Bard (C.R.) Inc (BCR) Earnings Report: Q3 2015 Conference Call … · 2015-10-23 · Sales in...

CompanyName:CRBardIncCompanyTicker:BCRSector:HealthCareIndustry:HealthServices

EventDescription:Q32015EarningsCallMarketCapasofEventDate:14.07BPriceasofEventDate:178.44

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

Bard(C.R.)Inc(BCR)EarningsReport:Q32015ConferenceCallTranscriptThefollowingBard(C.R.)IncconferencecalltookplaceonOctober22,2015,05:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

TimothyRing;C.R.BardInc.;Chairman&CEOJohnWeiland;C.R.BardInc.;President&COOJohnDeFord;C.R.BardInc.;SVPScienceTechnologyandClinicalAffairsChristopherHolland;C.R.BardInc.;SVP&CFO

OtherPart icipants

BobHopkins;BofAMerrillLynch;AnalystMikeWeinstein;JPMorgan;AnalystBrooksWest;PiperJaffray&Co.;AnalystDavidRoman;GoldmanSachs;AnalystDavidLewis;MorganStanley;AnalystDavidTurkaly;JMPSecurities;AnalystKristenStewart;DeutscheBank;AnalystNeilChatterji;CowenandCompany;AnalystMattTaylor;BarclaysCapital;AnalystAnthonyPetrone;JefferiesLLC;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheC.R.Bard,Inc.thirdquarter2015earningsresultsconferencecall.

(OperatorInstructions)

Asareminder,thisconferencecallisbeingrecordedandwillbeavailableforfutureondemandreplaythroughtheBardwebsite.

Today'spresentationwillbehostedbyTimothyM.Ring,ChairmanandChiefExecutiveOfficer,alongwithJohnH.Weiland,PresidentandChiefOperatingOfficer;ChristopherS.Holland,SeniorVicePresidentandChiefFinancialOfficer;andJohnA.DeFord,SeniorVicePresident,Science,TechnologyandClinicalAffairs.AlsoinattendancetodayisToddW.Garner,VicePresident,InvestorRelations.

Today'sBard'sManagementwilldiscusssomeforward-lookingstatements,theaccuracyofwhicharenecessarilysubjecttorisksanduncertainties.Pleaserefertothecautionarystatementsregardingforward-lookinginformationinBard'sJune30,2015,Form10-Q,andtheinformationunderthecaptionRiskFactorsinBard's201410K,includingdisclosureofthefactorsthatcouldcauseactualresultstodiffermateriallyfromthoseexpressedorimplied.

Duringthecallreferenceswillbemadetocertainnon-GAAPmeasureswhichManagementbelievesprovideanadditionalandmeaningfulassessmentofthecoreoperatingperformanceoftheCompany




anditsindividualproductfranchises.Reconciliationsofnon-GAAPmeasurestothemostcomparableGAAPmeasuresareprovidedinBard'searningsPressReleaseandontheCompany'swebsitesatwww.crbard.com.

AllinformationthatisnothistoricalisgivenonlyasofOctober22,2015,andtheCompanyundertakesnoresponsibilitytoupdateanyinformationunlessotherwisenoted.Allcomparisonaretotheprior-yearperiod.

AtthistimeI'llturnthecallovertoMr.TimothyRing.Pleasegoahead.

T imothyRing (Chairman&CEO):

Thankyou.I'dliketowelcomeeveryonetoBard'sthirdquarter2015earningscallandthankallofyoufortakingthetimetojoinwithustoday.Weexpectthepresentationportionofthecalltolastabout30minutesandthetotalcalltolastaboutanhour.

Theagendatodaywillbeasfollows.I'llbeginwithanoverviewoftheresultsforthequarter.JohnWeiland,ourPresidentandCOO,willreviewthirdquarterproductlinerevenue.JohnDeFord,ourSeniorVP,Science,TechnologyandClinicalAffairswillgiveyouanupdateonourproductdevelopmentpipeline,andChrisHolland,ourSeniorVPandCFO,willreviewthethirdquarterincomestatement,balancesheet,aswellasourexpectationsforthefourthquarterandthen,finally,we'llclosewithQ&A.

Thirdquarter2015netsalestotaled$865.7million,that'sup4%overQ3oflastyearonanas-reportedbasisandup8%onaconstantcurrencybasis.Thecurrencyimpactforthequarterversusthesamequarterlastyearwasunfavorableabout370basispoints.

ExcludingtheGoreroyaltyof$38.4millionandsalesrelatedtorecentacquisitionsanddivestitures,ourorganicgrowthratewasapproximately8.3%forthequarter.That'saboveourexpectations.TheUSsalesoftheLutonixdrug-coatedballooncontributedalittlelessthan300basispointsofgrowthinQ3.

Netlossforthequarterof2015was$86millionanddilutedlosspersharewas$1.16.ExcludingtheseitemsthataffectedthecomparabilityofresultsbetweenperiodswhichChriswillcoverlater,thirdquarter2015netincomewas$154.5millionanddilutedearningspershare,whichexcludesamortizationofintangibles,were$2.28,that'sup4%and6%respectively.

Lookingatrevenuegrowthgeographicallycomparedtothesamequarterlastyear,thirdquarternetsalesintheUSwereup7%.Internationally,wegrew10%onaconstantcurrencybasiswithEuropegrowing7%,Japandeclining1%,andourotherinternationalbusinessesgrowing18%thisquarter.StrongquarterinEuropewasdrivenbyendovascularradiologyinPICCsandtheslightdeclineinJapanwasduetoinventoryfluctuationsatourjointventure.

Youmayhavenoticedafewweeksagoweannouncedtheacquisitionoftheremaining[50%]ownershipofourJapanesejointventure.Weexpectthistransactiontobecompletedinthecomingweeks.Whileitcomeswithsomenear-termdilutiondrivenbyexchange,webelievethisisstrategicallyimportantforus.

IncreasedinvestmentfrommarketdevelopmentinclinicaltrialsinJapanwasdifficultwiththestructureofthejointventurewhenyoucombinethatwithforeignexchangepressure,sowedecidedthiswasatimelyopportunitytotakefullownershipandadvanceourproductleadershipstrategyintheworld'sthirdlargesthealthcaremarket.

Ouremergingmarketsbusinesscontinuestogrowinthehealthydoubledigitsfollowingoursignificantinvestmentsthereoverthelastcoupleofyears,soaswelookatouroverallresultsforthequarter,andthefirstninemonthsof2015,wesaidatthebeginningoftheyearthatitwasanimportantyearof




executionforusandsofar,we'repleasedwiththeresults.Asweprojectedattheannouncementofourstrategicinvestmentplannearlythreeyearsagonow,wearebackatthetopendofthesectorfromarevenuegrowthperspectiveandweremainconvincedthatabovemarketrevenuegrowthisakeytoapremiummultiple.

Weremainfocusedonmakinginvestmentsinareasoffastergrowthinaprofitablemannertoenhanceshareholdervalueoverthelongterm.Sowiththat,letmeturnyouovertoJohnWeilandforareviewofourproductlinerevenue.

JohnWeiland (President&COO):

Goodafternoon,everyone.BeforeIstart,letmepointoutthatIwillbegivingallpercentagegrowthdataincomparisontotheprior-yearperiodonaconstantcurrencybasisunlessotherwisenoted.

Solet'sbeginwithvascular.Growthinthiscategorywas13%forthequarteror8%asreportedwithtotalnetsalesof$250.5million.ExcludingtheGoreroyalty,andthedivestedEPsales,totalvascularsalesgrew16%globallywiththeUnitedStatesbusinessup18%andtheinternationalbusinessgrowing14%inthequarter.

Salesinoursurgicalgraftcategorywereup4%inQ3.ExcludingtheGoreroyalty,ourendovascularbusinessincreased18%inthethirdquarter.Withinendovascular,ourbiopsyproductshadanotherstrongquarterwith14%growth,withniceperformanceintheUnitedStatesandevenbetterperformanceoutsideoftheUnitedStates.

