Boston Scientific Corporation - Analyst/Investor Day

| About: Boston Scientific (BSX)

Boston Scientific Corporation (NYSE:BSX)

February 12, 2013 9:00 am ET


Michael Campbell

Jeffrey D. Capello - Chief Financial Officer and Executive Vice President

Michael F. Mahoney - Chief Executive Officer and President

Michael P. Phalen - Executive Vice President and President of Medsurg

Joseph M. Fitzgerald - Senior Vice President and President of Cardiac Rhythm Management Division

Jeffrey B. Mirviss - Senior Vice President and President of Peripheral Interventions

Kevin Ballinger - Senior Vice President and President of Interventional Cardiology

Keith D. Dawkins - Global Chief Medical Officer and Executive Vice President

Ken Stein - Senior Vice President and Associate Chief Medical Officer of Cardiac Rhythm Management


Frederick A. Wise - Stifel, Nicolaus & Co., Inc., Research Division

David R. Lewis - Morgan Stanley, Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Matthew J. Dodds - Citigroup Inc, Research Division

Brooks E. West - Piper Jaffray Companies, Research Division

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Bruce M. Nudell - Crédit Suisse AG, Research Division

Joanne K. Wuensch - BMO Capital Markets U.S.

Joshua T. Jennings - Cowen and Company, LLC, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Michael Matson - Mizuho Securities USA Inc., Research Division

Matthew Taylor - Barclays Capital, Research Division

Jose T. Haresco - JMP Securities LLC, Research Division

Michael Campbell


Michael Campbell

Ladies and gentlemen, please welcome Boston Scientific Chief Financial Officer, Jeff Capello.

Jeffrey D. Capello

Good morning, everyone. Welcome to the 2013 Boston Scientific Investor Day. We all realize that you have many demands on your time, and we sincerely appreciate your interest in Boston Scientific and you being here with us today. I think you're going to find over the next 4 hours that our team has done a very thorough job of providing you with an update of our progress we've made as a company and what our outlook is going forward. And the senior team is very excited to share that with you today.

Before I get into the details, though, of the presentation and the agenda for today's meeting, I need to cover a couple of disclosure statements. First off, the presentation and the discussion we'll have today contains a number of forward-looking statements. Those statements contain a number of estimates and judgments that resolve [ph] around some significant factors. Those factors may or not turn out to be correct. All of those significant factors are fully disclosed in our public disclosures on our 10-Q and 10-K. And as with any public investment, we encourage you to look at our disclosures.

Also from a disclaimer perspective, the information we share today will cover products which have not yet been approved by the FDA and are not yet registered to be sold in the U.S. The timing with regard to some of those product introduction depends on a number of factors, including regulatory filings, approvals and commercial milestones, which may turn out to be different.

We also need to let you know that we'll have a number of non-GAAP disclosures in our presentation. All of those significant non-GAAP disclosures will be reconciled to the closest GAAP equivalent on our website. And finally, the presentation material for today will be available for you about an hour after the presentation on our website.

With that, let me spend a minute and step you through the agenda, so you have an idea on what to expect for the day today. After my remarks on the agenda, I'm going to invite up Mike Mahoney, our Chief Executive Officer and President, to give you some details on our strategy and vision for the company. As a reminder, Mike has now been with us over a year. He's a seasoned executive that has a long passion for the medical device industry, who led the medical device and diagnostics business at J&J and brings a real zeal for product portfolio and for the patients that those portfolios address. He also brings an interest and a zeal for the business which you'll see will be infectious in his presentation, as well as others.

After Mike's presentation, we'll start our business reviews. And we'll have Mike Phalen, who's the President of our MedSurg business, come up first. Mike will cover the Endoscopy business, Urology/Women's Health and Neuromodulation. It's rather fitting that Mike comes up first and present that stage because he was one of the senior leaders of the Endoscopy business and built it to what it is today.

Then we'll transition to the cardiac and the vascular side of the house. And we'll have Joe Fitzgerald come up, who's our President of our CRM and EP business. Following Joe, Jeff Mirviss will come up, and he'll talk to us a little bit about the Peripheral Interventions business. Very fitting that Joe is passing to Jeff on stage today because what you need to know is that Joe was one of the chief architects behind the resurgence of our Peripheral Interventions business, taking a business from what was a flat business to a business that grew almost 10% in the last quarter. And Jeff Mirviss and his team have done a great job executing on that turnaround and building the portfolio. I think you're also going to hear today that Joe is well underway in turning around the portfolio of CRM, and that's pretty encouraging.

Following Jeff, we'll have Kevin Ballinger come up. Kevin is our President of Interventional Cardiology. Kevin has been with the business a number of years. And he's put together a terrific plan as to not only stabilize the IC franchise but also get it back to growth. And I encourage you to pay particular attention to Kevin's presentation because he's got a number of things that are new to you, one thing, in particular, what we think is going to be a real benefit for us in 2013, 2014.

Following that, we'll take a short break and ask people to come back within 15 minutes to get back into your seats. And then we'll have Dr. Keith Dawkins, who's our Global Medical Officer, come up and talk to us about our large clinical programs, I know you have all of an interest in how we're going to run our clinical programs, as well as give you some very specifics on some of our leading, exciting products in terms of product characteristics and why we think they'll win in the marketplace.

Following that, I'll come up and wrap it all together and give you very specifics on our financial outlook in terms of revenue, earnings and the shareholder value proposition. I'll then invite Mike back up to present some concluding remarks. Following that, we'll have all the presenters, as well as Dr. Ken Stein, our Chief Medical Officer for the CRM business, come up and take Q&A, which will be moderated by our Vice President of Investor Relations, Michael Campbell.

Then we'll break for lunch. And we'll have a boxed lunch available for people that want to stick around. We'll have some the leadership team around to answer your questions. So with that, let me stop and let me invite up Mike Mahoney, our President and Chief Executive Officer. Mike?

Michael F. Mahoney

Thank you. I appreciate that. Good morning, everyone. I do love the company quite a bit, and Jeff, I promised them I wouldn't sing our BSC fight song to the group this morning. We'll hold for the break on that. And also the team promised that it will get warmer here in the afternoon. It will slightly warmer inside than outside. So it's going to get a little bit better here to keep you sharp in the morning. But it means a lot to us that the you came to hear about Boston Scientific for the better part of a half a day. And I know it'll be worthwhile for you.

