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Company Name: Boston Scientific Inc Company Ticker: BSX Sector: Health Care Industry: Health Services Event Description: Q3 2014 Earnings Call © 2014 TheS treet, I nc. All Rights Reserved Page 1 of 26 Boston Scientific (BSX) Earnings Report: Q3 2014 Conference Call Transcript The following Boston Scientific conference call took place on October 22, 2014, 08:00 AM ET. This is a transcript of that earnings call: Company Participants Susie Lisa; Boston Scientific; VP - IR Mike Mahoney; Boston Scientific; President, CEO Dan Brennan; Boston Scientific; EVP, CFO Keith Dawkins; Boston Scientific; Chief Medical Officer Ken Stein; Boston Scientific; Chief Medical Officer Other Participants Bruce Nudell; Credit Suisse; Analyst Rick Wise; Stifel; Analyst David Lewis; Morgan Stanley; Analyst Mike Weinstein; JP Morgan; Analyst Bob Hopkins; Bank of America; Analyst Glenn Novarro; RBC Capital Markets; Analyst Kristen Stewart; Deutsche Bank; Analyst Brooks West; Piper Jaffray; Analyst Larry Mickelson; Wells Fargo; Analyst Josh Kinney; Cowen and Company; Analyst MANAGEMENT DISCUSSION SECTION Operator : Ladies and gentlemen, thank you for standing by and welcome to the Boston Scientific Q3 2014 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Susie Lisa. Please go ahead. Susie Lisa (VP - IR): Thank you Roxanne. Good morning, everyone and thanks for joining us. With me today all call are Mike Mahoney President and Chief Executive Officer and Dan Brennan Executive Vice President and Chief Financial Officer. We issued a press release earlier this morning announcing our Q3 2014 results which included reconciliations of the non-GAAP measures used in the release. We have posted a copy of that release as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations Section of our Web site under the heading financial information.

Boston Scientific (BSX) Earnings Report: Q3 2014 ...s.t.st/media/xtranscript/2014/Q4/12923592.pdf · Management, and 5% in medical surgical. We expanded operating margins to 20.5%

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Page 1: Boston Scientific (BSX) Earnings Report: Q3 2014 ...s.t.st/media/xtranscript/2014/Q4/12923592.pdf · Management, and 5% in medical surgical. We expanded operating margins to 20.5%

CompanyName:BostonScient if icIncCompanyTicker:BSXSector:HealthCare

Industry:HealthServicesEventDescription:Q32014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page1of 26

BostonScientific(BSX)EarningsReport:Q32014ConferenceCallTranscriptThefollowingBostonScientificconferencecalltookplaceonOctober22,2014,08:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

SusieLisa;BostonScientific;VP-IRMikeMahoney;BostonScientific;President,CEODanBrennan;BostonScientific;EVP,CFOKeithDawkins;BostonScientific;ChiefMedicalOfficerKenStein;BostonScientific;ChiefMedicalOfficer

OtherPart icipants

BruceNudell;CreditSuisse;AnalystRickWise;Stifel;AnalystDavidLewis;MorganStanley;AnalystMikeWeinstein;JPMorgan;AnalystBobHopkins;BankofAmerica;AnalystGlennNovarro;RBCCapitalMarkets;AnalystKristenStewart;DeutscheBank;AnalystBrooksWest;PiperJaffray;AnalystLarryMickelson;WellsFargo;AnalystJoshKinney;CowenandCompany;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:

Ladiesandgentlemen,thankyouforstandingbyandwelcometotheBostonScientificQ32014EarningsConferenceCall.

(OperatorInstructions)Asareminder,thisconferenceisbeingrecorded.

Iwouldnowliketoturntheconferenceovertoourhost,SusieLisa.

Pleasegoahead.

SusieLisa (VP-IR):

ThankyouRoxanne.Goodmorning,everyoneandthanksforjoiningus.WithmetodayallcallareMikeMahoneyPresidentandChiefExecutiveOfficerandDanBrennanExecutiveVicePresidentandChiefFinancialOfficer.

WeissuedapressreleaseearlierthismorningannouncingourQ32014resultswhichincludedreconciliationsofthenon-GAAPmeasuresusedintherelease.

Wehavepostedacopyofthatreleaseaswellasreconciliationsofthenon-GAAPmeasuresusedintoday'scalltotheInvestorRelationsSectionofourWebsiteundertheheadingfinancialinformation.

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CompanyName:BostonScient if icIncCompanyTicker:BSXSector:HealthCare

Industry:HealthServicesEventDescription:Q32014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page2of 26

Thedurationofthismorning'scallwillbeonehour.

Mikewillbeginourpreparedremarkswithanupdateonourbusinessprogressandhisperspectiveonthequarter.

DanwillthenreviewouroverallQ32014financialresultsaswellasguidanceforfull-year2014andQ42014.Duringtoday'squestion-and-answersessionMikeandDanwillbejoinedbyourChiefMedicalOfficersDr.Dr.KeithDawkinsandDr.KenStein.

BeforewebeginI'dliketoremindeveryonethatthiscallcontainsforward-lookingstatementswithinthemeaningoffederalsecuritieslawswhichmaybeidentifiedbywordslikeanticipateexpectbelieveestimateandothersimilarwords.

Theyincludeamongotherthingsstatementsaboutourgrowthandmarketsharenewproductapprovalsandlaunches,clinicaltrials,costsavingsandgrowthopportunities,ourcashflowandexpecteduse,ourfinancialperformanceincludingsalesmargins,earnings,andotherQ4andfull-year2014guidanceaswellasourtaxrate,R&Dspend,andotherexpenses.

Actualresultsmaydiffermateriallyfromthosediscussedintheforward-lookingstatements.

FactorsthatmaycausesuchdifferencesincludethosedescribedintheriskfactorsSectionofourmostrecent10-Kandsubsequent10-Q'sandbasecasefiledwiththeSEC.

Thesestatementsspeakonlyasoftoday'sdateandwedisclaimanyintentionorobligationtoupdatethem.

AtthispointI' llturnitovertoMikeforhiscomments.

MikeMahoney(President,CEO):

Thankyou,Susieandgoodmorning,everyone.

BostonScientificdeliveredexcellentresultsinthirdquarterastheCompanycontinuestostrengthenandbuildglobalmomentum.

Ourresultsweredrivenbyabovemarketrevenuegrowthacrossalmostallofoursevendivisionswithmid-to-uppersingledigitgrowthinallthreeofourbusinessgroups.8%incardiovascular,7%inrhythmManagement,and5%inmedicalsurgical.

Weexpandedoperatingmarginsto20.5%representing120basispointimprovementyear-over-yearanda70basispointimprovementquarter-over-quarter.

Andwedelivered20%year-over-yearadjustedEPSgrowth.

Ourthirdquarterresultsreflectoursharpfocusondeliveringmeaningfulinnovationtoourpatientsandphysicianswhilealsoprovidingclinicalandeconomicvaluetoourcustomers.

Thirdquarterresultsbuiltonourfirsthalfmomentumandthroughninemonthswehaveachieved5%operationalsalesgrowthand20%adjustedEPSgrowthdemonstratingstrongexecutionofourstrategicplancontinuedmomentumofourdiversifiedproductportfolioimprovedpositioninginourcoremarketsandstrongprogressonourgrowthinitiatives.

WecontinuetobelievethatBostonScientificisuniquelypositionedtodrivesustainabledouble-digitEPSgrowthgivenourreinvigoratedculture,ourstrongpipeline,globalexpansionandsignificantopportunitiesformarginimprovement.

I' llnowprovidesomebriefhighlightsonthirdquarterandthoughtsonouroutlook.

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Industry:HealthServicesEventDescription:Q32014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page3of 26

Danwillreviewthefinancialsandfourthquarter2014guidanceandthenwe'lltakeyourquestions.

Sopleasenotethatinmyremarksallreferencestogrowthareonayear-over-yearconstantcurrencybasisintermsofhighlightsforthequarterfirstwedeliveredbalancedrevenuegrowth.

Allthreeofourbusinessgroupsandregionswhoabovemarket.

Secondwedeliverexceptionalperformanceininterventionalcardiologyandthirdwecontinuetobuildontrackrecordofconsistentrevenuegrowthandexpandingoperatingmargins.

Startingwithourbalancedrevenuegrowthour6%reportedgaininsalesafternormalizingforforeignexchangeatacquisitionsrepresents5%organicrevenuegrowth.

