of our next-generation Genesys HTA system for the treatment of abnormal uterine bleeding in the quarter.

Outside of the US, our international women's health business experienced excellent growth, and was up 22% in constant currency, driven by new product introductions, increased sales investments, and the penetration of new therapies.

In neuromodulation, we continued our momentum from 2011 and grew our worldwide business 8% in constant currency during the first quarter, with 8% growth in the US market and 21% international growth.

These sales increases were driven by a differentiated product portfolio, including our recently-launched Infinion Lead and strong commercial execution strategies.

Moving on from sales, adjusted gross profit margin for the first quarter was 66.5%, or 130 basis points lower than the first quarter of last year.

It is important to note that gross margins in the first quarter of last year were positively impacted by approximately 270 basis points due to a $50 million true-up adjustment recorded during that period, related to our third-party supply arrangement for PROMUS.

Excluding this benefit, gross margins were higher in the first quarter of this year, primarily due to the continued mix shift toward self-manufactured product in the US as a result of the recent launches of PROMUS Element in the US and Japan.

This was partially offset by pricing pressure, although the negative impact of pricing was less than expected during the quarter.

Looking forward, we expect gross margins to be between 67% and 68% over the remaining of the three quarters of the year, as we complete our transition back to self-manufactured products in DES and the benefits from our plant network optimization program continue to take hold.

Adjusted SG&A expenses were $654 million or 35% of sales in Q1 2012, compared to $592 million or 30.8% of sales in the first quarter of last year.

The increase was primarily due to the release of approximately $20 million in bad debt reserves, relating to fully-reserved accounts receivable collected in Greece in the prior-year quarter, as well as increased cost in the first quarter this year, resulting from our recent investments in commercial resources and infrastructure to support emerging markets initiatives.

And to expand the roll-out of recently-acquired products including Alair and WATCHMAN, as well as litigation-related charges.

We continue to expect adjusted SG&A as a percentage of sales to be between 33% and 34% for the full year, with much of the increase compared to 2011 due to one-time benefits realized in the prior year as well as commercial investments related to emerging markets and new products made over the past year and litigation-related charges.

Based mainly on the estimated timing of spending within the year, we expect to be near or above the high end of our SG&A guidance range in Q2, and within the range in the third and fourth quarters.

Adjusted research and development expenses were $215 million for the first quarter, or 11.5% of sales.

This compares to $212 million in the first quarter 2011.

We continue to expect R&D spending to increase slightly each quarter, as we progress through the year and to be between 12% and 12.5% of sales for the full year, as we ramp spending in several of our priority growth initiative areas.

Royalty expense was $48 million, or 2.6% of sales, compared to $51 million in the first quarter of last year.

Consistent with the prior year, we expect royalty expense to be relatively consistent from Q1 to Q2, and then decrease in the second half as we reach lower per-unit royalty rate tiers under our annual volume based arrangements.

On an adjusted basis, pretax operating income was $323 million or 17.3% of sales, down 610 basis points from the first quarter of last year.

The decrease in adjusted operating income was primarily the result of lower gross margins and higher SG&A expenses, and was largely attributable to several positive items in the first quarter of last year, including the PROMUS supply agreement true-up and bad debt recoveries in Greece that I mentioned earlier.

GAAP operating income, which includes GAAP to adjusted items, that had a negative impact of $127 million on a pretax basis was $196 million in the first quarter.

Now I'll move on to other income and expense.

Interest expense was $69 million in the first quarter, which was $6 million lower than the first quarter of last year, primarily due to our prepaying $1.25 billion of debt in the first half of last year.

Our average interest expense rate in the first quarter this year was 5.8%, or about 50 basis points higher than the first quarter of last year, primarily due to prepaying short-term debt with lower interest rates than our long-term public bonds.

Our tax rate for the first quarter was approximately 8% on a reported GAAP basis, and 12% on an adjusted basis.

Our adjusted tax rate in the first quarter reflected a decrease in our expected full year operational tax rate from 17% to 15%.

Our Q1 adjusted tax rate also reflected $8 million discrete tax benefits recognized in the first quarter, which primarily related to the release of tax reserves, following a favorable court decision, as well as certain timing items during the quarter.

We expect our adjusted tax rate to be slightly higher than 16% over the remainder of 2012 as the Q1 timing items reverse.