Really, across this 4 hours today we're going to share our growth plans, you get to meet our leadership team that has a strategy of our company going forward, and we'll have a healthy Q&A for about an hour. And we'll outline in very good detail the markets that we serve, the business units and our plans for the future. And you'll see a number of our important product platforms that we'll highlight. So over the course of the day, you'll see a number of presentations. And what would be a successful day in my opinion is if you walked out of the room at least with these key takeaways after the course of the day today.

Now the first one is that we're clearly in turnaround markets. And we're going to talk a lot about the markets across these business units. And the markets are challenging, but we see these markets stabilizing and improving, particularly in IC and CRM, and see consistency across the MedSurg business. We'll talk about the markets in detail across BSC. Hopefully, you'll also see that we are making significant changes. We have made significant changes over the past 12 months. And we're continuing to make changes really to improve our execution and our performance across our company.

Third, you see some of our strategic imperatives behind me. But we really do have a clear strategy that's focused on leading and regaining #1 market share position in Interventional Cardiology, regaining the #2 share position across our CRM businesses. And across our MedSurg businesses, you'll see we have strong #1 or #2 positions. But a really clear strategy to lead. And in doing so, we're very confident in our ability to accelerate revenue growth, improve margins and drive earnings growth as well.

And the fourth piece, and Jeff has mentioned this at a number of different analyst days and investor calls, the company continues to deliver strong cash flow. We delivered about $1.2 billion in 2012. And you'll see that continuing to improve as our sales results will drive and accelerate through the planning period.

And the last piece is, that I think is really important, just the DNA of the company, the culture of the company. And you'll see that expressed with our leadership team, our tagline, Advancing science for life. No kidding around, we really do believe the innovations and portfolio that we have, have an significant impact on patients' lives. And you'll see that with the innovation in the portfolio that we deliver.

And also I think is really, really important to see is a highly dedicated and committed global leadership team. Essentially, we have many new leaders across BSC, we really do see this as a new era for the company. It's very exciting. And I think that commitment sometimes is difficult to measure in a report. But hopefully, you'll see that today across our group. So lots of information today, but hopefully these will be the takeaways that you'd go back and feel about with Boston Scientific.

So we did our last Investor Day 2 years ago, same room, but we changed the angle around. So this will gives us a different perspective. And the company has a different perspective as well. And a lot has changed over the last 2 years. The market has changed. Some of our performance has lagged. We'll talk a little bit about that, but we'll spend most of our time on today and the future. And you also have a new leadership team for Boston Scientific.

From a market perspective versus 2 years ago, we saw the market has declined, from what we used to call about a 3% market growth overall in BSC served markets in 2010 to a negative 1% market in 2012. So we've talked about this in the past. The primary drivers behind that has been their IC and CRM global markets, where in 2010, they were essentially flat to 1% growth. And in 2012, you saw globally those markets shift to, call it, the negative 4%, negative 5% range. And Joe Fitzgerald and Kevin Ballinger will talk specifically about those markets going forward, which we do see stabilizing and improving over time.

We saw big market declines in IC and CRM. And you saw a very consistent market performance across our other businesses. The EP market, very solid and consistent high growth, Endoscopy. Women's Health and Urology, the Urology business has a consistent market. Women's Health has been impacted by the pelvic floor. And Mike Phalen will talk about that. Neuromodulation, a strong market. A big theme today is moving into higher-growth adjacencies and also the PI business. So overall, the big change for us was market declines in 2012 and '11 that -- I'm sorry, in 2011, 2012 that were not forecasted in 2010.

So now going forward. Oftentimes at these analyst days, you'll hear quite about the marketplace. So I do want to touch on a few pieces here. Clearly, these are challenging markets but the markets that we all have to compete in. And along with that, we'll see strong fundamentals with demographics and global opportunities. And many different technology convergence opportunities we can discuss, and you'll see examples of that.

On the headwinds, these headwinds have been discussed. We continue to see a challenging pricing environment, greater transparency across regions, whether in Europe or Asia-Pac or the U.S. The medical device tax, which we announced in our first quarter call, will hit Boston Scientific to the tune of about $75 million. And you'll see that in our SG&A line, which Jeff will walk through in detail when he does our financials. And also with accountable care organizations. We spend a lot of time, particularly with our cardiovascular service line, across our CRV Group, speaking with hospital CEOs, hospital administrators. And the scale of these hospital systems are getting much larger. And that creates a great opportunity for companies that have scale and have a breadth of portfolio as they continue to reduce down vendors to try to drive price and vendor consolidation. It really does benefit companies like Boston Scientific, who have a comprehensive portfolio and very strong leadership positions and unique innovation within those categories that really can't be displaced. And I think you'll see those today from the team.

On tailwinds. You see the demographics in the aging population. The emerging markets will be a big theme today. And we're proud to say that we're growing plus 30% in the BRIC markets, and we're expanding those capabilities in other emerging markets across Asia-Pac and Europe. You'll hear a lot about from us on new treatment alternatives. So our aggressive moves into hypertension, into severe asthma, left atrial appendage and TAVR. So these are large markets that are growing that will continue to provide us tailwinds. And also technology convergence. You've seen many conferences that talk about the impact of health care informatics, IT, drug device combinations. And I think when you look at the products that Kevin Ballinger will talk about, our drug device capabilities, and Joe Fitzgerald, with our sensing capabilities and how we're integrating health care IT into our products, I think you'll see a company that's focused on the future and focused on these future convergence capabilities.

So in summary, this is not an easy market. The markets, we believe, are improving and stabilizing versus what we saw in 2010, 2011. We'll walk through that in detail. But more importantly, our leadership team is pointed on the right capabilities to ensure we leverage this strategy that you'll hear about today to winning this marketplace.

Now I think what's really important as these accountable care organizations continue to get larger in these developed markets, and you hear this from other investors presentations, but we think this is uniquely appealing to Boston Scientific, and that is, how do you align hospitals' interest with that of Boston Scientific? And the pressure for hospitals is getting larger and larger, and clearly, they're focused on these 3 things: improving patient outcomes, how do they reduce health care cost and how does a hospital differentiate itself, differentiate itself and provide increased patient access.