I' lldiscusstheexcellentgrowthdeliveredbyourICdivisionshortlybutI'dalsoliketonotethatcardiacrhythmManagementgroupdeliveredstrong4%growthforthesecondquarterinarowledbyS-ICD,ournewminiICDandourexportquadripolarCRT-DsysteminEuropeandpulsegeneratorintheUS.PatientandphysiciandemandforourS-ICDtheonlydefibrillatorthatdoesn'trequireleadsonthehearthasbeenverystrong.

Wedon'thaveafull-yeargoalofachieving$100millioninS-ICDrevenuein2014.ThebreadthoftheS-ICDclinicaldatasetcontinuestogrowastheIDEandeffortlessshowlowcompetitionapplicationrateswithnoleadfailuresandnosystemicinfections.

AndwecontinuetomakeprogressonpayercoveragewithAetnarecentlyannouncingbroadercoverageforS-ICDpatients.

WecontinuetogainshareindenovoICDimplantsandwebelievethatwehavenotthenumbertwoUSsharepositionindenovoICDimplantsnon-CRT-D.

Wealsobelievethatwe'rebeingrewardedfortheclinicalandeconomicvalueofourbatterylongevity.

Twoveryrecentnewindependentcontemporarylongevitystudieswerepresentedatlastmonth'sheartfailureSocietyofAmericaandhaveaddedtoagrowingbodyofevidencethatdemonstratesthesuperiorityofBSClongevity.

Thesedenovosharegainsareoffsettingreplacementheadwindsthatwilllikelypersistforanother18to24monthsgivenoursuperiorbatterylongevity.

InCRT-DwebelievewehavegainedatleastonepointofTadawulsharesincelaunchingourexportquadportquadforpulsegeneratorinUSthespringbutstillfacelongevityreplacementheadwindsinthissegment.

OurMedSurgdivisioncontinuestoitsconsistentperformancewhichisledbyendoscopyaccelerating7%growthduetothedepthandbreadthofitsproductportfolioandstronggloballeadershipposition.

Urologywomen'shealthalsogrewabovemarketasourstrategytoinvestinkeyInternationalgeographiesfueleddouble-digitbothandallInternationalregionsforthefifthconsecutivequarter.

Keytothisgrowthhasbeenanewproductregistrationswithmorethan130year-to-dategloballyandastrongfocusonphysiciantraining.

AndonceagainEuropedeliveredimpressiveresultswithsalesgrowthof11%whichweviewasaconfirmationofourreinvigoratedportfolioandstrategicapproach.

WithinEuropeICurologywomen'shealthandNeuromodallgrewdoubledigitswhileCRMandEndosaleswereupmid-singledigits.

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Industry:HealthServicesEventDescription:Q32014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page4of 26

WewillcontinuetodiversifyourportfolioinkeysegmentssuchastherecentlyclosedacquisitionoftheinterventionaldivisionofBayerAGwhileweexpandgeographically.

EmergingMarketsgrew19%andnowrepresent10%ofourtotalsales.

NowturningtoIC,wedeliveredsalesgrowthofICof8%andinterventionalcardiologydrivenbycontinuedstrongperformanceofourPROMUSPremierDES.

WhatwebelievewehavemaintainedUSmarketleadershipandgainedmeaningfulshareinJapan.

Otherdriversincludedournext-generationsynergystentplatformournewlylaunchedrebelbaremetalstentstheunparalleledbreadthofourcomplexPCIportfolioandstronggrowthoffofasmallbasefromouractualheartfranchisewhichnowincludestheLotuspercutaneousvalve,andwatchmanleftatrialappendageclosuresolookingforwardwe'rebullishonaRubyrejuvenatedICpipelineincludingsynergyLotusandwatchmantonameafewaswellasourimprovedglobalsalesexecution.

Ourclinicalprogramsarealsoprogressingtoarecentlyenrolledourfirstpatientsandrepriced381,000patientclinicaltrialdesignedtosupportUSregulatoryapprovalfortheLotusvalvesystem.

Repricedthreeisahead-to-headrandomizedtrialintheUSthatispoweredtoshowapossiblebenefitwithLotusandthereductionofmoderateorsevereaorticregurgitation.

AttheAmericanHeartAssociationmeetingtheevolved2ourpivotaltrialdesignedtosupportsynergyUSapprovalwillbealatebreakingclinicaltrialpresentationinNovember19.WerealsoinactivediscussionswiththeFDAonwatchmanfollowingthefavorablevoteattheOctober8advisorypanelandwecontinuetotargetafirst-half15FDAapproval.

Finallyourcontinuingtrackrecordofconsistentrevenuegrowthandexpandingoperatingmarginsnowextendstosixstraightquartersofoperationalrevenuegrowth.

We'redeliveringonourfinancialcommitmentsandwe'rewellaheadofthetotalrevenuegrowthandEPScommitmentprovidedatourFebruary2013investorday.

Forthefirstninemonthsof2014operationalsalesgrowthwas5%andwe'veexpandedadjustedoperatingmarginsover100basispointsfromourfull-year2013rate,forthefirsthalfof2014BSCgrewadjustedEPS19%yearoveryearwhichiswellaboveourpeergroupgroup'sadjustedEPSgrowth.

Weremaincommittedtodouble-digitadjustedEPSgrowthandwebelievethisrepresentsattractivescarcityvaluegivenourrevenuegrowthandmarginexpansionopportunitiesrelativetopeers.

Wecontinuetomanageourlitigationriskandwe'reconfidentinourlegalstrategies.

Webelieveweareappropriatelyreservedandhavestrongliquidityandhaveaverymanageablecadenceofeventsshouldourlegalstrategieshaveunfavorableoutcomes.

Insummarystrengthandexecutionimprovedresultsinourcorebusinessaremorethanoffsettingsomeofthepromisingyetdelayedadjacencies.

OurEuropeanresultsareevidenceofourpromisingpipelineandwecontinuetodiversifyourportfolioinkeysegmentsandexpandgeographically.

Andwehavedeliveredconstantrevenuegrowthforsixstraightquarterswhiledrivingadjustedoperatingmarginexpansion.

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Akeydriverofupperconsistenttrackrecordistheculturaltransformationwefosteroverthepastthreeyearswhichisfoundinourcorevalues.

I'dliketothankouremployeesfortheirwinningspiritandacumentobarinBostonScientificandalsoextendawarmwelcometoournewmembersfromBayerinterventional.

SonowletmeturnthecallovertoDan.

DanBrennan(EVP,CFO):

Thanks,Mike.

I' llstartwithsomeoverallperspectiveonthequarterbeforedivingintothedetails.

WegeneratedadjustedEPSof$0.20comparedto$0.17inQ3of2013representing20%year-over-yeargrowthandachievingthehigh-endofourguidancerangeof$0.18to$0.20.TheimprovedperformanceinQ3wasdrivenprimarilybyoperationalrevenuegrowthandgrossmuchexpansion.

TheseimprovementwerepartiallyoffsetbySG&AspendingrelatedtoouracquisitionofBayerinterventionalcoreproductlaunchesandvariableemployeerelatedbenefits.

Wepostedanadjustedoperatingmarginsof20.5%whichrepresentsimprovementof120basispointsoverQ3oflastyear.

Webelievewe'reontracktomeetorexceedourprofitabilitygoalofroughly100plusbasispointsofannualoperatingbudgetimprovementwhichwouldresultinanadjustedoperatingmarginsof20%forthefullyear2014.Inadditionwegeneratedadjustedfreecashflowof$330millionandoperatingcashflowof$346millioninthequarter.

Wecontinuetoexecuteagainstourgoalsofconsistentrevenuegrowthandoperatingmarginexpansionandbelieveweareuniquelypositionedtodrivedouble-digitadjustedearningspersharegrowth.

NowI' llprovideadetailedreviewofourQ3businessperformanceandoperatingresults.

Andunlessstatedotherwisereferencestoquarterlyresultsincreasingordecreasingareincomparisontothethirdquarterof2013andallyear-over-yearrevenuegrowthratesaregivenonaconstantcurrencybasis.

Forthethirdquarterof2014consolidatedrevenueof$1.846billionexceededthehigh-endofourguidancerangeandrepresentedoperationalrevenuegrowthof7%.Whichexcludestheimpactofforeignexchangeandthedivestedneurovascularbusiness.

Onanasreportedbasisrevenuegrew6%youryear.