SalesinourperipheralPTAlineincreased48%,drivenbyglobalsalesofourLutonixdrug-coatedballoon.WeareverypleasedwiththeperformanceofthisimportantproductwhichanniversarieditsFDAapprovalandtheUSlaunchonOctober10.Ithasbeenagoodfirst12monthsintheUnitedStatesandwe'repleasedwiththeresultsfromourrealworldregistrystudy.JohnDeFordwilltellyoumoreaboutthisinafewminutes.

Asweseektoexpandtheindicationsandreachofthiscompellingtechnologyplatform,weexpecttoseelong-termglobalgrowthfromLutonix.Ourstentbusinessdeclined3%againthisquarter,consistentwithrecentexperience.Andfinally,netsalesinourvenacavafilterlinedeclined3%inQ3.

Solet'sgotourology.Totalnetsaleswere$212.3million,up5%versusQ3oflastyearonaconstantcurrencybasisand1%onanas-reportedbasis.TheUnitedStatesbusinessgrew5%whileinternationallygrew4%.Ourtargetedtemperaturemanagementproductsgrewinthehealthydoubledigitsagainthisquarter.

Ourbasicdrainagebusinesswasup6%globallyinQ3withtheUnitedStatesbusinessup7%.OurICFoleybusinesswasup3%globallyandup1%intheUnitedStates.WebelievethatFoleysthisquarterbenefitedfromsomedealerstockingbutwedon'tknowthepreciseimpact,sowewouldcautionagainstreadingtoomuchintotheseimprovedgrowthratesinasinglequarter.

Ourcontinencebusinessdecreased3%inthethirdquarter.Salesinurologicalspecialtiesgrew1%withourBrachiotherapybusinessdown1%.Andfinallyinthiscategory,standalonesalesofourstatlockcatheterstabilizationproductlinedeclined4%inQ3.

Nowlet'sgotooncology.Totalnetsalesinthiscategorywere$239.3million,anincreaseof8%onaconstantcurrencybasisand4%onanas-reportedbasisoverthethirdquarterlastyear.GeographicallynetsalesintheUnitedStateswereup5%andinternationalsaleswereup15%.Ourportbusinessdecreased1%thisquarterduetothepricereductionsintheUnitedStatesthatwetalkedaboutatthebeginningoftheyear.




OurPICCrevenuewasup13%inthethirdquarter,includingstrongresultsintheUnitedStates,Europe,andemergingmarketsagainthisquarter.We'reverypleasedwiththeclinicaladoptionofouradvancedtechnologywhichhelpspatientsandcansavetimeandcostsforthehospital.

Despitethecompetitivenoiseonsinglefeatureshereandthere,webelievethatthequalityandperformanceofourbroadproductofferingiswhywecontinuetogrowfasterthanthemarket.Andasthecompetitiontriestocatchuptoourolderproducts,wecontinuetoadvancethetechnologyandsolveunmetneedsforourcustomersandourpatients.JohnDeFordwilltellyoumoreaboutthis.

Ourvascularaccessultrasoundproductlinewasup1%thisquarter.Thegrowthratesforthissystemcanbealittlelumpyaroundnewproductlaunchesandthat'swhatwe'reseeingduetodivision2launchintheprioryearanddependingSite-Rite8launchlaterthisyear.Andtocompleteoncology,ourdialysisaccessproductlinewasup12%overQ3oflastyear.

Solet'sconcludewithoursurgicalspecialtiesbusiness.Totalnetsalesinthiscategorywere$139.8million,up6%onaconstantcurrencybasisandup3%asreported.UnitedStatessaleswereup6%andinternationalsalesgrew4%thisquarter.

TwoyearsaftertheacquisitionoftheAristahemostatandthreeyearsaftertheacquisitionoftheprogelsealanttechnology,ourcombinedbiosurgicalproductportfoliocontinuestogrowdoubledigits.Oursofttissuerepairbusinessgrew7%inQ3,withoursyntheticventralherniarepairproductsgrowing6%,whileournaturaltissueproductsgrew14%,drivenbyournewXenMatrixAB,coatedporcinemesh.

Ourherniafixationbusinessgrew2%thisquarter,whichwasthefirstquarterinpositiveterritory,sincethesecondquarterof2011.Wearehopefulthatournewproductlaunchesherecanreversethetrendofdeclinesinrecentyears.Andclosingoutthesurgicalcategory,ourperformanceirrigationbusinesswasdown20%inQ3,aswetoldyouwediscontinuedsomeproductsearlierintheyear.

ThisconcludesourproductlinerevenuediscussionandnowI'llturnyouovertoJohnDeFord.

JohnDeFord (SVPScienceTechnologyandClinicalAffairs):

Thank,Johnandgoodafternoonormaybeit'seveningforeveryone.Thanksfortakingtimetojoinustoday.Forthesakeoftime,I'lljumprightintosomehighlightsstartingwithdrug-coatedballoons.

AbouttwoweeksagoatTCT,wereleasedfull12-monthresultsfromouralmost700patientglobalSFAandpoplitealregistry.Lesionlengthswereover100-millimeters.Abouthalfthepatientshadsignificantcalcificationandover30%ofthelesionstreatedwerechronictotalocclusions.Thestudyfoundover94%ofpatientswerefreefromTLRthroughthe12-monthfollow-upwithprimarypatencyinalmost90%ofpatients.

Interim24-monthresultsdemonstrated93%freedomfromTLR,andprimarypatencyinexcessof80%.WebelievethelearningsfromtheLevont2studyonkeystoasuccessfulprocedureareworkingtheirwayintorealworldpracticeandwe'reverypleasedwiththeresults.

Andourbelow-the-kneeIDEenrollmentcontinuesthoughrecruitmentremainsslowerthanplannedduetothecomplexnatureofthesepatientsandtheirdisease.We'reworkingwithFDAtofindwaystospeedupenrollmentandanalysisinthisimportantstudy.Atcurrentrecruitmentrates,wewilllikelycontinuetoenrollpatientsthroughmuchof2016,puttingPMAsubmissioninthesecondhalfof2017.

Ontheotherhand,ourAVaccessDCBIDEstudythatbeganenrollmentlastquarterisrecruitingveryquicklyandweanticipateenrollmentcouldbecompleteasearlyasQ1of2016,whichcouldputPMAsubmissionaheadofscheduleinthefirsthalfof2017.Thein-stentrestenosisIDEstudyisongoingandwe'recurrentlyplanningasecondhalf2016PMAsubmissionseekingthisexpandedindication.




WehaveahostofotherDCBstudiesongoingorinstartuparoundtheworldandweplantobeginenrollmentinourLevontChinastudyinQ1of2016.Alsoinvascular,thelivestreamballoonexpandablecoveredstentIDEcompletedenrollmentinQ3.Thisclinicalstudyisevaluatingthetechnologyforthetreatmentofiliacarterydiseasewithaninemonthfollow-up.WeanticipatePMAsubmissioninthesecondhalfof2016.

OurCoverraNextGenerationstentgraft,designedforuseintheAVaccesscircuit,isplannedforlaunchinEuropethisquarterandwe'reworkingwithFDAtocommenceourUSIDEstudyinthefirsthalfof2016.OurnewdenovoVenusstentrecentlygainedtheCEmark.AswithCoverra,we'reworkingcloselywithFDAtoinitiateanIDEstudyseekingUSapprovalwithenrollmentplannedtobegininthefirsthalfofnextyear.

Nextmovingtourologyandhomecare,we'repleasedtoannouncethereleaseofthenewMagic3Goself-lubricatedcatheterforfemalepatients.Thisproductisdesignedforenhancedcomfortandease-of-useforpatientsthatoftenhavelimiteddexterity.WeplantorolloutthisproductselectivelyduringQ4aswerampmanufacturing.

WealsoanticipatethelaunchofourMagic3touchlesscatheterinearly2016.Bothoftheseproductsemployourlatestsilicontechnologydesignedtoenhancepatientuseandcomfort.We'vegotsomeotherimpactfulproductsinthisportfolioforlaunchlaterin2016,butI'llholdoffsharingthedetailsuntilwegetclosertothoselaunches.