So you'll hear a lot about this from different companies' presentations. But what I would offer up on the right-hand side here are 6 examples of how we are driving very unique economic value for hospitals today. And I think you'll see through the presentations how these are very unique, disruptive technologies, that we have improved patient outcomes. And you'll hear from Mike Phalen, who will talk about Alair, that has -- with Alair, a reduction in ER visits, about 84% for severe asthma patients, and that's 32% reduction in asthma attacks.

Jeff Mirviss will talk about Vessix, which is our acquisition into hypertension that has the promise to reduce blood pressure and this capability to reduce procedure time and increase patient comfort for patients. In terms of health care cost, you'll hear Joe Fitzgerald talk quite a bit about our S-ICD platform, which we acquired last summer, and how this could uniquely save hospitals money with very costly infection rates that are caused from bleeds and reducing those infections and the capabilities and also the patient awareness that continues to grow for our S-ICD. And also with SYNERGY, which Kevin Ballinger will talk about, how can we have the promise of reducing health care costs by potentially reducing the need for dual antiplatelet therapy, which will be proven in the clinical trial. And also increasing the access of new therapies, and we'll talk about our ICD battery longevity and also our Lotus Valves.

So we really believe today, and you'll hear from our leaders, that our portfolio that we have today, the R&D investments that we make and the acquisitions that we look at, really have to pass these tests [ph]: Do they improve patient outcomes? Do they reduce health care costs? Do they help differentiate BSC and provide greater access for the hospital systems? So we think the economic value story that we deliver is available today, and you'll hear about it.

Now in terms of the markets going forward, Jeff has a slide at the end of the day that will go through even more granular detail, how we view the marketplace in 2013, '14 and '15 to 2017 across our business units. But here's a quick look at this, a quick high-level summary.

So in 2013, as similar to what we mentioned at our first quarter call, we do expect a slight improvement in the marketplace from 2012. And what you'll see is our med surgical businesses, that Mike Phalen will outline and a couple other leaders are here today for Q&A if you have them, will have consistent growth in 2013. We'll also see the increase -- the impact of our adjacencies. And we see a stabilization of the IC and CRM markets. So we're not calling return to growth. But we're calling a similar growth pattern but slight stabilization calling a negative 3%, negative 4% range, whereas in 2012, we had those markets calling negative 4%, negative 5%. So slight improvement in the IC, CRM marketplaces and the stabilization clearly.

Then as you move to 2015, we do see the overall markets improving a little bit, so we call this about 2%. So the 2 drivers of this, one, we see continued stabilization of IC and CRM. And the stabilization will result of a couple of things. One is new technology platforms that we're delivering that we believe will drive improvement in pricing capabilities. You'll see the increased benefit of mix, the demographics in terms of the emerging markets. And the volume and increased sales levels in those markets have an overall benefit to the market itself. And then you'll see consistency across our MedSurg businesses in terms of the marketplace. And then a growing impact of these adjacencies, like hypertension, Alair, TAVR, S-ICD, arrhythmia, our EP business. So the increased impact of adjacencies and the improvement of our core business will drive about a 2% overall market growth in the mid-term. And then in 2017, you'll see the continued trend, and continued benefit of IC and CRM in terms of those emerging market profiles, the impact of the adjacencies getting larger and the consistent growth of our MedSurg businesses. So all in all, we do see a stabilization of the market from 2012 to 2013 and a slight improvement as we go through the mid-term and long-term of our strategic planning horizon.

Now in terms of a one-page financial highlight summary for Boston Scientific, and Jeff will cover this in about 20 minutes at the very end of the presentation, this is what we want to provide for you. So similar to the 2013 guidance, we're focused on turning around the performance of the business in 2013. So we have provided guidance of negative 2% to positive 2% at the sales side. We committed to growing our business in the second half of 2013. The first quarter will be our toughest quarter as we communicated in the call. The quarters will improve sequentially as we go through the year, and we'll have growth in the second half of 2013, which should be a terrific turnaround for the company. You see in the margins, essentially flat. You'll see a large impact through the med device tax, which is in SG&A. And we'll also continue to invest in these high-growth adjacencies that you'll hear about. So essentially, the margin story is flat. When you neutralize for the med device tax, it goes up nicely. And when you neutralize for med device tax, our EPS actually increases close to the high single-digit range in 2013.

Now in the mid-term. What we're providing guidance here is low single-digits, and Jeff will provide more commentary on this. And similar to the markets, this will be driven by our sales improvement in our core IC and CRM businesses. We have brand-new platforms that Jeff will be outlining. Jeff Mirviss will be outlining the PI, that Joe will be outlining the CRM, and Kevin Ballinger will outline in IC. So we believe these significant innovations will continue to drive improving performance in our IC and CRM business and we'll take share in those markets. And we're focused on regaining the #2 market share position in CRM and the #1 market share position in IC.

Secondly, in the mid-term, you'll see continued performance of a growing share and expanding globally in our MedSurg and PI businesses that we have a very strong and consistent track record of doing. And you'll see these adjacencies kick in to a higher degree to drive low single-digit growth. We have a goal of improving our operating income margins by 1 point per year, once we exit 2013. And the company will continue to still drive strong cash flow. And Jeff will talk about our capital allocation strategy.

In our longer-term plan, we're signaling mid-single-digit growth. Impact of adjacencies continues to grow. You'll see big U.S. launches of key platforms like SYNERGY, like hypertension, like TAVR and also a significant impact on the emerging markets. As I indicated, we're going 35% today, we're investing a lot in the emerging markets. We're investing quite a bit in these adjacencies, and we're also, at the same time, doing a lot on the continuous improvement front as was mentioned in the last call, where we have another $100 million restructuring benefit that we're implementing now. That's the financial story.

And then if you look at just how this pie is shaped over time, I think a key -- a few key takeaways on this one: First of all, in 2012, as you see we have a very high concentration of our business in IC and CRM, almost 60%, about 58%. And that business suffered from a difficult market that we talked about being negative 5%. And unfortunately, we also lost share, so not a good combination. We had declining markets in 2012, and we lost share. So we're going to clearly fix the second one, and you'll hear more about those details.