Excludinganapproximate150basispointcontributionfromtheBardEPandBayerinterventionalacquisitionsorganicrevenuegrowthwas5%inthequarter.

Theforeignexchangeimpactonsaleswasa$10billionheadwindcomparedtotheprior-yearperiodabout$19millionworsethanwehadassumedinourguidancerange.

I' llnowprovidemoredetailsontherevenueresultsforoursevendivisions.

Whichroleupintothethreebusinessgroups.

I' llstartwithmedicalsurgicalwheretotalgroupsalesof$588milliongrew5%andgroupadjustedoperatingincomeincreased120basispointsto32.4%.

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Industry:HealthServicesEventDescription:Q32014 EarningsCall

©2014TheStreet,Inc.AllRightsReserved Page6of 26

Endoscopysalesgrew7%worldwidewithstrongnewproductcontributiondrivinggrowthinallfranchisesmostnotablybiliary,tissueacquisitionandmetalstents.

AllregionspostedgrowthaswellandLatinAmericawasparticularlystronggrowing21%forthesecondquarterinarow.

Urologyandwomen'shealthworklivesalescontinuedtooutperformthemarketandgrew5%withparticularstrengthinternationallyatanimpressive57%emergingmarketsalesgrowth.

TocloseouttheMedSurgresultsourworldwideNeuromodulationbusinesswasflatinthequarterwhichwebelieveisbetterthantheoverallSCSmarketperformance.

AswepreviouslydiscussedchangestoMedicarereimbursementforphysicianofficetrialingofspinalcordstimulationsystemswentintoeffectonJanuary1andisnegativelyimpactingmarketgrowthin2014.We'refacingparticularlydifficultcomparisonsinthesecondhalfof2014giventheanniversaryofourprecisionspectralaunchcoupledwiththeaccelerationofphysicianofficetrialsintoQ4oflastyearinanticipationofthereimbursementchange.

Ourgoalremainstogrowfasterthanthismarketandthestrengthofourtechnologyandweareencouragedbyearlyphysicianfeedbackonournewlylaunchedcoveredge30tocontactpaddle.

Turningnowtothecardiovasculargroupwhichconsistsoftheinterventionalcardiologyandperipheralinterventionsdivisionwillsalesforthegrouptotaled$723millionandgrew8%.Cardiovasculargroupadjustedoperatingmarginsforthequarterof27.5%representeda150basispointimprovementyear-over-year.

Withincardiovascularworldwideinterventionalcardiologysalesof$508milliongrew8%.GloballyDESsalesgrew10%withUSDESsalesup13%andOUSDESsalesincreasing8%ledbyanimpressive12%growthinEurope.

Wecontinuedtoexecuteourmarketsegmentationstrategyandincreasedourmixofsynergyandselectmarketsto20%oftotaleuroDESsales.

DespitethereimbursementcutheadwindinJapanAsia'sDESresultswereup6%andwebelievewegainsharesequentiallyinJapan.

WorldwidecomplexPCIsolutionsorotherICgrew2%andincludesalllegacyinterventionalcardiologyproductlinesoutsideofDES.

Includingbaremetalstents,coreICproductswhichincludeGuidewire,balloonsandotheraccessoriesandimagingproductssuchasintravascularultrasound.

The2%growthincomplexPCIsolutionswasledbyimagingwith6%growthandcourtICwith3%growth.

Overallwe'reverypleasedwithourICperformanceinthequarterandbelieveitvalidatesourstrategytodriveabovemarketgrowthbyprovidinginterventionalcardiologistswiththebroadestportfoliooftechnologyanddifferentiatedproductstotreatthemostcomplexcoronarycases.

InstructuralheartourLotuspercutaneousvalvepostedsolidsequentialgrowthonaconstantcurrencybasisoffasmallbaseandwatchmancontinueditsstronggrowthwithrevenueup40%.

Peripheralinterventionsdeliveredworldwiderevenuegrowthof9%whichincludesroughlyonemonthofrevenuefromtheacquiredBayerinterventionalbusiness.

ExcludingthecontributionfromBayerinterventionalworldwidePIgrew5%.USgrowthof16%wasledby

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strengthininterventionaloncologyfranchiseaswellastheadditionoftheBayerinterventionalproductsandrevenuesynergieswithinthelegacybeaCPIbusiness.

ExcludingthecontributionfromBayerinterventionalUSBIgrew8%partiallyoffsettingthisweaknesswasweaknessinAsiawherewesawsomeproceduralsoftnessparticularlyinJapan.

FinallyI' lldiscussourrhythmManagementgroupwhichconsistsofourelectrophysiologyandcardiacrhythmManagementdivisions.

WorldwiderhythmManagementsalesinQ3of$534milliongrew7%.RhythmManagementadjustedoperatingmarginforQ3of14.1%presentsa160basispointtoprevent.

ThethirdconsecutivequarterwhererhythmManagementmarginshaveimprovedatleast100basispointsovertheprioryear.

Worldwideelectrophysiologyrevenuewasup57%withlegacyBSCEPsalesroughlyflat.

WeenteredintolimitedmarketreleaseforourRhythmiamappingandnavigationsystemwithsixsitesnowupandrunningintheUSandEuropeandstrongphysicianfeedbackgiventhesystem'shigherfidelityimagesacquiredinafractionofthetimerequiredbythecompetitorsystems.

ForthecardiacrhythmManagementdivisionQ3worldwidesalesincreased4%.GrowthinCRMwasledbyEuropewhichgrew6%.Onaworldwidebusinessbasisdefibsalesofgrew5%.USdefibrevenuepostedsolidgrowthof4%drivenbycontinuedS-ICDmove--S-ICDmomentumandthefirstfullquarterofcontributionfromourminiICDandourX4quadpulsegeneratoraswecontinuetogaindidnobleICshalesworldwidepacersaleswereflattotaling$132million.

Internationalgrowthwasstrongat8%ledbyadoptionofourIngeniofamilyofpacemakers.

WebelievewecontinuedtogainshareintheOUSpacermarket.

I'dliketoreiteratethatourbeliefisthatCRMtrendsourbestanalyzedovermultiplequarters.

Thiswasthesecondconsecutivequarterof4%worldwideCRMgrowthandCRMsalesareup2%onarolling12monthbasiswhichweestimatetobefasterthantheunderlyingcombinedpacemakeranddefiblatermarkets.

WecontinuetobelievewewillbeanetshareGainerinworldwideCRMin2014.TurningnowtotheP&Ladjustedgrossprofitmarginsforthethirdquarterwas71.1%up40basispointsyear-over-yearand80basispointssequentially.

Theincreasewaslargelyattributabletobenefitsfromourvalueimprovementprogramsactuallyoffsetbypriceerosion.

Wecontinuetobelieveourfull-yearadjustedgrossmarginswillbeintherangeof70%to71%.

Onceagaintheimpactofforeignexchangeupongrossmarginswasimmaterialasaresultofourhedgingprogram.

AdjustedSG&Aexpenseswere$701millionor38.0%ofsalesinQ3ofthisyear.

Notethatthisexcludesacquisitionanddivestiturerelatedchargesof$34millionthatareincludedinourGAAPresults.

OurQ32014adjustedSG&Araterepresentsan80basispointincreaseinSG&AspendingasapercentofrevenuecomparedtoQ3oflastyearduetohigherspendtosupportproductlaunchesandone-time

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itemsrelatedtovariableemployeerelatedbenefitsandouracquisitionofBayerinterventional.

WeexpectSG&AtodecreaseinQ4ofthisyearasapercentofsales.

Andwenowbelieveourfull-yearSG&Aspendwillbeintherangeof37%to38%ofrevenue.

Adjustedresearchanddevelopmentexpenseswere$212millioninthethirdquarteror11.5%ofsales.

Asapercentofsalesthisrepresentsa100basispointclientinyear-over-yearspendingduetoefficiencygainsandthetimingofprojects.

Wenowbelieveourfull-yearR&Dspendwillbeintherangeof11%to11.5%ofrevenue.

Royaltyexpensewas$21millioninthequarter.

Or1.1%ofsalesdown50basispointsyear-over-yearduetoamorefavorablethanexpectedroyaltystructureandweexpectourroyaltyrateinQ4ofthisyeartoberoughlyflattoQ4oflastyear.

Onanadjustedbasisthetaxoperatingincomewas$379millioninthequarteror20.5%ofsalesup120basispointsyear-over-yearand70basispointssequentially.