Nowmovingtooncology,thenewSite-Rite8ultrasoundsystemwithintegrated3CGdiamondisrollingoutinEurope.TheSite-Rite8,withpinpointGTand3CGdiamondisontrackforUSlaunchinQ4asJohnalludedto.Webelievethecombinationofultrasound,needleguidanceandcathetertipconfirmationinanintegratedsystemwillprovideafull-featured,user-friendlyandintuitivesolutionforvascularcatheterplacement.

InPICCs,we'vesubmittedthe510KandawaitFDAclearancetolaunchanewandproprietarycatheterfamily.ThesePICCshavebeendesignedtoresistcommonchemicalsusedinchemotherapysolutionsaswellascleaninganddisinfectionagents.WhilethesesolutionsareknowntodegradestandardPICCmaterials,thisnewcathetercanmaintainthesamehighperformancestandardsavailableinourcurrentPICCs,evenafterlong-termexposure.

We'realsoexpandingourdevelopmenteffortstowardtechnologieswebelievecanfurtherreducetheriskofthrombosis.Whileweprefertokeepourdevelopmentplansconfidential,Iwillsaywehaveanewproductfamilyunderdevelopmentthat'sbasedonanewhigh-performancematerial.Weexpecttobeginlaunchingproductsusingthisnewmaterialinthebackhalfofnextyear.

Ourcurrentplansalsoanticipatecommencementofstudiestoprovidefurtherclinicalevidencetosupportthebenefitsofthesenewdesigns.Inconcertwiththeseefforts,we'vealsorecentlylaunchedatrainingprogramandsomeassociatedproductsdesignedtoreduceinfectionsandpromotethesafeandeffectiveuseofourPICCs.Withthischangeinnear-termfocus,we'vereducedthepriorityweplacedonouranti-microbialandthrombo-resistantcoatingtechnologies.Thedevelopmentsareongoing,butwedon'tbelievetheywillhaveamajorrevenuecontributioncomparedtotheseotheropportunities.

ForthedifficultstickIVcatheterpatients,weannouncedonthelastcalltheacquisitionoftheAccucathguidewire-assistedPIVproducts.We'vetakenthattechnologyintoourdevelopmentengineandanticipatethelaunchofanimprovedfamilyofAccucathproductsinthefirsthalfof2016.Theseproductsareanticipatedtolaunchalongsideourmidlinecatheter,thePowerglidePro,alsoplannedforlaunchinthatsametimeperiod.

WebelievethecombinationofourPICCs,thePowerglidemidlinefamilyandAccucathIVproductlinewill




helpusbringimportantguidewire-assisteddevisestoabroadspectrumofpatientswithvascularaccessneeds.

Lastlyfortheacutehemodialysispatient,we'reexpandingourfamilyofcatheterswiththeexpectedlaunchofanewduallumenpower[Zemesis]catheterinQ1ofnextyear.Zemesisisdesignedforsuperiorflexibilityandkinkresistance,alongwithflowratesinexcessof400milsperminuteinasmall11Frenchcatheterconfiguration.

I'llclosemyportionofthediscussiontodaywithsurgery.JustafewweeksagowelaunchedournewPhasixSTresorbablesyntheticmesh.ThislaunchaddsanotherdifferentiatedproducttoourcomplexabdominalwallportfoliothatincludesXenMatrix,XenMatrixAB,andthePhasixmeshtechnology.

We'recontinuingoureffortstoexpandourproductofferingsbasedonthePhasixplatformandweexpecttobeginlaunchingthosenewproductsoverthenextseveralquarters.We'realsomakinggoodprogressonourdevelopmentofadditionalsizesofouroneofakindantibioticcoatedXenMatrixABfamilywithlaunchesexpectedthroughout2016andinto2017.

Inourbiosurgeryproductoffering,onourlastcallItoldyouwe'dfiledourPMAsupplementseekingapprovalofournewTri-dinevascularsealant,andwecontinuetoanticipateapprovalandlaunchinthebackhalfofnextyear.

AndfinallyinmeshfixationwerecentlylaunchedboththeOptifixspring-loadedresorbabletackdeviceandtheCapSurePermanentfixationproduct.We'reworkingtobuilduponthatmomentumthroughthelaunchoftwoadditionalfixationdevises,butduetothecompetitivenatureofthismarket,I'llholdbackthedetailsforalatercall.

Thanksforyourtimeandattentiontonight.LetmenowhandyouovertoChris.

ChristopherHolland (SVP&CFO):

Thankyou,John.Let'sstartwiththeitemsthataffectthecomparabilityofourresultsbetweenperiods.InQ3wehadacquisition-relateditemsof$2.5millionanda$14.6millionchargeforrestructuringandproductivityinitiatives.

Thisquarterwehavemadesignificantadditionalprogressinsettlementactivityrelatedtoourwomen'shealthproductliability.Drivenbythissettlementprogressandadditionalinformationlearnedfromit,aswellasrecentactivityinotherproductliabilitymatters,wetookanadditionalcombinedchargeof$241.1millionthisquarter.TheP&LimpactfortheseitemsisdetailedinthenotestothefinancialstatementsandthereconciliationaccompanyingourQ3earningsPressRelease.

Nowlet'sgothroughthestatementofincomeforthequarter.Grossprofitwas$529.4million,or61.2%ofsalesforQ3.Onanadjustedbasisgrossprofitwas$530.3million,or61.3%ofsales,alittlebetterthanweprojectedanddown120basispointsfromtheprioryear.Newamortizationofintangiblesrelatingtotransactionsclosedinthelast12monthswasabout50basispointsthisquarterandforeignexchangedroveapproximately30basispointsofheadwindforusinQ3.

Pricewasunfavorableby90basispointsontherevenuelineandapproximately30basispointsingrossprofitandourmixwasfavorablebyabout40basispointsthisquarter.Asweforecastedlastquarter,themanufacturingvariancesinourplantsfromyeartoyearcanbealittlelumpyandQ3isanexampleofthat.

InQ2,costsavingsdrove90basispointsofimprovement,butinQ3itwas50basispointsnegative.InQ4welookforQ4tolookmorelikeQ2withstrongfavorability.SoweexpectgrossprofitinQ4onanadjustedbasistobeameaningfulimprovementoverQ3andbacktotheQ42014levelormaybeevena




littlebitbetter,whichwouldputusnearthehighendoftheoriginalguidancewegaveyouforgrossmarginsforthefullyear.Soitsbeenayearofsolidorganicimprovementforusonthegrossmarginline.

SG&Aexpenseswere$247.1millionforthequarter,or28.5%ofsales.Onanadjustedbasis,SG&Awasalso28.5%ofsales,down60basispointsfromQ3oflastyear.I'llremindyouwetypicallyseeanuptickinSG&AasapercentofsalesinQ4sequentially,butweexpecttostillseegoodleveragecomparedtotheprioryearandexpecttobewithinourfull-yearguidancefor2015.

R&Dexpenditurestotaled$65.2millionor7.5percentofsalesonareportedbasisforthethirdquarter,whichwasthesameonanadjustedbasis,down40basispointsfromtheprioryearandrightonourfull-yearguidance.Wefeelgoodaboutthelevelofinvestmentandinnovationandcontinuetodriveanactivenewproductpipelinetowardfasterrevenuegrowthopportunities,asyoucouldprobablytellfromJohnDeFord'supdate.

Interestexpensewas$11.2millionforthethirdquarter,nochangefromtheprioryear.Otherincomeandexpensewas$258.3millionofexpenseforthethirdquarterasreportedand$1.8millionofexpenseonanadjustedbasis.

Theeffectivetaxrateforthequarterwas24.9%,whichisthesamefortheninemonthsyear-to-datewherewearedown50basispointscomparedtotheprioryear,consistentwithouroriginalguidance.WedoexpecttherenewaloftheR&DtaxcreditbeforetheendoftheyearwhichwouldlowertherateinQ4.