In 2012, we essentially grew negative 3% across the business. On a combined basis, our CRM and IC grew negative 9% and our PI and MedSurg grew about 6%. So that was 2012. We provided 2013 guidance. But then as you move forward here in 2015 and 2017, you'll see our CRM and IC businesses will grow. We'll grow based on the pipeline that we have, the adjacencies that will help drive pullthrough for those businesses and as those markets continue to stabilize. You'll see the continued strength of our MedSurg and PI businesses and the adjacencies that they're moving into with hypertension and Alair, and we'll continue to gain share. And you'll see the adjacencies have a larger impact. So by doing so, you'll see the mix of our business and the concentration will become a little bit less with IC and CRM over time.

So in 2017, we have a better balanced portfolio, roughly 40% MedSurg and PI, a little over 40% IC and CRM. These adjacencies will add up to close to $1 billion by 2017. And we're putting a lot of investment in our EP business, which historically has not been a big focus area for BSC but absolutely will be in the future, given the market strength, the synergies we have at CRM, the capabilities we have a business, and it's an area that we'll focus on. So overall, our IC and CRM business will grow. We'll take share in those businesses. Those markets will stabilize. They won't be great markets but they'll stabilize. And you will see a better balanced portfolio at BSC in this time period.

So I think this is important. Because 2012 was a challenging year, we had some challenging markets and we've lost some share in some of our bigger markets. So what are we doing right now differently to execute better? And this is a slide that you may have seen in the past, but I just want to reinforce it because we've made a lot of changes to the company over the past 12 months that we believe will benefit us in 2013 and in the future as we go through our strat plan here.

The first one is, we really are acting like a global company now. So we're a big company, $7.2 billion. But I often get this question of: What does that mean? Well, what that means now is our presidents are measured on worldwide sales and worldwide operating income. So they have every incentive now to invest in markets that have the highest growth, deliver the greatest profitability and also to do acquisitions and alliances in those regions. So linking their performance on global sales and global operating income, and then organizing the companies underneath them are very, very important for performance management, for speed and for resource allocation. So those changes have been difficult to do but are already in place. And you'll see us act as a swifter, leaner global company that will really take advantage of our portfolio in those fast-growing markets, many of those outside the U.S.

We strengthened and streamlined our commercial model. So we have an excellent commercial heritage, but we streamlined that capability, really focusing on the Interventional Cardiology business, CRM, Peripheral business units, but also creating a capability, a corporate account capability across BSC. So many hospitals will want to buy a cardiovascular service line approach. And we are very well suited to meet that customer need. So we have a corporate account capability that runs across BSC, but a leaner more streamlined in terms of management layers and accountability focus across our sales teams. So it was a big change that we made in the second half of 2012.

On the R&D side, we spend a lot of money on R&D, about 12%. So Ken Pucel and our R&D team are focused on improving our cycle time of R&D developments and also really leveraging across BSC. There's a lot of synergy between our Endoscopy business and our PI business, and our PI business and Interventional Cardiology. There's synergies between our Neuromodulation business and our CRM business and our EP business. So it's important that these R&D leaders continue to focus on their business but also lift up and look at the synergies across BSC. And so we're doing that today.

And lastly, I get often asked, we've done a lot of restructuring, "Is it hurting the investments in the company?" And the answer to that is no. So I've been here for 18 months. We've announced about another $100 million restructuring, which is important for the company to continue to balance our cost base with the fast-growing markets that we have, but also to have a leaner organization. So whether it be changing our corporate headquarters and moving to an appropriate-sized building, reducing layers, reducing unwanted cost across our business, we're focused on driving a leaner and a faster and a more agile organization to compete globally. I think we've made a lot of strides to do that. So I would just summarize this as, we have done a lot to improve our capabilities in this area.

You'll hear about our imperatives today. These are the strategic imperatives that will guide the company going forward. Strengthening our execution to grow share, we touched on that. High-growth adjacencies, the team will walk through those. Driving global expansion will be a big piece of the presentation as you'll hear about today. Funding the journey, Jeff will highlight this. We have about 400 -- about $100 million restructuring and about a $400 million restructuring benefit over the past few years. And also key capabilities in price management and our advance into the BRIC markets. So these imperatives run across Boston Scientific, and you'll see goals and objectives that will back those up.

Now over the course of the day, this is our first imperative, strengthen our execution to grow share. So I won't go through each one of these because our business unit leaders will. But I think what you'll see is a very impressive pipeline of portfolio that we're delivering today, and in the near term, of our strategic plan here, whether it be the S-ICD, our investments in our EP business and also our investments across our CRM portfolio that Joe will touch on. We believe our SYNERGY Stent will drive us back to a #1 position in Interventional Cardiology. We also had the recent acquisition of BridgePoint for chronic total occlusion. And we're also focused on our IVUS business to improve that. In our PI business, a #1 business across -- #1 global leader, growing global share around the world and a very, very impressive pipeline that you'll hear about from Jeff Mirviss.

Coming up next, we've got Mike Phalen to highlight these key product categories. In Endoscopy, which is typically a 510(k) product life cycle, we continue to launch about 10 new products every year. And you'll see a picture of the WallFlex Stent here. Our Urology business continues to grow very quickly. We expect our Women's Health business will recover once the pelvic floor volume improves in 2013. And you'll see a highlight today from Mike Phalen about our Neuromodulation business that grew in the U.S. 14% in the fourth quarter. And we believe we have a transformational technology in pain, called the Spectra platform, that you'll hear about. And a lot of the capabilities from Spectra will also be leveraged in our deep brain capabilities.

On the new adjacencies. So the business unit leaders will highlight these. So we talked about, how do we improve execution to grow our core? How we do improve our cost structure? And in parallel here, how do we expand into new high-growth adjacencies? So here are 6 examples of adjacencies we'll highlight today. Together, they roughly estimate to about $1 billion in potential revenue between now and 2017. And these are unique disruptive technologies, from severe asthma, where we have excellent 5-year data, to left atrial appendage, Atritech, which is a unique offering for AFib patients with high risk of stroke. With the EP business, again where we haven't historically invested enough, we're doing that now. It's a strong market and we're extending our portfolio with a mapping navigation system and a nice cadence of new catheters that you're seeing.