Adjustedpretaxoperatingincomegrew13%withallthreeofourreportablesegmentscontributingtotheimprovement.

GAAPoperatingincomewhichincludesGAAPtoadjusteditemsof$315millioninthequarterwas$64million.

TheGAAPtoadjusteditemsinthequarterincludelitigationTrojansof$139million,acquisitionanddivestiturerelatedchargesof$38million,restructuringandotherchargesof$29million,andamortizationexpenseof$109million.

Ourtotalaccrualforalllegalmatterswas$945millionasofSeptember30,2014.NowI' llmoveontootherincomeandexpensewhichprimarilyconsistedofinterestexpense.

Interestexpenseforthequarterwas$54millionwhichis$83millionlowerthanQ3oflastyearandthisisprimarilyduetotherefinancingofourpublicdebtinQ3of2013whichincludedapretaxone-timechargeofapproximately$70million.

Ourtaxrateforthethirdquarterwasnegativeonareportedbasisdueprimarilytothelitigationrelatedchargesthatnegativelyimpactedreportedpretaxincome,oureffectivetaxratewas14.4%onanadjustedbasis,andweexpectourQ42014adjustedtaxratetobeintherangeof12%to14%andourfull-year2014adjustedtaxratetobeintherangeof12%to13%.

FinallyQ32014adjustedEPSof$0.20persharerepresents20%year-over-yeargrowth.

IncludedintheadjustedEPScalculationisanapproximately$7millionlowerroyaltyexpensealmostequallyoffsetbyahighertaxrateresultingfromadifferentgeographicmixofearnings.

OnareportedGAAPbasisQ32014EPSwas$0.03andincludesnetchargesandamortizationexpensetotaling$230millionafter-tax.

The$0.03ofGAAPEPSinQ3ofthisyearcomparedtobreakevenintheprior-yearperiod.

MovingontothebalancesheetDSOof61daysdecreasedfivedayscomparedtoSeptemberof2013dueprimarilytostrongcollectionsinEurope.

Daysinventoryonhandof165dayswasupfourdayscomparedtoSeptemberoflastyearandup17days

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comparedtoDecemberof2013duetohigherinventoryinadvanceoflaunchesandlowerCostofGoodsSolddrivenprimarilybystandardcostimprovementsatafavorableproductmix.

Adjustedfreecashflowforthequarterwas$330millioncomparedto$291millioninQ3oflastyearandwecontinuetoexpectourfull-year2014adjustedfreecashflowtobeapproximately$1.2billion.

Capitalistventureswere$57millioninQ3ofthisyear,comparedto$56millioninQ3of2013.Therewerenosharerepurchasesinthequarterasweissuedanetcashpaymentof$414milliontoacquiretheinterventionaldivisionofBayerAG.WevaluereturningcashtoshareholderssharerepurchaseandEMENAremainsourtoptocapitalallocationpriorities.

Anycontinuationofoursharerepurchaseprogramin2014wouldbesubjecttobusinessdevelopmentopportunitiesmarketconditionsourstockperformanceregulatorytradingWindowsandotherfactors.

I'dliketoconcludewithourguidanceforQ4andfull-year2014.Forthefullyear2014,weexpectconsolidatedrevenuetobeintherangeof$7.370billionto$7.420billionwhichrepresentsyear-over-yeargrowthof5%operationallyand3%to4%onareportedbasis.

Wenowexpectforeignexchangetobea$55millionheadwindforthefullyear2014.AndweexpectadjustedEPSforthefullyear2014tobeintherangeof$0.81to$0.83.OnaGAAPbasisweexpectEPStobeinarangeof$0.22to$0.24.Nowturningtothefourthquarter,weexpectconsolidatedrevenuestobeinarangeof$1.875billionto$1.975billion.

IfcurrentforeignexchangeratesholdconstanttheheadwindfromFXshouldbeapproximately$27millionor150basispointsrelativetoQ4lastyear.

OnanoperationalbasisweexpectconsolidatedQ4salestogrowyear-over-yearinarangeof4%to6%.ForthefourthquarteradjustedEPSisexpectedtobeinarangeof$0.20to$0.22pershareandreportedGAAPEPSisexpectedtobeinarangeof$0.09to$0.11pershare.

IencourageyoutocheckourInvestorRelationsWebsiteforQ32014financialandoperationalhighlightswhichoutlinedQ3resultsand2014guidance.

SowiththatI' llturnitbacktoSusiewhowillmoderatetheQ&A.

SusieLisa (VP-IR):

Thanks,Dan.

Roxannelet'sopenituptoquestionsforthenext30,35minutesorso.Inordertoenableustotakeasmanyquestionsaspossiblepleaselimityourselftoonequestionandonerelatedfollow-up.

Roxanne,pleasegoahead.

QUESTIONS&ANSWERS

Operator:

(OperatorInstructions)BruceNudell,CreditSuisse.

BruceNudell(Analyst-CreditSuisse):

Verycleanimpressivequarter.

Justintermsofthestandnumberwhichwasveryimpressiveandwellabovethemarket,isitpossibletocontinuethatsortofmomentumwithacontributionofsynergy,perhapsoffsetbylappingoftheGermanissue,

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etcetera?

MikeMahoney(President,CEO):

Thanks,Bruce.

It'sMike.

Goodmorning.

We'recertainlypleasedwithourtotalDESperformancenotonlyinthequarterbutalsoforthefullyear-to-date.

Year-to-dateourperformanceinDESabout4%.Inthequarteritwas10%.

BigsharegainsintheUSinpremierandalsoJapanandalsowecontinuetoseestronggrowthinEuropesoreallythebalanceacrosstheglobeandaswelookforwardtowe'renotgoingtoprovideguidancebutaswelookforwardto2015wecontinuetoseepositivemomentumthereintheportfolio.

WeanticipatelargevesselproducttobeapprovedinJapan.

WeexpecttoexpandthereimbursementforsynergyinEuropebeyondthecountriesthatwe'recurrentlysellingitin.Andwecontinuetomaintainadisciplinedtieredpricingstrategythatoffersinnovationtophysiciansandpatients.

Andwealsoexpecttofurtherstrengthenthatbusinessbasedontheadjacenciesandtheyhopefulwatchmanapprovalinthefirsthalfof2015andtheongoingprogressofLotusallofwhichprovideaHaloovertoourcoreinterventionalcardiologybusiness.

BruceNudell(Analyst-CreditSuisse):

Andjustspeakingofwatchman,congratulations.

Thirdtime'sthecharm.

Itlookslikeinmyviewapproval'sgoingtohappen.

Itjustseemsthatgiventhemessinessaroundpaneletcetera,reimbursementmaybemoreofanissue.

Doyouhowshouldwebethinkingaboutthat?

Shouldwebethinkingaboutnationalcoveragedetermination?

Newtechnologyatonpayment?

Howshouldwebethinkingthepaceofadoption?

Becauseit'sclearlyneededincertainpopulations.

MikeMahoney(President,CEO):

Yes.

Sowe'reveryencouragedbytheprogress.

Ithinkwheneveryoubringauniqueandyourthefirstonetodoitinnovationtomarketittakesawhile.

Andwe'repleasedwiththepanelandwe'rehopefultotheFDAapproval.

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Alotofthequestionsyouaskedthereourviewsreallyhaven'tchanged.

Westillbelievethisisalargeunservedmarket.

Wearestillconfidentinthe$500millionmarketopportunitythatwe'vetalkedaboutandwelaythatoutinourinvestorday.

Evenatthat$500millionrepresentsjust3%5%penetrationofAFibpatientswithelevatedstrokeriskswhoareeligibleforwarfarinsowefeellikewe'vebeenquiteconservativecandidlyintermsofsizingthemarketandalsowe'veappropriatelybuildthewatchmanapprovaltimeframesaswelookatourguidanceforfourthquarterandwe'llprovideguidancein15.AsyoulookatBSCbeyondwatchmanIthinkIwouldstressthestrongperformanceinourcorebusinesses.

Andsomeoftheseadjacencieslikewatchmanwhichareuniqueandinnovativehavebeenabitslowertomarketbutareallstillinplayandwelookforwardtothepositivegrowthinthefutureit.

BruceNudell(Analyst-CreditSuisse):

Thankssomuch.

Operator:

RickWise,Stifel.

RickWise (Analyst-Stifel):

Thanksfortheexcellentquarter.

CRM,Mike,operatingmarginsat14.2%obviouslyexcellent.

Canyougiveusalittlemorecolor?