First-quarter EPS was $0.15 on an adjusted basis and $0.08 on a GAAP basis, both of which were above our respective guidance ranges.

GAAP EPS for the first quarter included about $0.01 per share of restructuring related costs, amortization expense of $0.06 per share, and less than $0.01 per share of both acquisition and divestiture-related charges.

Stock comp was $27 million in the first quarter, and all per share calculations were computed using approximately 1.45 billion shares outstanding.

At the end of the first quarter, we had approximately 1.43 billion shares outstanding.

Moving on to the balance sheet.

DSO of 64 days was up 2 days compared to the first quarter of 2011 due to the continued weakness in EMEA, partially offset by strong US collections.

Days inventory on hand was 128 days in the first quarter of both this year and last year.

On a reported GAAP basis, operating cash flow was $212 million, compared to a $97 million outflow in the first quarter of last year.

Q1 2012 cash flow included $39 million of restructuring payments.

Q1 2011 cash flow included a $296 million payment to settle a legacy legal claim, $31 million in tax audit settlements, and $33 million in restructuring payments.

Excluding these items, adjusted operating cash flow was $251 million in the first quarter this year, compared to $262 million in Q1 of last year.

Capital expenditures were $66 million in the first quarter, comparable to last year.

In the first quarter we returned to full investment grade status when Moody's raised our credit rating to Baa3 with a stable outlook.

This marks the first time since 2007 that all three rating agencies assess our credit profile as investment grade.

We also strengthened our financial flexibility by putting in place a new five-year $2 billion revolving credit facility yesterday, which replaces our previous facility.

We believe these developments further support our ability to invest in innovative technologies for use by physicians and their patients, as well as to fund other shareholder value initiatives.

Turning to share repurchases.

We repurchased 23 million shares for approximately $140 million in the first quarter.

During the past nine months, we have now repurchased approximately 7% of our outstanding shares.

At our current stock price, we estimate we have almost $600 million of authorized capacity remaining under our share repurchase programs.

We continue to believe that our stock price is undervalued, and we expect our full-year 2012 share repurchases to be in line with our prior guidance, subject to business development opportunities, market conditions, our stock price, and regulatory trading windows and other factors.

We remain very confident we can balance our priorities, investing in growth and returning capital to shareholders over time, all while improving our investment grade metrics on the strength of solid cash flow.

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

We expect Q2 consolidated revenues to be in a range of $1.850 billion, to $1.950 billion.

If current foreign exchange rates hold constant, the headwind from FX should be approximately $40 million or around 200 basis points, relative to the second quarter 2011.

On an operational basis, we expect consolidated Q2 sales to be in a range of up 1% to down 4%, compared to the second quarter of last year.

On a worldwide basis, we expect DES revenue to be a range of $345 million to $370 million, and CRM revenue to be in a range of $500 million to $525 million.

We expect second-quarter adjusted EPS to be in a range of $0.14 to $0.17 per share, and reported GAAP EPS to be in a range of $0.06 to $0.09 per share.

Moving to the full year, we now estimate that consolidated 2012 sales will be between $7.35 billion and $7.65 billion.

Assuming that current foreign exchange rates hold constant, we expect the full year headwind from FX to be approximately $106 million.

On an operational basis, consolidated 2012 sales should be in a range of up 2% to down 2%, with year over year growth rates improving sequentially as we benefit from new product launches, increasing contributions from emerging markets, and continued stabilization and easier comps in the US defib market as we anniversary the significant declines we experienced last year.

From an earnings standpoint, we continue to expect adjusted EPS for the full year 2012 to be in a range of $0.60 to $0.70 and would again encourage you to model the midpoint of the range.

Excluding any one-time items that may arise, we continue to expect adjusted EPS to increase sequentially as we progress through the year, due to an increasing level of benefits from several key components of our $650 million to $750 million in cost saving opportunities.

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

As a reminder, we expect the pending acquisition of Cameron Health to be approximately $0.01 dilutive to 2012 EPS on an adjusted basis and more dilutive on a GAAP basis.

However, we do not plan to incorporate expected impacts from this transaction into our guidance until the transaction is closed.

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.

Perky, let's open it up to questions for the next 20 minutes or so.

In order to enable us to take as many questions as possible, please limit yourself to one question and a related follow-up.

Perky, please go ahead.

Thank you.

(Operator Instructions).

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

Please go ahead.

Hi.

Thanks.