TAVR. So Dr. Keith Dawkins will talk about our initiatives in TAVR, where we believe we have a second-generation device that will truly differentiate itself in terms of ease-of-use for patients, and they'll show some videos from that. And also deep brain. So we're leveraging the capabilities of our multi-independent channel control from our pain business and leverage that into deep brain.

So here you see beyond our core businesses, which we believe in markets that will stabilize and we have the unique innovation to grow share, adjacencies that we are adding into our strat plan. So this is how you can get more excited -- and possible [ph] I can get more excited about this company, more excited about Boston Scientific, our ability to grow faster than market in the mid-term and long term of our strategic plan horizon.

On the driving global expansion. We have our leaders here today from Europe, Michael Onuscheck, and Supratim Bose from Asia-Pac. So those 2 gentlemen are responsible for leading our European business, Asia-Pac business. And Mauricio for Latin America, which does extremely well. And what you'll see in this strategic plan horizon here is our shift, from primarily a U.S.-based business of 53%, you'll see that shift down a little bit to about 50% and you'll see an increase in the emerging markets. The emerging markets will grow from about 4% to 10% in the strategic plan horizon, and you'll see a big focus area in this in the presentations.

So we talked about improving our execution to grow share in our core businesses, expand into adjacencies, those 6 which add up to about $1 billion; expanding into BRIC, where we're growing 30%; and also lessening our concentration in the U.S.; and fourthly, funding the journey. So we still believe there's a lot of room for BSC to become leaner, to drive continuous improvement programs. We have gross margins today that are underneath our competition, and we have a goal to increase our gross margins, operating income margin 1 point a year through the strategic plan horizon, which would make us much more highly competitive. And you'll see we'll do that through our manufacturing improvement initiatives, our supply chain initiatives, our focus on R&D productivity. And as you'll see in the time horizon here, the impact that we have in these adjacencies are larger in 2013 and that will become smaller in the strat plan horizon. So we're confident that we can increase our margins and operating income throughout the planning [ph] period.

And the other one, this is the hallmark of company, cash flow. So in 2012, we ended the year at $200 million, and Jeff will talk about the very aggressive share repurchase program that we've impacted over the past 18 months. We bought back 11% of the company. And you'll see with improved revenue growth through this plan horizon we'll generate a minimum $6.5 billion of additional cash flow, which will take us to about $6.7 billion. And we want to be very prudent about how we use that cash flow. We want to make very, very smart acquisitions. We have a number of high-growth adjacencies I just outlined. We'll focus our acquisition dollars on opportunities that have high synergies with us that ideally have revenue now, where we can drive synergies and we're in a clear market leadership position where BSC can win. So we'll be very careful about how we spend those acquisition dollars. We'll continue our stock repurchase program, and we'll ensure to have enough ability to manage any type of risk contingencies in our legal and tax. But the cash flow historically has been very strong for the company, and we expect this to accelerate.

So that's a high-level walk across Boston Scientific, where we've talked about our financial opportunities through the strat plan horizon, some of our key strategic imperatives. You'll see key portfolio that's highlighted by our team today, key adjacencies. And I'll just end on this one, because I think again the spirit of the company and the culture of the company is so important, and we have a tag line called "Advancing science for life." And we do that with our patients every day. It motivates our employees, the 24,000 people. It's a new era for the company, and I think this type of advancing science for life really speaks to what Boston Scientific does. We have our core values here that we measure our employees on, and we hopefully we'll be recognized by our customers for these core values.

I'll highlight. Caring; meaningful innovation, you'll hear about today; high-performance. So growing faster than the market, expecting to grow faster than the market, expecting to grow operating income faster than sales. Global collaboration in this global business, diversity and also this winning spirit, where we see opportunities everywhere. So that's the culture at BSC that we hope you'll see from our employees today and we'll be recognized throughout the strategic planning horizon for.

So with that, we want to turn -- we're going to shift gears here and turn over to our business unit segment overviews. And I'll be pleased to introduce Mike Phalen. And I think over the course of today with our leaders that you'll see, many of here are over in the left-hand side of the room. The leaders know the businesses extremely well. There's excellent domain expertise within our businesses. Some of the leaders are new, and they're focused on growing Boston Scientific for the long term. And so with that, I want to introduce Mike Phalen, who's going to walk us through our MedSurg business.

Michael P. Phalen

Thanks, Mike. Well, good morning, everyone. So I will take probably about 25 minutes to provide an overview of our MedSurg businesses. These businesses are made up of 3 operating divisions in Boston Scientific: our Endoscopy business, our Neuromodulation business and our Urology and Women's Health business. And we make up a sector we call the MedSurg sector. I would classify these businesses as interventionally based medical and surgical businesses that are predominantly focused on nonvascular diseases. And as Mike mentioned, these have been historically very strong leadership businesses for BSC. They've enjoyed very stable markets that have continued to grow, very solid core market growth, and they're leadership businesses for BSC. We're either #1 or #2 in all 3 of these businesses, and I'll walk you through a little bit more detail on each one of them. And I think most importantly, they are going to be increasingly important revenue contributors to Boston Scientific as we continue to diversify the company.

Just to give you a little size and shape. In 2012, the MedSurg businesses produced revenue in excess of $2 billion. We grew those businesses in aggregate at 6% on a constant currency basis. And we enjoy very strong leadership positions within these 3 markets.

Now we expect Boston Scientific's MedSurg businesses will continue to grow faster than the market based on a number of key strategic growth drivers. And the first one is, I like the portfolio. We have very good core market product innovation. These are opportunities to continue to take share and expand the market. As Mike mentioned, globalization will be a very important key to growing these businesses, and they continue to be growing very nicely outside the United States.

And we also have the expansion opportunity into some unique high-growth adjacencies, and I'll detail those for you in a few moments. I think in short, these are strong, growing global businesses for BSC, and we believe they're very well positioned in strong growth markets.