Isthisanewsustainableoperatingmarginslevelmaybetalkingalittlemoredetailaboutwhatdrovethatperformance?

Wasitvolume?

Wasitcost-cutting?

Andhelpusunderstandmaybelookingahead,shouldweexpectcontinuedsequentialexpansioninCRMoperatingmargins?

DanBrennan(EVP,CFO):

Rick,thisisDan.

I' lltakethatoneforyou.

Ithinkthekeyisthelastpartofyourquestionwhichisthat'sourgoal,isthecontinuedsequentialimprovementinthat.

Forthatgroup,operatingmarginsexpansionistheirtopstrategicimperativeanditinformsalltheirstrategiessointermsoftheQ3specificsthe160basispointimproveandto14.1thegoodnewsisit'snotonespecificthingthatdidit.It'sallupanddowntheP&LthroughoutcostofgoodsandSG&AandR&D.

Andourgoalistocontinuetodothatinaverythoughtfulandmeasuredfashionovertimeaspartofourgoalofasthetotalcompanytogetinto25%by2017.

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RickWise (Analyst-Stifel):

Justasafollow-uponS-ICD,clearlyyouraisedyourgoalstothe$100milliontargetnow.

Canyoutalkabouttherollout?

Howmany--againanymoredetailsonhowmanyaccountstheaccountpenetrationyou'reseeingandmaybetalkaswellaboutreimbursement?

We'vehadsomepushbackfromphysicianswhobeenconcernedaboutreimbursement.

Mike,youhighlightedthatnow.

MaybetalkabouttheMedicareandcommercialreimbursementprogress.

What'sneededtoseeanotherdramaticstepforwardinS-ICD'sin2015andbeyondfrankly?

MikeMahoney(President,CEO):

Thanks.

Welookatthisasalong-termplatformthat'suniquelydifferentiated.

Wecontinuetobuildon.Andsowehaven'tchangedourmarketopportunityforecastwhichwecallthe$750million.

We'llcontinuetoprovideguidanceonthatinthefuture.

IwouldjustsayoverallweareencouragedbytheuptakeofS-ICDaintheUSinEurope.

Theadoptionoftherapiesbeingdrivenbygrowingclinicalexperienceforthesystemandcontinuedflowofpositivedataandwe'rereallysupportingit,Rick,withalotofongoingclinicalworkandwethinkthatclinicalworkwillbuildastronguniqueplatformforalongtime.

We'resupportingthatwiththeA-plusdataset.

IntermsoftheguidelinesEuropeanSocietyofcardiologyaddedtheS-ICDandrecommendationsfortreatingpatientswithcardiomyopathy.

Andasyoumentionedonthereimbursementside,weexpectpositivereimbursementchangesintheUSandwe'reencouragedbytherecentcoverageitsexpansionofEdna.

Sowethinkallthosethings.

Theongoingbuildingofevidence,thetrainingthatwe'reproviding,thetrainingthatoursalesrepsreceivetheexperiencethatphysicianshaveandbackedbyrobustclinicaldatathatwecontinuetobuildonwillcontinuetoextendtheleadthatwehaveinthiscategory.

RickWise (Analyst-Stifel):

Thanks.

Operator:

DavidLewis,MorganStanley.

DavidLewis (Analyst-MorganStanley):

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Mike,questionforyouonequestionforDan.

You'vebeensayingallyearthatthesecondhalfisgoingtoaccelerate.

ThatobviouslyhavebeenconcernsaboutthatbutcertainlythatistheplaceandyoubasicallysaidtheglobalbusinessisgoingtostartlookingalotmorelikeEuropeasyougetthisbroaderpipelinebeingenhanced.

SoIguessIwonderifyoucouldtalkaboutthisquarterasitrelatestorelativeinflectionandthenthesustainabilityoftheseresultsasyouheadinto2015whenyouconsidersynergywatchmanandobviouslywhatyoucommentedonasitrelatestoS-ICDandthenIhadaquickfollow-up.

MikeMahoney(President,CEO):

Yes.

Wewanttobuildahighcommentscompanyandthat'sacompanythatdoesitconsistently.

Andwemeasureourselvesbygrowingfasterthanthemarket.

Expandingoperatingincomemarginsanddrivingdouble-digitEPSgrowthandbuildingawinningcultureandaglobalmindsetthat'sunique.

Sothatcoreculture'sabigpartofwhatwedoandIthinktheInternationalgrowthisastrongleadingindicator.

TheCompany'shadsixquartersofconsecutivegrowthandwe'reverycomfortablewithouroutlookforfourthquarter.

Toextendthattosevenquarters.

AsyoumentionedourInternationalperformanceinthethirdquarterwas9%.MorespecificallyourEuropeanresultswere11%growthwherewehavemostallofthesenewadjacenciesthathavebeenfurthermaturedintermsoftheirrollout.

Sowewon'tgive2015guidancebutwehavealotofexcitingopportunitiesin2015.We'llcontinuetoexpandourinterventionalcardiologyplatformlikeImentionedbefore.

We'llcontinuetobroadenourCRMplatformintermsofS-ICDutilizationandclinicalwork.

We'rehopefulforthewatchmanapproval.

WecontinuetomakestrongprogresswithourLotuswhichwejustrecentlystartedourtrialintheUSandwe'redrivingmomentumthereinEurope.

AndourMedSurgbusinesses,timetotimewehavesomefluctuationsinthequarterbutoverallifyoulookatthatgroupofbusinesses,theycontinuedtodrivemid-singledigitgrowth,excellentmarginimprovementandreallycontinuetoprovidegreatbalanceofourportfolio.

Soweareencouragedaboutthefuturebutwe'recertainlynotsatisfied.

DavidLewis (Analyst-MorganStanley):

Okay.

Dan,GM'swereverystronginthequarteryouobviouslyreiterateyouwereonbasisofopmarginsexpansionbuttheonethingweseeconsistentthisyearisyou'restillinvestingafairamountinSG&AandIwonder

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asthepipelineexpandsandyouhadinto2015andthatgrowthrateisperhapsevenfiberhigherthan5%talktousaboutSG&Ainvestmentsthatnecessaryin2013and2016doesn'tstayatthelevelsthatwe'reseeingherein2014ordoyoubegintogetsomeleverageonthatSG&Ainvestmentasyoucycleintothenexttwoyears?

Okay.

DanBrennan(EVP,CFO):

Thanks,David.

AsopposedtogivingspecificguidancewithintheP&LIthinkwecanbeclearthattheSG&Aratewillgodownaspartofusachievingouroveralloperatingincomemarginstargets.

Aswe'vesaidinthepasttherearecertaintimeswhereyouneedtomakeinvestmentsandbeopportunisticandobviouslythere'spiecesofthatthathavedriventhegrowththatwe'vebeenabletoputontheboard.

Butoverall,ifyouthinkofusgettingto25%youshouldseeSG&Abealowerpercentageofsalesonthewayto25%.

DavidLewis (Analyst-MorganStanley):

Great.

Thanks,Dan.

Operator:

MikeWeinstein,JPMorgan.

MikeWeinstein(Analyst-JPMorgan):

Thankyouandfirstoffcongratulationsonareallynicequarter.

Mike,Iwanttogetyourthoughtsonbroadersectorslandscapewithconsolidationwe'veseenthisyear.

AndwantedtogetyourthoughtsonhowthatimpactsBostonScientificandhowyouseeyourroleplayingoutinit.

MikeMahoney(President,CEO):

Greatquestion.

Thankyou.

We'reverycomfortablewithourbusinessunitsthatweplayintoday.

Weplayinthreebigsectors.

Interventionalcardiology,rhythmManagementandourMedSurg.

Wecontinuetoprovideacquisitionsandtuck-inacquisitionsthatstrengthenourhouruniqueprofileinthosebusinesses.

WepointalotofR&Dtostrengthenthose.

Sowe'reverycomfortablewiththebusinessthatwesellintoday.

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Andalsowebelievethatcomeacrossthesedifferentbusinessunitsit'sveryrareinahospitalsystemthatahospitalwillcontractforourNeuromodulationproductsandourcardiologyproductsandourEPproductssothathappensveryrarely.

Forcustomerswhowanttodothatwecertainlycanenablethatbutwedon'tseethattypeofbundlingacrossmultiplesectorsoccurredveryfrequentlysowedon'tthinkthatportfoliointermsofbundlingreallyisanaddedvaluesowedon'tseemuchbenefitinthat.