Dilutedsharesonadjustedearningsfortheperiodwere$75.4millionandwerepurchased767,000sharesduringthethirdquarter.ThenetresultisadjustedcashEPSforQ3of$2.28abovetheguidancerangeweprovidedforthequarter,drivenbythehighersales.ThebalancesheetasofSeptember30reflectscash,restrictedcashandshort-terminvestmentsof$1.1billion,nochangefromJune30.

Forthequarter,accountsreceivabletodaysweredown1.6daysandinventorydaysweredownthreedays.CapitalExpenditurestotaled$21.7millionforthequarter.Ontheliabilityside,totaldebtwas$1.4billionasofSeptember30,nochangefromJune30.Debttototalcapattheendofthethirdquarterwasabout49%andtotalshareholderinvestmentwas$1.5billionatSeptember30.

Nowmovingtofinancialguidance.Atthebeginningofthisyear,weguidedorganicrevenuegrowthtobebetween4%and5%forthefullyearandwe'renowexpectingtobecloserto6.5%.ThatincludeslappingtheanniversaryoftheUSlaunchofLutonixinQ4of2014whichincludedsignificantadditionalstockingorders.

Excludingthoseinitialstockingordersfromlastyear,whichweestimaterepresentabout1percentofsalestothequarter,weprojectQ4organicsalesgrowthbetween5%and6%withabout300basispointsofheadwindfromFXandanadditional200basispointsofheadwindfromothersalesreductionsonareportedbasis.ThebiggestofthesereductionsrelatestothependingacquisitionoftheJapanesejointventure,whichwouldaddabout$40milliontooperatingrevenueonanannualbasis.However,thejointventureisholdinginventorywe'vealreadyrecordedassalestothem,soweexpecttohaveanegativeimpacttoreportedrevenueinQ4andQ1untilweworkthroughthatinventory.

Wealso,aswe'vediscussedinpriorcalls,expectthesalesofEPproductstoBostonScientifictodeclineinQ4asthey'venowstartedmanufacturingsomeofthoseproductlinesthemselves.Soweareprojectingreportedrevenuetobeflattodown1%inQ4eventhoughtheorganicmomentuminthebusinessisexpectedtoremainquitestrong.

NowtoupdateourexpectationsforadjustedcashEPS.FollowingourannouncementoftheacquisitionofourJapaneseJV,ourlatestforecastwas$8.95to$9.05forthefullyear.Todayweareraisingthat




guidancetobebetween$9.03and$9.07.

Atthemidpointthisalsorepresentsa$0.05increasetoouroriginalfull-yearguidanceprovidedinJanuarydespiteabsorbingapproximately$0.15ofexpectedcombineddilutionfromacquisitionsandworseningFXduringtheyear.SpecifictoQ4,thismeansweexpectadjustedcashEPStobebetween$2.38and$2.42,whichincludesabout$0.06fromtherenewaloftheR&Dtaxcredit.

Thisperformancespeakstothestrengthofourexecutionin2015.We'vebeenabletoincreaseinvestmentsinthebusinesswiththeobjectiveofsustainingabove-marketrevenuegrowthwhileabsorbingdilutionalongthewayandyetwestillexpecttoincreasetheEPSdeliveredonthebottomlinein2015aboveourinitialexpectations.

Thankyouforyourattention.I'llnowturnyoubacktoTim.


Thanks,Chris.Thatdoesconcludetheformalpartofthepresentation.I'llnowhandthecallouttothemoderatortofacilitatetheQ&Asession.Duetothenumberofinvestorsonthecall,I'daskthatyoulimityourselftoonequestionandonefollow-up.

QUESTIONS&ANSWERS

Operator :

Thankyouverymuch.And,ladiesandgentlemen,wewillnowbeginthequestion-and-answersession.

(OperatorInstructions)

ThefirstquestionwillcomefromBobHopkinswithBancofAmerica.

BobHopkins (Analyst-BofAMerrillLynch):

Thanks.Canyouhearmeokay?


Yes,Bob.


Great,goodafternoon.Sotwothings.OneforChrisandoneforTim.First,Chris,IwasjustwonderingifyoucouldgooversomeofthethoughtsonQ4,especiallyastheyrelatetotheEPbusinessinJapan.Sothat5%to6%revenuegrowth,doesthatexcludethosetwothings?Andcanyoujustgointoalittlemoredetailonhowthosetwothingsimpacttheguidanceyou'vegivenontopandbottomline?


Sure,sowhatwe'resayingforQ4organic,excludingthestockingimpactfromlastyear'sQ4is5%to6%,soaboutapointupfromLutonixstockinglastyeargetsyouto4%to5%organic.There'sthenabout2%thatrelatesspecificallytothedeclineinBostonsalesexpectedinthequarterandtheimpactoflowersalesintoJapanasaresultofusexpectingtoclosetheacquisitioninacoupleofweekshere.

Sothecombinationofthoseandaflatcoreroyaltyreducedsalesby2%,soyougettheconstantcurrency,ifyouwill,Bobof2%to3%forthequarter.AndthentheFXimpact,aswesaid,isgoingtoreducesalesby3%,sothatthengetsustothenegative1%to0%onareportedbasis.





Allright,I'msuretherewillbesomefollow-uponthatbutIwantedtoaskoneofTimformysecondquestion.So,Tim,couldyougiveusyoursenseastothebroaderutilizationenvironmentthatyousawinthequarter?Andifyouwouldn'tmindbreakingitoutbytheUSandthenseparatelyemergingmarkets.

AndIaskitthatwaybecauseitlookslikeyouguysareseeingreallygoodgrowthinemergingmarkets.SomeoftheorthopaedicplayerslikeJ&JandStrykerhavereportedaslowdowninimplantratesinBrazilandChinaandjustwantedtogetyour,again,youbroadercommentsonutilizationbrokendownUSandemergingmarkets.


Again,Bob,Ihesitatetocalltrendsoutofaquarter-to-quarterkindofaswingjustbecausethere'ssomuchuncertaintygoingonallthetime,butIwouldhavetosaythatourutilizationwasprettystrong,orourvolumewasstrongeverywhere.Therewasn'tanyweakness,otherthankindoftheonewecitedinJapan,geographicallyinemergingmarketsremainsverystrongforus.

Wewatchandhearandreadwhateverybodyelsereportsandwekeeplookingforthat,bothintheprojectionswegetinfromthebusinessesandouractuals.Wejusthaven'tseenit.SoIwouldsaysimilartowhatwesawlastquarteroverall.


Allright,great,thankyou.

Operator :

Thankyou.ThenextquestioninqueuewillcomefromMikeWeinsteinwithJPMorgan.

MikeWeinstein (Analyst-JPMorgan):

Thanks.Chris,IthinkIneedyourhelp.I'mstillstrugglingalittlebitwiththefourthquarterguidanceaswell.Sofirstpartofitiswhy--asIunderstand,LutonixhadstockinginthefourthquarterbutLutonixrevenuesshouldyear-over-yearbeup.Whyareyoudescribingitas100basispointheadwind?

Andthensecond,justwanttomakesureIunderstandtheimpact,bothtoplineandonthegrossmargin,oftheJapanesejointventurebuy-ininthefourthquarter,thatalmost200basispointreductionyou'resayingiscomingfromJapan.WastherestockingofproductsintoJapanoverthelastcouplequartersthatwouldhavebenefitedthosequartersrelativetokindofunderlyingtrends?Thanks.


Sure,Mike.IthinkwhenwetalkaboutLutonix,andwetalkedaboutQ2andQ3withsalestoBoston,right,asBostonsteppedupsalesandwetalkedaboutstockinginQ2withBoston,wethinkwe'veactuallyseensomestockinginQ3aswell.

Weactuallylaunchedacoupleofadditionallengthsinthequarteraswell.SoIthinkcertainlyaswelookatQ4asitrelatestoBoston'sorderpattern,wewouldcertainlyexpecttoseeasequentialdeclineastheybegintonowworkthroughthatinitialinventory.Sothat'scertainlyimpactingtheoverallgrowthrateforLutonixaswelookatQ4.