So let me transition first to our Endoscopy business. This is a leadership business for Boston Scientific. It's a very solid and historically strong contributor to Boston Scientific over many, many years. It's a very global business. It's probably the most global business that we have in the whole company, and we compete in a variety of a very nice, attractive market that's in excess of $2.5 billion. And in 2012, Endoscopy produced a revenue in excess of $1.2 billion, and it grew at 7% on a constant currency basis, almost doubling that of the market.

Now we expect that Endoscopy will continue to grow, and we have a very, I think, very compelling strategic drivers for this particular division. First, and I think it's a -- we'll detail a little bit. First, it's a very balanced investment in the portfolio, and we've been working very hard to accelerate our time to market. A couple of years ago, if you remember 2 years ago or 3 years ago, we invested more heavily in the R&D portfolio for Endoscopy, and we're beginning to see the benefit of those investments.

Secondly, about global execution. Endoscopy is a very global business today, but we're just getting started in many of those BRIC markets, and that will continue to be a driver of growth for our Endoscopy business, particularly in India, China and parts of Latin America, Brazil.

And then lastly, I think we have a very strong commercial value proposition. This is a very broad and deep product portfolio. The Endoscopy businesses in many parts of the world are the standard of care in terms of procedures and technologies. And I think that gives us a very compelling engagement with economic buyers throughout the world. We're also going to be diversifying into high-growth markets. We'll talk a little bit about the pulmonary business, in particular our Asthmatx play and the idea of bringing bronchial thermoplasty as a new technology for treating refractory asthma.

I think in summary, Endoscopy is very, very well positioned to extend its leadership and continue to accelerate growth.

Now Endoscopy treats a wide variety of diseases, and these are diseases that I would classify as both end-stage diseases like cancer and quality-of-life diseases, and it covers a wide spectrum of disease states. We target a lot of diversity in this patient segment, and these are diseases that definitely have an impact on health care systems throughout the world. And as I mentioned earlier, one of the advantages of the Endoscopy business is the breadth and depth of this portfolio. And it gives us an opportunity to sort of balance and play in all of these vertical segments. It's also one of the few businesses in BSC where we have a chance to participate in the diagnostic, therapeutic and palliative aspects of GI medicine and pulmonary medicine.

Now if you look at the markets in total, I think as Mike mentioned, we've had historically strong market growth contribution from our core segment. This would be made up of GI cancers, of pancreaticobiliary disease, of gastrointestinal bleeding and our core pulmonary business. And we expect that to continue to be a solid contributor, particularly as we bring these technologies to the emerging markets throughout the world. And then we really like the adjacency space that we outlined a few years ago targeting the pulmonary space with our bronchial thermoplasty opportunity and a little bit more work that's now being done around the area of lung cancer. I think together, this represents a sizable growth market for Boston Scientific, and we really feel like we're positioned well to take advantage of this market.

Now I mentioned before the innovative pipeline, breadth and depth. This is an example of the categories we compete in: GI cancers, biliary disease, bleeding, nutritional support and the whole pulmonary and asthma space. We have an innovative product pipeline here. Over the last 24 months, we made substantial investments in R&D, and we're kind of accelerating this portfolio, and we're investing in all areas of these disease states. We plan to leverage this portfolio and grow in existing franchises through continued product innovation, and obviously, diversifying into the adjacencies. And we believe that this product pipeline kind of continues the story of Endoscopy, which is continuing to take market share and are products that allow us to expand the market. So I think we're very, very well positioned with our overall pipeline.

Let me shift gears and talk a little bit about Alair Bronchial Thermoplasty System. Just as a reminder. We acquired this technology in 2010. It's essentially made up of 2 components, a disposable radio -- a disposable catheter and a radio frequency generator. And BT is done on an outpatient basis. It's safe, and it's a treatment that's targeted for severe refractory asthma patients. These are patients that do not typically respond well to steroid therapy or inhalers, et cetera. And just a little bit more. It's been shown to be very safe and effective -- 3 randomized control trials to date. And just a little bit more on that. As Mike mentioned in our pivotal study, 4 out of 5 patients saw major improvements in the quality of life measures. And in our treatment group, I had 32% fewer asthma attacks and a remarkable reduction in the amount of time spent going to the emergency room. 84% fewer trips to the ER. Now these benefits have been sustained out for 2 years, and we do anticipate publishing our 5-year data this year. And I'll talk a little bit about that in a few moments. I think it's important to say that we're the only company that features the technology of interventional procedure for the treatment of refractory asthma.

It represents a very sizable market. I like this diagram because it's simple to understand. If you just take the U.S. and Europe, for example, there's about 70 million patients with asthma. 50 million of them would be considered to be adults and 2.5 million of those we would classify as refractory asthma patients. And so if you just apply some simple math that we just achieved 5% penetration of that market, that represents a market potential of $1 billion with, I think, significant upside in this overall space. And just to give you a little bit of work. We did a lot of work in 2012. Over 240 centers are up and running in greater than 18 countries. We've trained over 500 physicians. I'll talk a little bit about this in a moment. We received a Category 1 CPT code January 1. And that's important because the Category 1 code is an indication of the strength in the clinical evidence and the tremendous support for the procedure among pulmonary physicians. And the Category 1 Code is linked to more definitive physician payment, and that is -- payment is very comparable to complex interventional bronchoscopy procedures. And then finally, we believe that having a Category 1 code will facilitate easier claim processing and potentially helps accelerate coverage and patient access.

We also expect to publish our 5-year trial data, and I think this is going to be very, very important. The one single issue from the payer side has been the long-term effectiveness. We're pleased to say that the 5-year data will be published middle of this year, and that will be an important element convincing payers and providers of the long-term effectiveness of the procedure. We are often measured against the pharmaceuticals. And so we know once you stop taking the medicine, the asthma returns. So having a body of evidence to support long-term effectiveness will be a key gate to establishing the right level of procedural support and payment.