Sothebenefitthatweseeisdeliveringuniqueinnovationtophysiciansincertaincategories.

AndIthinkoursixquartersofgrowthandtheperformancewehaveinthethirdquarterwouldpointtothatstrategyasworkingandIwouldalsopointtotheuniquemarginimprovementopportunitiesthatwehave.

SoIthinkourportfolio'spositionourportfolio'spositionedwellwehavealotofopportunitiestoimproveit.Butwedon'tseesomeoftheconsolidationthat'stakingplacemaybeotherthancostbenefitsandsomecostsynergies.

Wedon'tseeagrowthbenefitwithbundlingacrossthosemultiplesectorsthatareverydisparatefromeachother.

MikeWeinstein(Analyst-JPMorgan):

Letmeaskyouwiththeperformancewe'reseeinghereit'sreallybeingdrivenasyououtlinedbythebasebusinessthatyou'retakingshareandobviouslyjugglingwithstandsandS-ICDdefibrillatorbusinessisgoingwell.

Butthere'sachallengingcoremarketunderneaththat.

Sodoyoufeeltheneedtoaddmorepipelineassets?

Obviouslythisisareallygoodquarterbutyouarebiddingonmarketsthataren'tgrowingandIknowyouprefertobetourmarketsthataregrowingsogiventhequestionsonalayerofwatchmansomeofthepipelinestepdoyouwanttoaddmorepipelinetotheportfoliotoday?

MikeMahoney(President,CEO):

Ithinkwewe'realwayslookingfornewcapabilities.

WejustacquiredtheBayertechnology.

ButjusttakingastepbackIthinkinmeddevice,mostofthemarketsarefairlychallenging.

Soit'saverycompetitivebusiness.

Wefeelcomfortableandwestrivetooutperformourpeersandtogrowfasterthanmarketandyou'reseeingthat.

Butintermsofourthirstforinnovation,weclearlywanttodrivedowntheSG&AthatDancommentedon.We'recommittedtodoingthatbutatthesametime,we'reveryaggressiveinlookingatportfolioalternativesthatwillcontinuedstrengthinourbusinessunits.

MikeWeinstein(Analyst-JPMorgan):

Thankyou,Mike.

Operator:

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BobHopkins,BankofAmerica.

BobHopkins (Analyst-BankofAmerica):

Twoquickthings.

FirstonsynergyinEurope,canyougiveusasenseastomarketsharerightnowforyourstentfranchiseoverallinEuroperelativetolastcouplequarters?

AndwhatI'mparticularlycuriousaboutisareyougainingsharewhileholdingthepricepremiumorhaveyoucomeoffthepricepremiumthatIthinkyouinitiallylaunchedwith?

MikeMahoney(President,CEO):

Goodquestion.

Sowe'reveryselective.

Ourstudyhasn'tchanged.

We'reveryselectiveinthecountriesthatwesellsynergyin.Andwe'realsoveryselectiveintermsofthepricepointsbecausewethinktoestablishalong-termmarketthat'sstrongandhealthy,thattypeofdiscipline'sneeded.

Andsowehaven'tcomeoffthatstrategy.

Sowe'reverycarefulaboutit.WetalkaboutpotentialreimbursementimprovementspotentiallyinFrancenextyearwhichwaymaymakesynergymoreattractiveinthatcountrysowe'redisciplinedaboutwhatcountrieswemovetoandwedohaveapricingpremiumforsynergy.

SoIwouldn'tarticulatethesharegainsasaresultofdroppingpriceandsynergy.

Somethingwecoulddobutit'snotsomethingthatwefeel'salong-termthebestforBSCorforthemarket.

BobHopkins (Analyst-BankofAmerica):

IntermsofthemarketsharespecificallywhereyouareinEuropetodaywhereyouthinkyou'vebeen?

MikeMahoney(President,CEO):

Wehaven'tbrokenoutthespecificshareofsynergyofouroverallmarketplace.

BobHopkins (Analyst-BankofAmerica):

Okay.

Andonequestiononlitigation.

Mike,canyougiveusanyupdateontimingonwhenyouthinkwe'llhearsomethingfromtheJ&Jbenchtrial?

Ifthere'sanythingyoucansaygenerallywouldbehelpfultofolksonthistopicI'msurepeoplewouldbeinterestedifthere'sanythingtosay.

Butmostlylookingforatimingupdate.

DanBrennan(EVP,CFO):

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Sure,Bob.

ThisisDan.

Ithinkasmanyfolksmightknowit'sabenchtrial.

ItstartsNovember25.Runsthroughthe25thandifthere'smoretimeneeded,there'ssometimesetasidethatwecoulddowecutthe15thtowrapitup.Wefeelconfidentinourpositionheadingintothat.

Feellikeit'sahighbarthatneedstobeproveninthat.

Andsinceit'sabenchtrialpostthecompletionofthetrialthenthejudgewillissuehisdecisionatsomepointpostthetrial.

BobHopkins (Analyst-BankofAmerica):

Great.

Thanksverymuch.

Operator:

GlennNovarro,RBCCapitalMarkets.

GlennNovarro (Analyst-RBCCapitalMarkets):

First,foryou,Mike,intheUSaverystrongICDquarter.

YouraisedyourguidanceontheS-ICDsothatwasacontributorbutyoualsocalledoutthequadcanthatperformanceandthefourthquarterhereMedtronicwillbeinthemarketwiththeirquadcanandquadpolesoI'mwonderingifyoucandiscusshowweseethemarketdynamicsplayingoutforBostonScientificinthefourthquarterandgoingforward?

WithMedtroniconthemarketwithbothquadcanandquadpole?

Thanks.

MikeMahoney(President,CEO):

Sure.

WelookatCRMwe'rereallypleasedwithourperformancegloballyparticularlyinEuropeagain,wehavemoreofourmostrecentportfolio.

Intermsofthemarketoverallweseethinkthemarket'sstabilizedabitsoit'sprobablyflattomaybedownslightlyin2014.AndasDanmentionedwhenyoulookatthe12monthrollingaveragewe'reup2%.

Sowe'regrowingfasterthantheunderlyingmarketandwestillhavequiteabitofportfoliotobringtotheUS.Intermsofjustourperformance,Ithinkwhenyoulookatourpositioninit,we'llcontinuetoacceleratetheS-ICDdevelopmentsandIthinkthatwillcontinuetogetmoreclinicaltractionandmorecomfortlevelwithphysicianssowe'repositiveaboutthat.

We'llalsoaswegointo2015,haveourfullyearofourminiplatformaswellasourquadgenerator.

SoinCRT-Dpointintoyourquestiontherewefeellikewe'vegainedshareondentalimplants.

WecontinuetolosealittlebitofshareonreplacementheadwindsandIthinkdespiteMedtroniccomingto

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markettheirIthinkphysiciansreallyvaluethebatterylongevitycapabilitiesthatweofferonourproductsandsowe'reverycomfortablewiththemomentumthattheCRMbusinesshaslookingforwardto2015.

GlennNovarro (Analyst-RBCCapitalMarkets):

Okay.

AndDan,canyougiveusanupdateonthemeshlitigation,howmuchisreservedanddidyouaddtoanyofthosereservesinthethirdquarter?

Thanks.

DanBrennan(EVP,CFO):

Asyouknowwedon'tdisclosespecificcomponentsofourreserve.

Weobviouslyresumeourreadreserveeveryquarterandbelieveitreflectswasprobableandestimableatthattime.

Houraccrualforalllegalofwhichmeshisaportionis$940millionasoftheendofSeptemberbutasyoucanappreciatewe'renotgoingtobreakthatoutspecificallybyanyindividuallitigationmanner.

GlennNovarro (Analyst-RBCCapitalMarkets):

Canyoutellusifthat$945millionattheendofSeptemberwasatanincreasefrom2Qor12?

DanBrennan(EVP,CFO):

Itwasanincrease.

Wehada$139millionincreaseinlitigationfromQ2toQ3.$139millioncharge.

GlennNovarro (Analyst-RBCCapitalMarkets):

Okay.

Thankyou.

Operator:

KristenStewart,DeutscheBank.

KristenStewart (Analyst-DeutscheBank):

Dan,Icouldn'thelpbutaskataxquestionbecauseIknowyoulovehowIasktaskquestionssocanyouwalkusthroughIknowyougavesomehelpfulcommentsatMorganStanleyinSeptemberjustonthetaxoutlook.