First, a guidance question and maybe a follow-up.

I think the one thing in the guidance that kind of caught me was you guided to a sequentially down CRM performance in the second quarter.

You did $535 million.

You guided to $500 million to $525 million.

That's despite your comments about potential stabilization in the ICD market, and obviously, more importantly, all of your product launches in ICDs and pacers.

Could you just maybe walk us through that and why would CRM revenues be down sequentially?

Well, Mike, let me go back and clarify.

We did $500 million in the first quarter.

And we're guiding to a range of higher than that.

I'm not sure what --

I apologize.

When you guided to that, you were excluding the EP business?

That's correct.

Okay.

So you're excluding the -- so you're looking at it -- okay.

That makes more sense to me.

That's perfect.

That's fine.

Let me ask you a couple pipeline questions, if I can.

You gave a little bit more clarity on the pathway for a couple of programs.

One was Synergy, that approval late this year.

Could you talk a little about the time line between approval and actually launch and synergy and what the factors might be there?

Mike, this is Hank.

I'll ask Dr.

Dawkins to comment as well.

We expect approval early as late 2012 on Synergy.

Then we'll go into what we refer to as a limited launch for a period of time in Europe and then from there, a full launch.

The exact timing of how long the limited launch would be and when we do full launch is to be determined, and would be driven by the clinical protocol.

Keith, do you have anything you want to add to that?

Just to add that even with the limited launch, which will be limited to certain accounts, we will have the full matrix of Synergy products both in terms of length and diameter of stent and that will then be followed by a formal investigation of a short DAP regimen, three months against 12 months in a very large trial.

And then one other pipeline question, I'll let others jump in.

On the Lotus program, the CE Mark trial that you've move into, could you just tell us what sizes you'll be evaluating, and whether that will just be a transfemoral study or will there be a transapical component?

Thanks.

REPRISE 1, that's the feasibility trial we will complete tomorrow and the results of the 23-millimeter valve used in that trial will be reported at EuroPCR next month.

REPRISE 2, which is the CE Mark trial, will commence in Q3 this year, and we'll be investigating the 23 and 27-millimeter valves using the transfemoral approach in four countries, Australia, UK, France and Germany.

That will lead to CE Mark in the second half of 2013.

Mike, did you get that?

Yes, perfect.

Thanks.

Thank you.

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

Please go ahead.

I also wanted to focus on the pipeline a little if I could.

Hank, you provocatively said that INGENIO launch, maybe the opportunity's under appreciated.

Could you remind us where your share is now, in your opinion, and where can a strong INGENIO launch take share over the next couple years?

Mike Mahoney's been spending a lot of time focused on the CRM business.

Mike, I'm going to let you take that one.

On the INGENIO launch, we're excited about that.

It just got launched in Europe very recently.

This is our first pacer platform launch in about a decade.

This is really an important market for us given our low share position, as you said about 15% and also the growth of the pacer business along with our investments in emerging markets.

As you know, it's about a $4 billion market.

And we have a number of platform products that will continue to come out over the next three years.

We'll be launching a new pacer platform along with a new CRT platform, CRTP platform, and also incorporate remote patient monitoring and also MRI compatibility will be available in Europe in the second half of 2012.

And also, we're looking for a US launch later in the second quarter of 2012, with an MRI clinical trial that will also take place.

So this is a big market.

It's our first meaningful launch, significant investment, and with the commercial capabilities that we have in Europe and in emerging markets in the US, we expect to take share in this market with the product.

Rick, the only thing I would add to that is the appetite for our commercial team to get their hands on this product is high.

I bet.

If I could follow up on Cameron.

Of course I'd love to ask you whether you think the panel will be positive and when approval will come, but I'll skip past that and ask, can you frame the opportunity?

I just had a recent doc call.

The doc said he thought, initially, once approved, that Cameron could take 8% of the market and long-term maybe more like 10% to 12% of the market.

So do you think that this expands the opportunity, the ICD market opportunity?

Does this cannibalize existing sales?

Just frame that, just your latest thoughts.

Thank you so much.

On Cameron, that's a great question.

We view the defib market today about $6.5 billion.

The team from Cameron has reported in their announcements that they believe the SICD, given its unique characteristics, could potentially address up to 40% of that market, and as you said when you spoke with your EP physician, he believed it was 5% to 10%.

The Cameron team would say it's up to 40%.