We'reseeingcontinuedverystrongorganicgrowthinLutonix,relativetolastQ4,thoughwehadalargestockingorderinourownbusiness,right?Andsoit'sthatlappingofthataswellasthesequentialsalesintoBostonthatarejustdrivingsomeofthesequentialmovesforLutonix.





Buthowareyoucomingupwiththat100basispoints,justsowecanunderstandwhatthatis?


Yes.That'sour--asweevaluatedlastyear'sQ4salesofLutonix,that'sourestimateofwhatthestockingcomponentofthosesaleswere.


Okay,soyou'rebasicallytakingoutthestocking,butyouaren'tgivingyourselfcreditfortheunderlyingsales?


Yes,we'venotprojectedanumberforLutonixforQ4,Tim.TheanalysisthatChrisgave.


Okay,butyou'regivingyourselvesapenaltybutnotthebenefit?


Yes,butIthinktheothersequentialimpactissales--areexpectedsalesintoBoston.


Understood.Okay,I'msorry.AndthenjusttheJapanpiece,Chris?


Theonlyimpactthere--andit'sabout$11million,Mike.Andtheway--solastyear,wewould,intheordinarycourse,besellingproductintotheJV,astheyareobviouslythensellingout.Theymaintainlevelsofinventorythataresimilartousandsimilartothesector.Thesalesthatwemaketothem,onceweclosethetransaction,wewillnotrecorduntilthey'resoldoutthedoor.

Andsotheyaresittingoninventorytoday.Wehaven'tclosedthetransactionthatwe'vealreadyrecordedsalesforastheythensellthoseproductsoutthedoorinNovember-December,wecan'trecordthesaleagain.Intheordinarycourse,we'llcontinuetoshipproducttothem,whichiswhatwedidlastyear,butthere'sadelaynowasthatinventoryneedstogetsoldoncewehavefullownershipoftheJV.


Somyquestion,Chris,isthat--beforedistributorsusuallyboughttheyhaveanincentivetostockuponextraproduct.AndI'mmakingsurethattheJapanesedistributerwasn'tbuyinginexcessproducttohaveasmuchontheirshelvesbeforetheconversion.


No.Tobeveryclear,nothingabouttheirorderpatternslastyearandtheirorderpatternsthisyeararedifferentatall,soit'spurelythemechanismthatoncewehaveownership,right,wejusthavetowaitfortheinventorytoclearbeforewerecordadditionalsales.


Gotit.Veryclear.Thanks,guys.





Sure.

Operator :

ThenextquestioninqueuewillcomefromBrooksWestwithPiperJaffrey.

BrooksWest (Analyst-PiperJaffray&Co.):

Hi,onemorejustonthatlasttopic.Chris,yousaid$11millionimpactfromJapaninQ4.Yousaidthere'sgoingtobealittlebitintoQ1.WhatistheimpactinQ1?


It'saboutthesameimpact.


Okay.AndthenthelastpartofthatisjustsomedeclineinEPsalestoBostonScientific.Isthatasurprisethatthat'sdroppingofforwasthatpartoftheforecast?And,again,couldyouquantifythat?


Yes,sure.Actuallyifyougobacktoeachquarter,we'veactuallytalkedaboutitbothcomingintotheyearandtheneveryquarter,becauseactuallywhattheydidpriortothisquarter,weactuallywereseeinggrowthinsalestothemastheywereactuallybuildinginventoryinanticipationoftheshifttoself-manufacturing.

We'vetakenthosesalesoutoforganicgrowthobviouslytheentireyear.AndsowetalkedaboutQ4beingthefirstbigquarterwherewewouldseestep-downsbecausetheynowhaveactuallystoodupthemanufacturingplaninCostaRica.Sothatimpactinthequarterisroundnumbers,about$5million.SobetweenthatandJapan,you'retalkingabout$16millionto$17millionofnegativeimpactasitcomparestoprioryear.


Okay.AndthenIguessonebigpictureforme,guys.Itlookslikenowyou'regoingtohavetheGoreroyaltythrough2019basedon,Iguess,thedecisionnottohearthecase.You'veexecutedwellagainsttheinvestmentplanyoulaidout.Reallytheonlythingyouhaven'tdoneisabigacquisition,soIguesstwo-partquestionforTim.

Howareyouthinkingaboutmitigatingthatfall-offintheGoreroyalty?Andcanyoujustupdateusonwhatyou'reseeingoutinthemarketandareyoustartingtogetmoreaggressive,givensomeofthedeclinesinmultipleswe'reseeing?Thanks.


Sure.Ithinkit'salittleearlytocommentspecificallyon2019rightnow.Icantellyou,though,thatclearly,it'sveryvisibleinfrontofthis,it'sclearlya[noble]eventforusandwe'reobviouslyplanningorwhatwillbecomeovertime,obviously,we'vebeenplanningandanticipatingthat.

Sothat'sthecommentgenerallyabouttheGoreroyalties.Andrelativetoourbusinessdevelopmentactivity,weremainextremelyactive,goingthroughanumberofthingsinourwhatwecallfunnel,ifyouwill.AndIremainoptimisticthatthatlandscapecontinuestolookrobustforus.Andaswegoaheadandclosethings,we'llannouncethemwhentheyoccur.




Operator :

And,Mr.West,didthatansweryourquestion?


Yes,thankyou.

Operator :

Thanks.We'llmoveontoournextquestioninqueue.ThatwillcomefromDavidRomanwithGoldmanSachs.

DavidRoman (Analyst-GoldmanSachs):

Thankyou.Goodevening,everybody.IwantedustocomebacktoLutonixandgointotheutilizationinalittlebitmoredetail.Canyoutalktousabouthowyou'reseeingthisbeingusedinarealworldsetting?BecauseourunderstandingandfeedbackfromTCTisthatthisisatechnologythat'sgettingusedinabroadnumberofcases.Andit'snotsomuchprovingtobeareplacementforthingslikestenttherapyorathorectomy,it'sbeingmoreusedasanadjunct.

Canyoumaybegiveusyourperspectiveonthatandhowyou'reseeingtheadoptioncurverollout?


Yes,JohnDeFordhere.Letmetalkalittlebitabouttheutilization.IthinkwhatyouheardatTCTisfairlyconsistent.We'rebeginningtoseedrug-coatedballoonsusedassortofaninitialtherapy,notnecessarilythedestinationtherapy,butaninitialtherapy.Andthendependingontheoutcomeofthatinitialtherapy,makingotherdecisions.

Nowobviously,athorectomyorthingslikethatmightcomeintoplaypriortousinganykindofothertechnology,butbyandlargewe'reseeingdrug-coatedballoonsbeusedfirst,andthenasyouwouldexpect,ifthere'sprovisionalstentingrequired,thenstentsareused.Ifthereareothertechnologiesorotherpiecesneeded,thentheygetincluded.SoIdon'tthinkweeverexpectedDCBtoreplacesomeoftheseothertechnologies,butweareseeingitmoveexactlyasweexpected,tobethefirst-lineoftherapy.

Wethinkthere'sstillalongwaytogoasfarasgrowthandpenetration,butthisis--it'sstillearlydaysbutthat'swhatwe'reseeing.Ithinkthat'sfairlyconsistentwithwhatyou'veheard.


Okay.Andthenmaybejustabroaderquestion.Asyouthinkaboutthegrowthrate,2015hasobviouslyproventobeaverystrongperiodoforganicgrowthfortheCompany.AndIthinkwhenyoulaidouttheinvestmentplanearlieraboutinearly2013thisistheyearyouareenvisioninggrowingabovemarketgrowth.

Maybeyoucantalktousalittlebitaboutwhereweareintherealizationofthebenefitsfromthatinvestmentplanandtowhatextentyouthinkthetrendswe'veseenoverthepastninemonthsandwhatyou'reguidingforthefullyeararesustainable?


Well,wehaven'tgivenguidancenorwillweonthiscallfor2016.Ithinkifyougobackandlookatwhat




wesaidin2013isweexpectedtobeabovemarketrevenuegrowthoccurringaboutthispointintime.Andthenourexpectationbothwithnotonlytheinvestmentswemadethen,butwiththeinvestmentsongoing,isthatthatwouldbesustainable.Sothat'swhatwesaidafewyearsagoandthat'swhattheplanwas.Andwe'llgiveyouguidancefor2016inJanuary.