MaybejustgooverthetaxpositionagainandcommentontowhatextentyouguyshaveanyexposureorutilizethedoubleIrishsituation?

DanBrennan(EVP,CFO):

Sure.

KristenStewart (Analyst-DeutscheBank):

AndalsoIhaveasecondfollow-upafterthat.

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DanBrennan(EVP,CFO):

Sure.

I' llstartwiththedoubleIrishsowedon'tanticipatethatthedoubleIrishwouldhaveanyimpactonourstructure.

Andthenrelativetooverallbroadertaxcommentary,soinourpreparedremarks,IhadmentionedthatwethinkQ4taxratewouldbebetween12%and14%.

Overallthisyear12%to13%.

Stickingnextyearwith13%to15%overallagain,allthatassumesthattheR&Dtaxcreditisnotreenacted.

Andthat'sworthupto200basispointsonouroverallrate.

Andthenbeyond2015aswelooktobalancealloftheelementsofourstructure,youseemovementsinthat100basispointrangeincreasefrom2016outward.

KristenStewart (Analyst-DeutscheBank):

100basispointeachyeargoingout?

DanBrennan(EVP,CFO):

Correct.

KristenStewart (Analyst-DeutscheBank):

AndthencanyoureviewwithustoojusttheIRSlitigationanddisputethatyouhavewiththetotalamountthatthey'researchingthatyouowethemandinthecontextofthebroaderliabilitypicturewiththe945,whatthetotalcashpotentialoutflowscouldbeoverthenextthreeyearsorso?

DanBrennan(EVP,CFO):

Sure.

Sojustinsummaryontheguidancetransferpricingmatter,whattheIRShasassertedforfourtheperiodthat'sinquestionnowis$1.162billionwhichisinourSECfilingsplusinterest.

Whatwehadintotalforallofourtaxcontroversiesis$1.5billionofwhichtheguidanceTPPisaportionofthatandwedon'tdisclosethespecificsofthatreserve.

Fromatimingperspective,it'smovemoreslowlythanwewouldhaveanticipatedandthenexteventwillbeschedulingatrialdatewhichcouldbein2016orlater.

Andwithultimateresolutionin2017orbeyond.

Soit'smovedataprettyslowpaceoverallrelativetotheexpectedtiming.

KristenStewart (Analyst-DeutscheBank):

Perfect.

Thanksverymuch.

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Operator:

BrooksWest,PiperJaffray.

BrooksWest (Analyst-PiperJaffray):

QuestionforKeith,onLotus,justtryingtogetanyanecdotalfeedbackontheclinicalperformancewiththeexpandedofferingmayhavesomedatesatLondon'sbowels.

JustanyupdateontheprograminEuropewouldbehelpful.

ThenI'vegotonefollow-up.

KeithDawkins (ChiefMedicalOfficer):

Sure,Brooks.

SoasyouknowatLondonvalveswepresentedthe250patientsoutofreprisetoextensionwhichconfirmsexcellentacuteperformance.

Andimportantlyadjudicatedperivalveleakrateof6.6%whichIthinkisbestinclassat30daysandnoseverely--we'recontinuingtheinvestigationofLotusinEuropewiththeresponsetrialwhichis1000patientpost-marketstudy.

Andthat'sontrackintermsofimprovementandalsointhattrial,unlikereprise2extensionthere'stheadditionofthethirdvalvesize,25-millimetervalve.

So23,25,and27.Andweknewfromthereprise2CEMarktrialthattherewereanumberofpatientsthatfellwithinthat25-millimeterrangewhodidn'tgetthevalvebecausewedidn'thaveitandhada27.Andthatnegativelyaffectedthepacemakerrate.

Soit'stooearlytosayyetwhetherthepacemakerratehasfallenwiththeadditional25-25-millimetervalve.

Butwe'llknowthatfromtheresponsestudy.

Also,wehadthreestronglifecasesatTCTandanotherthreestronglifecasesatLondonvalves.

AndoneofthosethreeatLondonvalveswasadirectaorticimplantfromSaintThomas'shospitalwithexcellentresultsandthatalternativeaccesswe'recontinuingtopursuewiththeLotusvalve.

Andthenjustfinallyofcourseourpivotalreprisethreetrialhasalreadystartedinthiscountrywhichishead-to-headcomparisonwithCoreValve.

Justover1000patients.

SothatplusourpipelinewhichisindevelopmentmakesusveryconfidentaboutourTAVAofferings.

BrooksWest (Analyst-PiperJaffray):

Thanksforthat.

Maybejustaquickfollow-upthere.

WhenwouldweseetheregistrydatainEurope?

Andgetareadonthepacemakerrate?

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AndthenjustontheBayeracquisition,maybenotasmuchofafocusforinvestors,butthatisapieceofbusinessthatreallyhasn'tbeeninvestedinforthelastcoupleyears.

Justwonderingnowthatyou'vegotamonthorsounderyourbeltthere,ifyoucouldalittlemoreclarityontheopportunitysetandhowwecouldseetheperipheralbusinessgrowatBostonScientificlookingforward?

KeithDawkins (ChiefMedicalOfficer):

Sojusttoanswerthefirstpartofthatquestion,we'llhaveanearlycutoftheresponddatabeforethethousandpatientsarerecruited.

Butwehaven'tmadepublicthetimepointofthatasofyet.

BrooksWest (Analyst-PiperJaffray):

Thankyou.

DanBrennan(EVP,CFO):

Quickcommentonperipheralbusiness.

Year-to-date,throughthirdquarteritsofabout6%.And9%inthequarterwithBayerandprobablyabout5%orsoex-ex-Bayer.

Butoverall,ourviewsonit,Brooks,haven'tchanged.

Wehaveaniceadditionthere.

WherewehaveanexcellentSalesforce.

It'salreadycallingonitscustomersandtherearetwosegmentsthatwehadbeenplayinginandthey'retheclearleaderinthrombectomyandsothat'saniceadditionforusandalsointhearthriticthemarketyouhaveamarketthat'sgrowingandit'samarketthatwillputadditionalinvestmentintermsoftheportfoliobothinthecardiovascularsideandalsotheperipheralside.

Soit'saniceadditionforus.ItleveragesourcurrentSalesforceandcapabilitiesaswellasouroperations.

Andwecontinuetoinvestinthatperipheralvascularmarketandthatshouldbeanicepieceforit.

BrooksWest (Analyst-PiperJaffray):

Great.

Thanks,guys.

Operator:

LarryMickelson,WellsFargo.

LarryMickelson(Analyst-WellsFargo):

Ihadonehousekeepingquestionandtworealquestions.

Dan,onthe4%to6%organicgrowth,guidanceforQ4isthatwithorwithoutacquisitions?

DanBrennan(EVP,CFO):

That'swith.

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LarryMickelson(Analyst-WellsFargo):

AndsotherealorganicsojustisthatadjustedforacquisitionsI'msorryornot?

Inotherwordsifyouadjustforacquisitionswoulditbemoreliketwotofourornot?

DanBrennan(EVP,CFO):

That'scorrect.

MikeMahoney(President,CEO):

TheBayerandbarredarealittleNorthof150basispointssoyoutobackthatoffofthefourtosix.

Yes.

LarryMickelson(Analyst-WellsFargo):

Sounderlyingyou'recallingforbasicallyabouttwotofour?

Isthatcorrect?

AndisthereanyreasonwhyyouwouldexpectittodeceleratealittlebitfromQ3?

DanBrennan(EVP,CFO):

Yes.

So2.5to4.5isprobablythewaywewouldcharacterizeitandthere'sacouplethingsthatwoulddrivethat.

SomethatareQ3thisyearrelatedandsomethatareQ4lastyearrelated.

OntheQ4lastyearsimpleonewegrew5%lastyearinQ4.Sothatwasourstrongestquartertodatesoit'salittlebittoughercompoverall.

SpecificallyinthatcompisareallytoughNeuromodcompof33%growththattheyhadlastyearinthefourthquarter.

AndthenwhenyouthinkofQ3,wehadsomebusinessesthatsignificantlyoutperformedtheirunderlyingmarketgrowthrates.

IfyouthinkIseeEndoandPRMateight,seven,andfour,soamorenormalizedgrowthratethereandthatputsyouintotherangethatwe'veputoutforthefourthquarter.

LarryMickelson(Analyst-WellsFargo):

Okay.

That'shelpfulIwantedtoaskoneonsynergyandoneontheJ&Jlitigation.