We believe that this will be clearly a $1 billion market opportunity for us, because we believe it meets unmet patient needs with young patients, patients who have difficulty with their venous system, patients prone to infection and also with the growing concerns over lead reliability, which thankfully as Hank articulated, we do have the most reliable lead in the business today.

But having a solution that has an SICD platform, that does not have the lead dropping into the heart, combined with our new platform, really positions us very strongly in the ICD marketplace.

So the marketplace overall, we're calling at minimum $1 billion market opportunity going forward.

Thanks so much.

Thank you.

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

Please go ahead.

Jeff, I wonder, there's a dramatic number of dynamics going on right now in the DES market from discussion around obviously PROMUS Element conversion, stent compression, pending RESOLUTE, as well as kind of pricing.

As you think about your business across the quarters, is it safe to assume your guidance basically sticks kind of flattish DES growth in the second quarter, flattish absolute dollar growth?

Is it safe to assume that quarter in your mind will represent a trough for your DES business, or is that not as visible right now?

Well, I think we came into the year, David, kind of knowing that with the Medtronic and Tegra RESOLUTE coming into the market, there was going to be a quarter or two where we had some disruption in terms of share, and I think that's happening earlier than we anticipated.

We originally anticipated that to hit the market in the second quarter.

We're going through kind of that air pocket, so-to-speak earlier.

That will probably take us the next couple of quarters to see where all the share shakes out.

But ultimately look at the back half of the year.

We feel pretty good about our product and its attributes and think we can kind of be in a good position from a share perspective.

We'll have to see how that plays out.

David, this is Hank, the only thing I would add to that is correct which I agree with entirely in terms of what Jeff just said, is don't underestimate the impact of the long stent, the 38s and 32s.

Those are sizes that aren't available to all competitors now.

Once we have those in our hands, I think that will enhance, as I said in my script, our share position.

Very, very helpful.

Maybe two more quick ones.

The first is just on Cameron.

I know we've had some questions about market sizing.

In terms of margins, obviously a critical component of the Boston story.

In the first several quarters of launch, or first year or 18 months of launch, do you think that Cameron can be gross margin accretive and/or conversely, can Cameron still be EBIT margin accretive when you consider potential cross-selling, and maybe just one quick follow-up.

That's a multi-pronged question because Cameron in and of itself given its start-up nature, smaller Company, procuring components on its own doesn't have the leverage that we have.

When their product comes out, the margins will not be at our corporate margins.

However, I think as Mike clearly laid out, we think there's a benefit not only with that product, but follow-on sales as well.

So this not only kind of the impact of getting their margins up higher, which with plan to do, and they have successive product generations in their pipeline to do that, to address the gross margins, but we think we're going to get into incremental accounts we're not in today and get follow-on business.

That will come at our variable margins, which will be accretive to our overall margins.

There will be a mix issue.

Net-net, that's going to be a pretty good deal for us.

We're pretty excited about it.

Great, Jeff.

Lastly, just an asthmatics.

I may have missed it, Could you give us any sense, absolute quantification, of what the contribution of asthmatics could be either as percent of growth or absolute dollars in 2012?

I think we've been very clear, from the beginning that we're very excited about asthmatics.

And Hank in his script laid out some of the positive reimbursement milestones.

We expect those to accelerate as we go through this year, to pick up steam.

I'm not going to share with you an explicit dollar amount at this point in time, but we continue to believe that technology, in and of itself, has the capability in 2013 to noticeably move the top line of the Company.

It's one of seven technologies we have coming out in the next two years which we think can kind of move the top line of the Company.

Very helpful.

Thank you.

Our next question comes from the line of Glenn Navarro with RBC Capital Markets.

Two questions.

One on US ICDs, your ICD number beat our expectations, and I'm curious how your business performed in the quarter.

The reason I'm asking, is a lot of the Riata noise really resurfaced in the month of March.

Did you see a lot of growth coming in March because of the Riata issues, or was growth just steady throughout the quarter?

And then I had a follow-up on stents.

Glenn, it's Mike Mahoney.

We have seen an increase over the past 30 to 60 days in the selling of our RELIANCE leads.

As we look, we track our cam sales as well as our lead sales, and over the past 45 days, we have seen an uptick in our lead sales.

One, based on the attributes and strength of their reliability and survivability of those leads, I think given the public pressures of some of our competitors, and the confidence that EP doctors have in our lead reliability.