Maybeagainoneotherdifferentways.Ifyouthinkaboutthemomentuminthebusinessthatyou'reseeingtoday,isthereanypartyou'dascribetomacro-relatedfactors--Iknowthiscameupearlierinthecall--versusBard-relatedfactors?


Youknow,onanygivenquarterandI--obviouslyIsaidearlierwewatchandlistentoeverybody.It'sverydifficultforanyCompany,Idon'tcarehowbigyouare,toknowifyou'vegainshare,lostshare,themarket'sincreasedorstayedflatordeclinedfromquartertoquarter.Iwouldn'tsayvirtuallyimpossibletoknowthatoverthatshortperiodoftime.Sowesaidinthepastitkindoffeltlikethingsweregettingalittlebitbetter.

Ithinkthatsomeoftheoldmetricsweusedtouselikehospitaladmissions,especiallywhenyou'reinvolvedinproceduresmaybearen'tthebell-weathersignsnecessarilytheywereafewyearsago.Sosomeofthedynamics,asyouknow,inhealthcareutilizationgenerallyarechanging.Soit'skindofdifficulttosay,whenyoulookathospitaladmissionmetricsmaybegoingdownandyetourrevenuecontinuestogrow,whatdoesallthatmean?

Justverydifficulttosay.Wesaidearlieratthelastcallitfeelsalittlebitbetter.Iwouldsaythatstillholdstrueforthisquarter.It'sjusthardtoputanyfinepointsonit.


TheonlythingI'dadd,Dave,andobviouslywetrackthesectorandwhenwelookatorganicgrowthratesacrossthesector,actuallythelastfourorfivequarters,theyare,frankly,prettyflatsequentially.Andobviously,wehavemovedhigheroverthatperiodoftime.

Soatleastthethingsthataregrowingforusinbothemergingmarketsandintheproductportfolio,andLutonixbeingpartofthat,arerelatedtothingswe'veinvestedinoverthelastcoupleofyears.Andsowehaven'tseenmaterialmoves[since]pointinvolumesorutilization.Andaswelookatthesector,itcertainlywouldappeartobethatimprovementinorganicgrowththatwe'veexperiencedisdirectlyrelatedtotheinvestmentsthatwemade.


Okay,great.Thankyouverymuch.


You'rewelcome.

Operator :

Thankyou.OurnextquestioncomesfromDavidLewiswithMorganStanley.

DavidLewis (Analyst-MorganStanley):

Goodafternoon.Chris,justaquickfollow-upontheJapanesedistributer.SotheEPSdilutionyouhad




previouslydescribedobviouslyappearslikeit'sdroppingthroughandfullinthefourthquarter.Shouldweexpectthesametoholdtruein2016,thefull$0.20dropsstraightthroughorshouldweexpectittobeoffsetinsomeway?


Yes,Ithinkcertainlyit'sa$0.20whole,right,andit'spurelyrelatedtotheyen,justtobeclear.Soit'sawhole.Andobviouslywehaven'tgivenguidance,David,for2016.Butbecauseofthetransaction,we'refacingmuchmoresignificantyenheadwindsthanwewouldhavebeenotherwise.

Sowe'llobviously,aswerollupourbudgetanddecidewhatwe'rereadytocommittofor2016,wearestartingwithabigyenheadwindthatwewouldn'thavehad.Nowhavingsaidthat,it'saveryinterestingstrategicmoveforusandwebelieveitwillpaynicedividendslongtermfortheCompany,butit'saheadwindthatwe'lldealwithaswegointo2016.

DavidLewis (Analyst-MorganStanley):

Okay,andjustasafollow-up,maybequicklyforChris,canyougiveusasenseofwhatthataccretionorreturnlookslikein2017andbeyond?

AndjustforJohnDeFord,asitrelatestoLutonix,ifyougiveusasenseforinthefield,whatdoyouthinkisresonatingwithcliniciansmore,thetrialdataortheregistrydata?AndmoredirectlywhatI'mtryingtogetatis,wouldyouexpectanyimpactonyourbusinessbasedontheImpact1resultspostTCT?Thankyou.


Iwon'tbespecific,David,butassumingtheyenstaysroughlywhereitisandweexecute,whichincludessomeinterestingproductlaunchesforusintoJapanincludingLifeStentandLutonixovertimehere,thebusinessforuswillturnnicelyaccretivebeginningin2017andbeyond.ButI'mnotgoingtoputafinepointonitforyou.


Okay,andthenjustjumpingintotalkaboutthedata,wethinkthatcliniciansarereallyinterestedinlookingatbothpivotalandrandomizedstudiesandregistries.

IthinktheLevont2study,aspublishedinTheNewEnglandJournalofMedicineanditwasaveryuniquestudydesign.We'vealsofoundinthatstudythatprocedurereallymatters.Andthatwassomethingthatcameoutatpanel,cameoutinsomeofthepost-discussionsthatthewaythedevicewasusedcomparedtoPTAwasdifferent.

Andactuallyinourstudy,thedrug-coatedballoonwasused--whatyoucouldcallhadaless-effectivetreatmentattheendoftheprocedurecomparedtoPTA.Againthatisattributedtosomeoftheresultsthatweseeinourrandomizedstudy.

CertainlyIunderstandourcompetitorwantingtotrytoshiftthediscussionbacktotheirs.It'skindofinterestingtheyhaven'tupdatedtheirregistrydatayet,butourregistrydatarealworldisinmuchmoredifficultpatientsthanwesawinLevont2.Wethinkit'sreallydemonstratingtherealworldusageofthetechnology.

And,ofcourse,thoseclinicianswereeducatedonthethingsthatwe'velearnedintheLevont2studyontheimportanceoffullyinflatingtheballoons,gettinggoodexpansion,appropriateaccesstothevesselandthelesionquicklyandotherthingsthatwerediscussedbyDr.SchmidtatTCT.




Andsowethinktheseresultsareprettyindicativeofrealworldusage,basedonthatnewknowledge.Nowwhatcliniciansaregoingtodo,sofarIthinkit'sresonatedprettywellthatdrug-coatedballoonswork,andatleastthetwotechnologiesonthemarkettodayseemtoworkprettysimilarly.

Operator :

Thankyouverymuch.Arewereadyforthenextquestion?


Weare.

Operator :

Thanks.ItwillcomefromDavidTurkalywithJMPSecurities.

DavidT urkaly(Analyst-JMPSecurities):

Thanks.Didyouguysgivethepercentagethatemergingmarketswasinthequarter?


It'sabout9.5%oftotalsales,David.It'supabout120basispointsyear-over-year.Verystrongdouble-digitgrowthandobviouslycontinuingtomoveintherightdirectionoverall.Thereissomeseasonalitytothedifferentgeographies,butwehadanothergreatquarter.Andagainit'sactuallyacrossallofthegeographies,justlikewesawinQ2.


Great.And,obviously,everyoneisawarethatyouhiredabunchoffolksthere.Iwasjustcurious,asyoulookattheirproductivity,whatwillthatlooklikeversussomeofyourUSorEuropeanrepsovertime?Andhowlongdoyouthinkittakessomeoftheseguystogetfullyrampedanduptospeed?


Well,Iwouldsaythatwe'redelightedwiththegroundgameofourteaminemergingmarkets.We'vebeenveryaggressiveintermsofaddingtothatfieldsalesforcearoundtheworldandaswe'vetalkedcontinually,thatsalesforcerepresentsabout34%ofourrepsaroundtheworld.

It'sthefastestareaofinvestmentsforusinfieldsalesreps,yetitonlyequalsalittlebitthanlessthan10%ofoursales,sowethinkwemadetherightinvestmentsforthelongterm.Weliketheuptickthatourpeoplearegivingusinthefieldastheygetseasoned.Takes,onaverage,ninemonthsto12monthsforapersontoreallybeproductivenomatterwhatgeographythatyou'reworkingin.AndIwouldsaythatwe'redelightedwiththeexecutionandthegroundgamethatourteamisputtingon,notonlyinemergingmarketsbutaroundtheworld.