SoforKeith,priorbioabsorbablepolymerstenttrialshaveshownaclinicaldifferencefromdurablepolymerDESatoneyear.

HowimportantdothinktheclinicaldifferenceisatoneyearforthemarketacceptanceofsynergyintheUS?

AndthenonJ&J,Mike,Iappreciateyourcommentsearlier,orDan,maybeifyoucouldit'sbeenobviouslyanoverhangforthestock.

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Ifyoucouldkindoflayoutwhatyouthinkthekeyissuesareandfactsonyoursideoftheargumentandyourabilitytomanageanunfavorableoutcomeshouldthathappen?

Thanks.

KeithDawkins (ChiefMedicalOfficer):

Thanks,Larry.

Ithinkit'simportanttounderstandthatallbuyerabsorbablepolymerstentsarenotsimilarsothedateforsomeofthecompetitiveproductsavailableinEuropehavereallyrelatedtoafixedstrutstentwithathicklayerofpolymerthatislatetoresolve.

Soasyouknow,we'llbeinterestedtoseetheresultsoftheevolved2pivotaltrialwhichisalatebreakeronthe19thofNovemberatAHA.

AndthiswillbethefirstbioabsorbablepolymerpivotaltrialintheUS.Andwe'reanticipatingFDAapprovalofsynergyinlate2015.

UnknownSpeaker*

74

SoIthinkthefactthatthepolymerandthedrugsynchronouslydisappearsataboutthethree-monthtimepointmakessynergyinterestingandobviouslywillgiveustheopportunityofformallyexploringdualantiplatelettherapy.

Couplethatwiththeacuteperformance,whichisIthinkwellrecognized,we'reverycompetentconfidentofthisasaproductandwe'llbeexcitedtobringittotheUS.Incidentally,asanote,wewillbeholdinganinvestoreventinChicagoafterthepresentation,onNovember19whichwillbeattheeventwillbeatone.

Centraltimeandwecanobviouslydiscussthedetailsofthetrialatthattime.

DanBrennan(EVP,CFO):

AndthenLarry,ontheJ&Jcase,thisisDan,twopartstoyourquestion.

Idon'tthinkserveduswelltogetintoallthespecificsofwhywefeelconfidentrelativetoourpositionthere.

Asyoucancertainlyappreciate,thelastpieceintermsofourabilitytodealwithanyunfavorableoutcomewe'reconfidentthatwecandealwiththat.

LarryMickelson(Analyst-WellsFargo):

Thanksfortakingthequestions.

Operator:

JoshKinney,CowenandCompany.

JoshKinney(Analyst-CowenandCompany):

IjustwantedtofirststartwithmaybesomecommentaryifyouwouldonthehealthoftheUSandInternationalICDmarketsfromapricingandvolumeperspectiveandthenyouroutlookforthesemarketsgoingforward.

AndjustonthesubcutaneousICD,increasingyourguidanceit'snicetoseebutmaybeyoucouldtalkaboutwhereyou'rehavingthemostsuccessontheimplantside.

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Isitcannibalizingorgainingshareinthesinglemarket?

Segment?

OristhesubcutaneousICDactuallyexpandingthemarketandhavingsuccessinapatientwerepreviouslycontraindicatedforintoanintravasculardevice?

MikeMahoney(President,CEO):

Somecommentsonthemarket.

JusttoreinforcewhatImentionedalittlebitearlier,stillachallengingmarketbutwethinkit'simprovedslightly.

Sowe'recallingtheoverallCRMmarketkindofflattishtoslightlydownnegativeandmaybezerotonegativetwointermsofthefullyearwhenyourolltogetherbothCRM,includingpacemakersanddefibrillatorsasweindicatedbefore,we'regrowingalittlebitfasterthanthemarket.

QuiteabitfasterinEuropewherewehaveallofournewproductsandslightlyfasterthanthemarketintheUS.Sooverallwearepleasedwithourperformance.

OnS-ICDwe'reprobablynotgoingtogiveyoualltheinformationyouwantthere.

Ithinkaswetalkedaboutwe'rebeingverythoughtfulwiththerolloutofIS-ICDintermsofourtrainingtheclinicalbuildthatwehavewithit.We'vegivenguidanceearlierintheyearof$75million.

We'vetakenthatuptocovetablewithdeliveringagainstthe100andwe'lllikelyprovideadditionalinsightsintermsofourclinicalstrategyandgrowthprospectsaswepointtowardsourJanuary15call.

Intermsofthemarketplaceitself,wedothinkonoccasionitclearlyexplainsthemarketinsomeways.

SomepatientstypicallycouldhaveanICDwhetheritbeyoungpatients,patientswithvenousaccessissues,soinsomecasesitwillexpandthemarketbutoverallIthinkifyoulookattheBSCandourportfolioyouhaveamarketthat'swethinkitmorestablethanithasinthepastandwehaveauniqueinnovativeplatformthat'smulti-yearsaheadofthecompetitionthatwe'recommittedtobuildingclinicalevidencefrom.

Andhavingthatproductishelpful.

ItstrengthensourfullrhythmManagementbusinesswhenyoutakeintoaccountourEPbusinessandmoretraditionalICD's.

SoKenI'mnotsureifyouhaveadditionalcommentsyou'dliketomake,doctorstimetruck.

KenStein(ChiefMedicalOfficer):

Thanks,Mike.

Andthanks,Josh.

IjustwanttoreiteratewhatMikesaid.

Ithinkit'sveryhardtobreakdownhowmanyofthesepatientsaregettingtheS-ICDourpatientswhowouldotherwisehavegottenachancevenoussystemandcertainlyweareveryhappywithourtransvenoussystemaswell.

Ithinkifyoulookatourthereallystrongcandidates?

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TheobviouscandidatesfortheS-ICDtoday,thesearepatientswhodon'thaveaVascularAccessorpatientswhohavehadrecurrentorpriorinfectedtransvenoussystems,patientswithrenalfailure,andsoeventhoughIdon'tthinkwehaveanywaytobreakdownhowmanyofthosewouldnothavegottenatransvenousICD,certainlythere'salargenumberofthosewhoarejustcompletelynewtothemarket.

JoshKinney(Analyst-CowenandCompany):

Great.

IfIcouldaskonefollow-upfordoctorstime?

Mike,Iheardyourcommentsaboutyourstillcomfortablewiththe$500millionmarketopportunityforthewatchmen.

Ithinkthere'sbeensomeconsternationafterthepanelwithalotofpanelmembersrecommendingalabelofitbeingquote-unquotesecondlinetherapy.

Justwonderingifperspectivefromdoctorstimeaboutwhathaschangedintermsofthatguidancebythepanelassecondlinetherapyanddoesthatimpacttheoverallmarketopportunity?

Thanksalot.

KenStein(ChiefMedicalOfficer):

I' lltakethat.

Thanks,Josh.

I'mjustgladIthinkwhatyourecognizeiswhat'simportantoutofthepanelandbeyondthevote,thecommentaryandtheexplanationsofthepanelmembershavemade,forthevote,wereallyareverypleasedwiththeoveralloutcomeofthepanel.

Ithinkifyoulookedatwhatthecommentsareandwhattheysaid,isthattheyreallywantedusjusttobemoreclearinourlabelingaboutwhoaretheappropriatepatientsforthis?

Andifyoulookatwhatwesaid,Ithinkweareinfullagreementwiththem.

Wehavenever,everthoughtthatthisdeviceoughttobeabroadreplacementforouranticoagulanttherapy.

Thisisadeviceforpatientswhoareeligibletotakewarfarinbutwho,foronereasonoranother,havevalidclinicalreasonstopreferalong-termalternative.

Andwhilewecan'tgetintothedetailsofanyofourdiscussionswithFDAatthispoint,fromourstandpoint,reallywhatthepanelwasaskingustodowastoclarifywhatwehavealwayssaidwebelievetobetheappropriatepatientpopulation.

SusieLisa (VP-IR):

Okay.

Great.

Withthatwe'dliketoconcludethecall.

Thanksforjoiningustoday.

WeappreciateyourinterestinBostonScientific.

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BeforeyoudisconnectRoxannewillgiveyouallthepertinentdetailsforthereplay.

Thanksverymuch.

Operator:

Ladiesandgentlemen,thisconferencewillbemadeavailableforreplayafter1038andtoday,runningthroughNovember5,2014atmidnight.

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ThankyouforyourparticipationandforusingAT&TExecutiveTeleconferenceservice.

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