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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.
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.
CompanyName:BostonScient if icIncCompanyTicker:BSXSector:HealthCare
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.
CompanyName:BostonScient if icIncCompanyTicker:BSXSector:HealthCare
Industry:HealthServicesEventDescription:Q32014 EarningsCall
©2014TheStreet,Inc.AllRightsReserved Page5of 26
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%.
CompanyName:BostonScient if icIncCompanyTicker:BSXSector:HealthCare
Industry:HealthServicesEventDescription:Q32014 EarningsCall
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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
CompanyName:BostonScient if icIncCompanyTicker:BSXSector:HealthCare
Industry:HealthServicesEventDescription:Q32014 EarningsCall
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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
CompanyName:BostonScient if icIncCompanyTicker:BSXSector:HealthCare
Industry:HealthServicesEventDescription:Q32014 EarningsCall
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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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Industry:HealthServicesEventDescription:Q32014 EarningsCall
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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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