We also have a very comprehensive plan this year to engage all the payers, a 3-point plan: a payer engagement strategy, a medical society engagement strategy and a technology assessment group strategy. The comprehensive plan to deal with all 3 of these entities with our manuscript, we'll be targeting the top 100 payers in the United States. We'll have meetings with the medical directors of these plans. We'll be discussing with the directors and the medical societies the evidence we have now with our 5-year data. And I think, also, this will be important as we continue to revisit historical decisions that have been made over the last 2 years now with the growing evidence -- growing body of evidence. In short, I think we are very well positioned in 2013 to execute a very focused coding coverage and payment strategy for our Alair Bronchial Thermoplasty System.

Now we believe that this can establish a new growth market. As Mike mentioned, this is one of the growth drivers for the company and an adjacency that we think is going to be important for Boston Scientific and certainly, for our Endoscopy division. Now we believe it establishes a new market. We're going to continue to penetrate hospitals, looking to establish that positive reimbursement, continue to build awareness among clinicians and patients. And as I mentioned before, the CPT 1 code went into effect in January. We'll be publishing that 5-year data this year and we hope by the end of this year to have a couple of major payers with coverage decisions and over 400 plus centers worldwide in support of this important technology.

And I think, finally, I would just say that I think this is going to be an important growth driver for Endoscopy. And our clinical results here to date, our experiential experience has been nothing short of fantastic. Patients really see a huge benefit from this technology.

So with that, I'd like to transition to our Neuromodulation business. This is a business that is a fantastic business. 2004, Boston Scientific's Neuromodulation business introduced the world's very first rechargeable spinal cord stimulator and fundamentally changed that marketplace. Today, I'm very pleased to announce that we became the #2 player in the United States market, competing in that $1 billion plus market. And we expect to strengthen our position this year, as Mike mentioned, with a very exciting product launch -- and I'll detail that in a few moments -- called our Precision Spectra system, which we think is sort of the big next leapfrog technology in spinal cord stimulation.

We believe there's an opportunity to really grow this business. We're going to continue to leverage our international footprint and grow this business outside the United States. We had a very good year in 2012. We're rounding out our product pipeline and portfolio to fit those market needs. And we also expect to advance our technology in other markets. We put a toe in the water with the Deep Brain Stimulation franchise. I'll talk a little bit about that in a few moments. And I think one of the neat things about this technology is the leverageability of that technical platform. And there's tremendous opportunities within the Neuromodulation space to benefit patients throughout the world.

So if we talk about the 2 markets we're in today. Two fundamental markets: chronic pain, we categorize as SCS; and Parkinson's disease, DBS, which is sometimes referred to as movement disorders. Now we project both of these markets are growing at the upper single to lower double-digit level. And we believe that growth is really driven by chronic patient populations and a really underserved population. There's tremendous -- this technology has been around a long time, but the markets are just getting started with patients and clinicians fully realizing the benefits of this technology.

Our chronic pain market's our biggest market, it's about a $1.4 billion market. Getting growth is again fueled by low penetration, and we think there's a great opportunity to continue to extend our leadership in that segment.

And then the Parkinson's market is the second-largest Neuromodulation space for Boston Scientific. We value it somewhere between $300 million and $400 million, and we think that growth is fueled by a reasonable uptake, and we're getting some very good experience right now in Europe. And I'll talk about that in a few moments. But together, I think both of these markets represent large underpenetrated and growing markets for Boston Scientific.

So let's talk a little bit about the markets as an aggregate. So when we think about the Neuromodulation market, similar to Endoscopy, our core business is solid. That pain business is solid. It's going to continue to grow in the high -- it will continue to be a high-growth driver for BSC. We also see the adjacency of DBS in the movement disorders to be a unique opportunity to leverage our technology. We're also investing in ONS for migraine, which is an emerging new indication that may have significant potential upside. And together, we think these markets provide again consistent high-growth market opportunities for Boston Scientific.

If I talk a little bit about the pipeline. This is a really nice story. Our Neuromodulation business developed a very powerful and proprietary technology called multiple independent current control. This gives the ability of the clinician to really dial in the current to each individual contact. In our SCS business, we're going to be launching our next-generation platform, Precision Spectra. This is a completely reengineered next-generation spinal cord stimulator that provides unprecedented coverage, flexibility and advanced control to clinicians. And I'll give you a little bit more detail on that. We'll also complement that line with a number of additional products that make it a very powerful platform for these difficult pain patients.

We're also leveraging that technology within our DBS platform. This is the world's only multiple independent current control DBS platform. That's particularly important given you're targeting very small lesions in the brain and you do not want to have unwanted side effects as a result of stimulation.

We have a limited experience right now in Europe. We're gaining that experience with our Vercise system. It's the only system to have the independent current control. And we believe that this is going to be a very nice revenue driver for the company as we continue to broaden out that portfolio and seek some additional indications. And the short of it is, is that we're leveraging one technology platform, and we're going to do a nice job of competing in 2 market spaces.

So let me just shift gears and talk a little bit more about Precision Spectra. This is just a very compelling new technology. It's a next-generation spinal cord stimulator. I mentioned improved coverage, flexibility and advanced control. One of the key challenges in managing pain patients has been providing sufficient coverage to the targeted pain centers. And that is a really difficult task. The existing systems today have some programming limitations. And patients can have pain in multiple areas of the body. And therefore, pain areas certainly can migrate and move over time.

Now what our Precision Spectra system does is it addresses these challenges by offering the world's first 32-contact system. And I should say, up to 32 contacts. Now it's twice the number of contacts that are available in any other SCS platform. And with 32 of these individually powered contacts, Precision Spectra provides remarkable coverage, flexibility and advanced control to both the clinician and the patients.

The entire system has been reengineered, and has been designed to more accurately deliver therapy using very sophisticated and advanced programming algorithms packaged for a much simpler and easier user interface. A very compelling technology with unbelievably good results in our initial release of this product over the last month or so.

Under the DBS platform called Vercise, again, articulating the multiple independent current control stimulation platform. This plays a significant role in brain stimulation because you have -- to control the stimulation, you've got to reduce side effects that are unwanted. And we want to focus exactly on the therapeutic target area. Side effects in the brain can have a significant impact. And we really are excited about this particular platform. We're currently getting some good clinical experience in -- and we expect that this data that we're getting will support the difference that our multiple independent current control platform provides, obviously, avoiding those side effects and having a measurable impact on patients with Parkinson's disease.