Great;thanksalot.


Sure.

Operator :

Thankyou.ThenextquestioninqueuewillcomefromKristenStewartwithDeutscheBank.




KristenStewart (Analyst-DeutscheBank):

Hi,guys.


Hi,Kristen.


Goodnight.Idon'tknowwhereJohnDeFordis,butIguessgoodafternoontoyou.


Itseemsdarkhere.Idon'tknowwhereyouare.


Anyway,Iwasjustwonderingifyoucouldexpandalittlebitmore.IthinkyoumentionedtherewasdealerstockingwithFoleycathetersbecausethatseemedtobeupquitealot.Idon'trememberwhenbasicdrainagehasbeenuplike6%and7%intheUS.Sohowbigofastockingwasthereinquarterandwillthatjustpullfromthefourthquarteroristhat--wheredidthatshiftfrom?


Yes,andfrankly,Kristen,wedon'tknowforsureaswegetadditionaltracingdata.We'rejustspeculatingtherewassomeinthequarterandsowejustwantedtocautionyouagainstit.

ItcouldpossiblypullabitfromQ4andthatcertainlyisfactoredintoouroverallsalesguidance.SoIdon'twanttomaketoomuchofitandwecan'tsayforcertainyet.We'llknowmoreinthecomingweeksaswegetadditionaltracingdata.


I'dsayinthegrandschemeofthingsit'sareallysmallpointforusacross-the-board.


AndthenIguessjustingeneral,justintermsof,Iguess,goingbackjusttotheM&Aside,Tim,isthereanythingintermsofthelandscapethatyou'reseeingthatmakesyoumoreorlesslikelytogooffintoanyadditionalareas,whetheritbepreferencetodomoresmallertuck-indealsforproductportfoliointheUSorareyouseeingorthinkingaboutdoingmoredealsthatmightgiveyougreaterexposureintointernationalmarketsatthispoint?

Ordoyoufeelcomfortablewiththeinvestmentsyoumadeinemergingmarkets,thatyouhavetherightinvestmentsthereandyou'recapableofgrowth,givenjusttheinvestmentsthatyouhavealready?


Well,intermsofourlensesandourfilters,theanswerisyestoalloftheabove.We'relookingateverything.Sorelativetothelandscape,wekindoflikewhatweseeintermsofwhat'soutthere.Ourfiltersorourhurdleshavenotchangedrelativetoourpriorities.

Wedon'tstartwithsizeasoneofthefirstquestions.Infactprobablyit'sacoupleofreviewsthroughareadbeforeIevenstarttofocusonthat.Wefocusmoreonstrategicintent.




Someoftheexamplesofthingswe'vedoneoverthelastcoupleofyears,targetedtemperaturemanagementisone,(inaudible)whatever,we'refocusedonrevenuegrowth,becausewethinkrevenuegrowthprovidesabettershareholderreturnthanslowerrevenuegrowththangrindingonearnings.Sowelookatrevenuegrowth,upside,sustainabilityofthat.

Weactuallylookateachinvestmentasisitaplatformtoinvestfurtherin,whetherthatbebothwithtechnology.Andclearly,atleastgiventhesizeofthetransactionswe'vedone,they'vehadlimitedcapabilitiesoutsidetheUnitedStatesjustfromtheexpenseandaffordabilitystandpoint,andwealreadyhavethatfootprint.Sowelookatallofthosethings.

ButI'moptimisticaboutwhatthelandscapelookslikeandwe'llseehowmanyofthoseactuallyclearourfilters,butwehaven'tchangedourstandardsatallinthelastseveralyears.


I'dadd,Kristen,obviouslywe'refocusedonfindinggoodtargetsinternationallyaswellthatfitallthesamecriteria.Andfrankly,withinemergingmarketswe'vecontinuedtostruggletofindgoodtargetsthatmeetthecriteriathatwehave.Andso,obviously,wenowhaveareallynicetrackrecordofexecutingorganicgrowth-drivenstrategiesalongthosemarkets,andsowe'llcontinuetodothatwhilewestilllook.Butwe'relooking,toTim'spoint,reallyaroundtheworldforopportunitiesthatarefirstandforemostproductleadershipopportunities.


AndthebuyinginoftheJVoverinJapan,wasthatjustbecauseofthepressureofsellingindollarsandtheJVjusttakingahitwithcurrency?Orjustbenefitsofgoingdirect?


Yes,maybealittlebackgroundhistoryherejustforthoseofyouthatmaynotknowthis.Soifyougobackintothe1990s,weactuallyhadalargeJapanlimitedbusinessandMedicon,thejointventurewithKobayashi,thatwasprimarilyresponsibleforoururologyproductline.

In1998wesoldoffthecardiologybusinessaspartofthattransaction,becauseoftaxdeals.ThatentityinJapanwentwiththattransaction,sowehadtomakeadecisionbackthen,doweputtherestofBard'sproductsintothejointventureordowestartourownbusinessthere?Backthenwemadethedecision,wehadalotofconfidenceandfaithinMedicon.Andobviouslythefactwejustboughtouttheotherhalf,wehaveevenmoresonow,movedtheentireproductlineintothatJV.

GiventhestructureoftheJV,aswe'veinvestedmoreheavilyinternallyinR&D,newproductlauncheswhichrequirealsoclinicaltrials,itjustputpressureonthebusinessmodelinJapan.Andstrategically,itmadeallofthesenseintheworldforustoownthethinginitsentiretysowecanmakealloftheinvestmentdecisionsweneedtomaketogrowthebusinessoverthelongterm.


Thatmakessense.Okay,andlastone,justbecauseeveryotherhealthcarecompanyiscomingouttoday,doyouhaveanownershipstakeinanypharmacycompany?Sorry.


Wedonot.





Sorry,Icouldn'tresist.(Multiplespeakers).It'sprobablynotfunnyforalotofpeoplewhohavedealtwithalotofstockstoday.But,anyway,haveagoodnight.


Youtoo.

Operator :

Thankyou.OurnextquestioninqueuewillcomefromNeilChatterjiwithCowenandCompany.

NeilChatterji(Analyst-CowenandCompany):

Hi,thisisNeilonforJoshJennings.Thanksfortakingthequestion.Soyou'vehighlightedinthepasttargetedtemperaturemanagementandbiosurgerysegmentswithsignificantmarketopportunityexpansion.Thoseareseeingdouble-digitgrowth.Canyougiveusmorecoloronhowthoselinesaretrackingrelativetothatandwhenyoumightseesomesignificantramp?


Well,we'vebeenseeingsignificantrampinthoseproductlinessinceDayOneoftheacquisitions.We'vebeentakingshareannuallyinbothofthosemajorproductlinesthatweacquired.

We'vereallybuiltoutaverysuccessfulindependentsalesforce,prettylargebyUSstandardsinthatbusiness.AndIthinkthey'reexecutingextremelywell.Sowehavebeengrowingsubstantiallyinthatspace.Wewouldsuspectwe'llcontinuetoandwearealwayslookingforopportunitiestobeadjunctivetothoseproductlines.


OnlythingI'dadd,Neil,isbothofthoseopportunitiesplayoutoveranumberofyearsbecausethere'sanumberofadditionalindicationsthatourtechnologiesaregoingtobeaffectedwith,bothonthetargetedtemperaturemanagementsideaswellaswithinbiosurgery.

SotoTim'spointabouthavingacquiredplatformsthathaveaninvestmentopportunitybeyondtheinitialproductsetthatweacquired,we'vegotalongrunway,wethink,inbothofthosecategoriestogrowthemformanyyears.And,again,bothofthemaregrowingnicelyinthedoubledigitsaswesitheretoday.


Okay.Andjustonequickfollow-up.SoIbelieveyousawsomesoftnessinEuropeearlierintheyear,butthenvolumesseemedtorecoverinthesecondquarterandthenevenmoresointhethirdquarterhere.Howarethereimbursement[issues]shakingoutinEurope,particularlyinFrance?