We have seen an increase there and continue to anticipate that lead performance will continue to grow in the second quarter, and combined on the heels of that, we will be continuing the roll out of our new platform launch in the US, as we scale the operations up for that.

Thank you.

And then Hank, you mentioned the importance in the stent market of the 38-millimeter and the 32-millimeter sizes.

Can you remind us what percentage of the market are these longer stents, and will these stents be launched at a premium to help pricing in the second half of the year?

I don't know off the top of my head.

We can get it to you, Glenn, what percentage of the market the longs represent.

But we'll follow up with you on that.

We're right in the middle of determining our pricing strategy for that, and I don't want to let the competition who's on the line know what we intend to do.

Thank you.

Thank you.

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

Please go ahead.

Jeff, it would be helpful I think, to get an update from you on the $650 million to $750 million in cost savings, cut by program and the timing of each.

And then I just had one follow-up.

Okay.

Larry, let me go through each of the pieces.

The first piece is PROMUS Element.

We're very encouraged by six months earlier than expected approval in the US, full-quarter earlier approval in Japan and a full-year earlier in Canada.

So that $200 million we feel very good about.

I think I said last quarter, that we thought two-thirds of it would fall in 2012.

I think that's probably a pretty good -- still a pretty good estimate, with other third falling in 2013.

The next category is manufacturing VIPs, which is our plan to take out 5% of standard costs every year.

That's on track.

We have a world-class manufacturing group and so we continue to do very well there.

That $200 million is spread over the five years pretty equally.

We're on track with that.

That will happen every year, the $40 million of that.

Net corporate SG&A, we had $100 million to $200 million of savings in the $650 million to $750 million.

As you'll recall, we announced a restructuring plan to take out $225 million to $275 million of costs in the second quarter of last year.

So we actually have a plan to exceed that by $25 million to $75 million.

That's going well.

I suspect we may even come up with incremental costs on top of that, that we can take out as we continue to kind of work on our cost structure so we feel very good about that.

Not much of that really benefits this year.

Most of that benefits 2013 and 2014.

So that's benefit ahead of us which is good news.

Bunch of transformation in running the R&D function more efficiently, there's about a $200 million savings as we grow the top line of the Company.

We're on track for that.

That's a multi-year approach, more 2013, 2014, and 2015.

The last component is the plant network optimization and there we had a plan to save $100 million of costs, all hitting the gross margin line.

We closed the last of the plants, the largest plant in Miami at the end of the fourth quarter of last year, so those savings -- some of that savings already kind of occurred in 2011.

There's a big chunk in 2012, and there's a small tail that happens in 2013.

And then of course we have the med tech tax going the other direction, and unfortunately that looks like it will probably continue to be a challenge for us all, unless something different happens, but we'll plan as though we have to work our way through it.

Jeff, lastly, could you remind us of your expectations for the US ICD business growth in 2012?

In the past, you said you expect sequential improvement by quarter.

Is that still the case?

So are you talking market or are you talking our business?

Your business.

Yes.

So I'll do both because I think it's important for people to understand that, just to reiterate what happened to the market as we look at the defib market last year.

And the real air pocket happened, relative to the market, in kind of the back half of last year, Q3, Q4, where the market was down kind of in the mid-teens.

So as we look at our business we've seen stabilization from a market perspective now for two quarters, almost seven or eight months in a row now, which is great news.

What we expect to have happen is, as the market stabilizes and we reach easier comparables, with the back half of 2012 compared to the back half of 2011, we think that the market will kind of be down kind of mid-single digits to low-single digits on a dollar basis and we think we can be t flat to slightly positive on that, with the benefit of taking some share with our new project line.

Thank you.

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

Please go ahead.

Last year was such an awful year in the ICD market, and but the JAMA article really kind of talked about 6% of overall units, like 20% or 30% of primary prevention ICDs, and we looked at some data, and it really looked like a hidden factor in last year's market dynamics was destocking.

Could you kind of put that in framework for us?

Yes.

I think it's a good comment, and it's something that I think the whole -- looking at competitors' reactions and their commentary, they seem to be experiencing the same thing.

So clearly, I think what's happening is hospitals are being run differently from a working capital perspective, and they're not nearly as interested in carrying inventory they don't have to carry, and that has an impact on those that bulk or ship inventory at the end of the quarter.

So that definitely has an impact.