Letmedealwiththemacroissuefirst.Ithinkthat'stheimportantone.AndthatisthatwedidhaveaslowfirstquarterandIthink,aswepredicted,wethoughttheyearwouldpickupanditcertainlyhas.Ourteamoverthereisexecutingextremelywell.

There'snothingfromamajorpricingstandpointgoingoninourbusinessinEurope.And,infact,ourEuropeteamwaspositiveinpriceforthequarter,sowedon'tseeabigissuerightnowloominginfrontofusintermsofreimbursementinFrance.





TheonlyotherthingI'dadd,becauseIknowtherewassomecommentsmade,perhapsbyothersinthemarket,regardingspecificallyreimbursementfordrug-coatedballoonsinEurope,andIwouldjusttellyouthatisacategoryreimbursement,notkindofanindividualbrandreimbursement.We'reworkingveryhardtoexpandthataswellthroughoutEurope,so..


That'swhereTheNewEnglandJournalofMedicinepublication,frankly,helps.Havingthatkindofpublicationisrequiredincertaingeographiestohelpachievereimbursement.


Okay,thanks.


Thanks.Wehavecrossedthetopofthehour.We'regoingtotaketwomorequestionsandthenIapologizetoanyoneinthequeueafterthat.

Operator :

We'lltakethenextquestionfromMattTaylorwithBarclays.

MattT aylor (Analyst-BarclaysCapital):

Hi,thanksfortakingmyquestion.Ijusthadafollow-uponsomeoftheLutonixcommentary.Ijustwantedtoask,maybeinamorestraightforwardway,ifyoucouldjusttalkabouttheunderlyingtrendsandwhatyou'reseeingtheresequentiallyversusthestocking?Therewereafewstockingcomments.

Andthenconceptually,thepartnershipwithBostonScientifichasbeeninteresting.Curioustoknow,ifyoulookoutlongerterm,doyouthinktheyaregoingtobesellingameaningfulchunkofyouroverallLutonixsales?Ifyoucouldgiveusanysenseofwhatthesplitwouldbethere?Andthenisthereanyopportunitytoexpandthatpartnershipintootherproductareas?


SoIthinkjustthesequentialQ2,Q3,Q4.AndfirstthingI'dsayisweneedto,aswe'vesaid,itwillbenicetohavethisallsettleout,butit'sgoingtotakeafewquartersforthistosettleout.

SoBostonrampedupinQ2,certainlyhadsomestockinginQ2.AsIsaid,welaunchedacoupleofadditionalsizesinQ3,whichdrove,wethink,someadditionalstockinginQ3.Andsocertainly,wewouldexpectasequentialdeclineinQ4forBostonastheybegintoworkthroughthatinitialstockinginventory.

SowhenyouthenadjustforourbigstockingorderlastyearinQ4,we'reseeingreallyterrificbothsequentialandyear-over-yeargrowthinourbaseorganicLutonixbusinessandfeelreallygoodaboutourcompetitiveposition.AndJohnDeFordtalkedabouttherealworldregistrydatawhichis,frankly,outstanding.Sowe'llneedtogetthroughthesecoupleofquartershereandgettoasteadystatenextyearwhereBostonhasbeeninthebusinessnowwithusforawhileandwe'vebeenmovedbeyondourinitiallaunchintheUS.


I'dsaytothelonger-termissueonBoston,wethinkthestrategywassoundthatweenteredinto.Your




questionwaswillthey--whatkindofapositionwilltheyhavewithLutonix?Aswesetoutonthis,Bostonhadtherightstoselltheproductatasmallsubsetofcustomersandwerebasedonwheretheyhadgoodrelationshipsorapositioninacertaintherapythatwe'renotinvolvedin.

Wehavenoplanstoexpandthattootherproductlinestodayorcircumstances.IthinkthiswasauniqueopportunityforustobecomplementarywithBostoninasmallsegmentofcustomers,andIthinkthatwe'dlikethatposition,butBardwillberesponsibleforthegreatestmajorityofsalesinthegreatestmajorityofcustomersobviouslyaroundtheworld.


Okay,that'shelpful.Andtheonefollow-uponLutonix,Iguess.BroadlyjustfromthegooddatabothoutofyourregistryandtheMedtronicdatafromTCT.Doyouexpectthatoranyotherclinicalormarketexpansion[calous]tochangethegrowthrateintheneartermofthemarketordoyouthinkwe'rejustgoingtoseecontinuedgoodgrowth?


Well,I'lljumpinhere.Ithinkweexpectcontinuedgoodgrowth,butwealsothinkthatadditionalindicationsarereallyimportant.Sowetalkedaboutthestudies,theAVaccessstudybelowtheknee,in-stentrestenosis,otherindicationswethinkareadditionalcatalystforgrowth.Sowe'restrictlyandspecificallyfocusedonthoseareasandwe'llcontinuetobeso.


Great,thanksforthecolor.


You'rewelcome.

Operator :

Thankyou.OurnextquestionwillcomefromAnthonyPetronewithJefferies.

AnthonyPetrone (Analyst-JefferiesLLC):

Great,thanksfortakingthequestion.OneonLutonix,justwonderingifyoucanprovideanupdateonutilizationpercase,howmanyballoonsareactuallyusedpercase?Andthenoneisabroaderquestion.CommunityhealthreportedlowerrevenueperadmissiontodayandthatwasfromlowernegotiatedratesfromMedicare.

Andtheninadditionwe'reseeingconsolidationofprivatemanagedcarecompanies.I'mjustwonderinghowyouthinkthisplaysoutultimatelyinpriceformedicaldevicecompaniesovertime?Thanks.


I'mhappytojumpinontheLutonixside.IcantellyouthatI'mnotsurewehavespecificdatatoshareonnumberofdevisesusedpercase,justbecausewedon'treallyhaveinsightintothat.Unlesswehappentohavesomebodystandingintheroom,wewouldn'tnecessarilyknow.Icantellyoubythelesionlengthsthatwesee,wewouldexpecttosortofbeinthat1.3to1.5devisespotentiallypercasekindofaveragedout.

AnthonyPetrone (Analyst-JefferiesLLC):

That'shelpful.





Relativetothepricingscenarioandconsolidation,(inaudible)it'saverydynamicenvironmentgoingonrightnow.Pricingpressurehasalwaysbeenonusandothercompaniesinthespace.Ithinkspecificallyasyou--Ithinkthepricingdynamicistakingonalittlebitlargerormadealittlebitofalargerimpressionintheinvestmentcommunity,mainlybecauseofsomeofthebiotechandthepharmapricingissuesthathavebeeninthemediarecently.

Youknow,averylargepercentage--Ithinkit's50%ofourrevenuehasanASPoflessthan$500,probablycloserto$400.So75%ofourrevenueactually.Sowe'renotexactlyonthehighendoftheradarscreenherewhentheygettothat.

Nonetheless,theprocedures,theyareunderpressureandwhatwe'retryingtodoisdemonstratethevalueandthequalityandtheoutcomesanddoingthatwithdatawhichwe'regettingalotoftractionanduptakefromourcustomersastheymovemoretointheUSandHCOkindoforganizationstructure.


IthinkthatthosedatasetsarecertainlyveryhelpfulindrivingreimbursementandI'devidencethefullreimbursementforLutonixasaresultofthatvalueanalysisthatweworkedwithCMSon.


Thankyou.


You'rewelcome.

Operator :

Thankyou.And,ladiesandgentlemen,thisdoesconcludeourQ&Asession.I'dnowliketoturnthecallbackovertoBard'sManagementforclosingoradditionalcomments.


Thankyouverymuch.

I'dliketothankallofyouforjoiningustoday,andalsoclosebythankingBardemployeesgloballyforitsstrongyearofexecutionsofar.Sowe'llupdateyouagainonourprogressinJanuary.Thanks,everybody.

Operator :

Thankyou.Ladiesandgentlemen,thatdoesconcludeourconferencecallfortoday.

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