We have seen a decline in our bulk sales, the last two or three quarters.

It's had an impact on our growth.

However, I will point out, though, that we have a fairly conservative approach, where anything over 30 days supply, we defer from an accounting perspective.

We don't count as revenue.

That's not the same for the competitors.

So when you're talking bulk, and you're talking across the sector, you have to be very careful in terms of what's actually shipped versus what's recognized from a revenue perspective.

Clearly, the customer group seems to be moving away from that concept, which is fine for us, because we don't bulk a lot to start with.

We have seen less bulk sales in the past couple quarters.

Perfect.

And then turning back to Cameron, like if 30% of the ICDs are primary prevention ICDs, our survey says about 25% of those patients really have low therapy burden.

Another 5% to 10% have high infection risk.

This is like just first pass, this is at least 10% of the market.

So the question I have is the first-gen device optimized enough in terms of size and maybe SVT discrimination to really reach full potential, and where are you in the kind of design stages of next-gen devices that further optimize the concept?

Bruce, this is Jeff.

Because the transaction hasn't closed, we're going to stay away from any more further detail relative to the transaction.

We will certainly be more than willing to kind of answer those questions after the transaction closes.

I guess then a follow-up is to Keith.

PCI volumes have really suffered since COURAGE.

And it sounds like the FAME-II trial is almost an anti-COURAGE trial, where it says if a lesion is physiologically important, it should be stented.

What's your feeling about PCI volumes and maybe the import of FAME-II?

Obviously, Bruce, we don't have the FAME-II data yet.

My personal feeling is that the pendulum has swung too far.

Seeing recently some cases where there are sort of 99% lesion, and people measuring FFR, on the assumption that they need another test to justify the treatment.

It's always difficult to predict volumes and hit rates in different geographies.

I think the FFR pendulum will swing back, and I think volumes will pick up.

It's very difficult to predict that.

And it certainly is different in the US compared with Europe and other markets.

Clearly, we are emphasizing a lot of our growth opportunity in India, China and Brazil in markets that previously we've underpenetrated, where PCI volumes and PCI growth is in double digits.

Thanks so much.

Thank you.

And our next question comes from the line of Raj Denhoy with Jefferies.

Please go ahead.

Hi.

Good morning.

Wonder if I could ask a bit on price.

You mentioned a couple times, I think both in relation to drug-eluting stents but also broadly as it impacted gross margins, that pricing was a little less impactful in the quarter.

Perhaps you could give us a little more commentary around that.

This is Jeff.

We exited last year encouraged that pricing in the DES space in the US was down mid-single digits versus down upper-single digits but it was too early to kind of call the pricing dynamic.

So we entered the year with the assumption that price was still the upper-single digit compression for the DES business in the US.

We saw better performance, once again in the first quarter, which is very encouraging, and would hope that would continue going forward.

So that is encouraging.

I would say pricing outside the US was relatively unchanged in the DES world, kind of upper-single digit compression and then pricing from the CRM market was pretty consistent with what it was in the fourth quarter.

Okay.

Great.

On the product portfolio, you mentioned your renal denervation product you're moving into first in man, I think you said third quarter with a launch next year.

When might we see some more detail around your program?

What the technology is, any more detail?

We'll be more than happy to give you some of that detail.

I think we're probably about a quarter away from uncovering that in more specifics, let's call it.

So I'd say that our earnings call we'll talk a bit more about specifically what that program is, and some of the product features and benefits associated with.

Okay.

Fair enough.

Just one last one, if I could.

It was very helpful to lay out kind of all the cost saving plans you have outlined.

The SG&A savings in 2013 and 2014, and beyond.

I'm curious how you think of that net of the additional investments that a lot of these new programs are going to require, and also the expansion internationally.

Is there a chance that the costs for these programs could be offset in a sense to the benefits you think you'll see, or are those numbers you're providing really net numbers?

That's a good question, Raj.

Just so people understand, those are gross numbers.

Those are gross savings and against that, we have kind of our planned investments relative to the emerging markets, and new technologies and the acquisitions we've done.

But to be clear, our expectation as of the Investor Day, and as it stands today is to expand operating margins and to grow the EPS of the Company double digits and we feel l with this strong line-up of cost saving opportunities, we have the capability to do that.

Okay.

Fair enough.

Thank you.

With that we'll conclude the call.

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We appreciate your interest in Boston Scientific.

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