I think this is going to be a very solid market for Boston Scientific, and we'll continue to build that out this year. Also, with that experience, it will allow us to do a submission here for the United States later this year.

So let me transition now to our Urology and Women's Health business. This is a business that overlaps 2 segments. It's a Urology business, an endourology business, and a Women's Health business. Boston Scientific enjoys leadership positions in both the stone management and our pelvic floor repair business. In 2012, our Urology/Women's Health business had global revenues in excess of $500 million, and we grew our Urology segment 6% on a constant currency basis. We saw a 10% reduction in our Women's Health business, driven largely by the public health notification issued in 2011. I'll talk a little bit about that in a few minutes.

But we're aiming to double the size of our Urology/Women's Health business, a very solid and historically dependable business for Boston Scientific. We see 3 ways we're going to do that. We've got a very innovative product pipeline. Similar to the Endoscopy story, it's a pipeline that lets us take share and expand the market. This is a business that has tremendous international expansion opportunities ahead of it. 2012, our fastest-growing segments were outside the United States. And then we're also broadening the product portfolio both on the Women's Health side and on our Urology side. And I'll share a little bit of that with you here in a moment.

This business treats a lot of problematic diseases, both on Urology and the Women's Health segment. In our Urology business, we're kind of the worldwide leader in stone management. These are patients that develop kidney stones or stones in the ureter, and we have a smaller position on the BPH side or prostate.

And in the Women's Health side, we've reaffirmed our commitment to the pelvic floor market. And that's comprised of our mid-urethral slings for stress urinary incontinence and products for the treatment of pelvic organ prolapse.

Now this market, as you probably are aware, this market faced some pretty significant headwinds over the last 1.5 years, largely driven by the U.S. FDA public health notification. But we do see the market beginning to stabilize, and we actually took share in 2012. And I think our product pipeline and portfolio puts us in a winning position as this market begins to return to its previous level. And we feel very solid about our clinical portfolio in these devices. We are participating in the U.S.-mandated, what we call the 5-22 [ph] clinical studies that will demonstrate the safety and efficacy of our Women's Health product portfolio.

And then lastly, we have a position on abnormal uterine bleeding, and this is an opportunity in this space to continue to broaden that bag and to have a portfolio for the surgically focused gynecologist. I think in summary, this is a winning -- it's a disease segment that covers a lot of lives, and I think we have a very innovative product pipeline and portfolio that matches up quite nicely with these categories.

So if we talk about markets in total, again, a similar slide to the previous 2 businesses, steady dependable growth in our core business. We make that up of our stone management, pelvic floor and endometrial ablation platform. And then we see some interesting adjacencies in our Urology side. We're looking at the access and visualization segments for accessing the urinary system. And we're also looking quite nicely at the prostate and BPH platform. But the combination of both of these businesses together we think allows us to have a steady dependable market. And it certainly gets better as our pelvic floor market begins to stabilize and return to growth.

An innovative pipeline. Our Urology business historically has had a very good and productive product pipeline. Very strong this year in 2013. We've got 7 new product launches planned. And the innovation on both sides, both on Urology and Women's Health segment, and I think very similar to our Endoscopy business. This is a product portfolio that allows you with new products to take market share and to grow the market. And I think that will be the case in the years to come.

And as I mentioned before, one of our key drivers is globalization. Boston Scientific leads the world in ureteroscopy for stone management, which is growing in incidence as we have obesity challenges all over the world. Ureteroscopy is the most cost-effective solution for stone management and has the highest stone-free rate over time and doesn't require a lot of repeated procedures. And as you can see on the graph, just to give you a little flavor for growth opportunities outside the United States, our Urology/Women's Health business markets grew 30% in Latin America last year and 20% in Asia-Pacific. I believe that some of that growth was attributed to Boston Scientific entering those markets and bringing our portfolio to clinicians in those parts of the world. And you can see that we have a business here that's about 70% U.S. contribution today, so it fits perfectly within our globalization strategy at the corporate level. I think in summary, great opportunity, strong markets outside the United States, and we're just getting started in some of the major emerging markets.

So let me conclude with a summary slide on MedSurg divisions in total. As Mike mentioned, these are strong, steady dependable businesses for Boston Scientific. We believe that the MedSurg businesses will continue to grow faster than the market. Our MedSurg businesses compete in steady-growth markets. We expect the MedSurg businesses to continue to grow outside the United States. And I think most importantly, the MedSurg businesses will continue to be an important revenue contributor to Boston Scientific.

With that, I'd like to introduce our next speaker, Joe Fitzgerald, who is the Senior Vice President and President of our Cardiac Rhythm Management business. Thank you.

Joseph M. Fitzgerald

Thanks, Mike. Nice job. Okay. Good morning, everybody. I'm going to start out with an overview of our Cardiology, Rhythm and Vascular business units. My colleagues, Jeff Mirviss, will come up after me and talk deeply about the vascular or Peripheral Interventions business. And then he'll be followed by Kevin Ballinger, the President of our Interventional Cardiology and Structural Heart businesses.

So CRV, our Cardiology, Rhythm and Vascular divisions, represent a $5 billion position in a $25 billion market. We enjoy multiple #1 or #2 market share positions, things like DES, things like PTCA balloons, things like access, things like PTA peripheral balloons, things like interventional oncology. We also have 2 key #3 positions, those being CRM and EP, where we believe we have excellent plans for improved performance and improved leadership opportunities.

Now in 2012, our growth across these 3 businesses clearly lagged market growth, the exception being peripheral interventions that they clearly exceeded market growth on a worldwide basis. We see, in the future, in this $25 billion segment of the med tech industry, we see approximately a 2% CAGR moving forward. And in terms of our strategic growth drivers, we need to capitalize on our breadth of portfolio in all 3 businesses. We need to continue our excellence in commercial execution. We need to accelerate globalization. You'll hear a lot about that from Kevin Ballinger. And we need to execute in the high growth adjacencies, which will be covered in detail by the 3 of us.

So now, let me turn to specifically the collection of Cardiac Rhythm Management businesses that I run. So clearly, in 2012, our Rhythm Management businesses lagged market growth. If you look at our 7% CRM decline, that compares to a market in 2012 that we have pegged worldwide in the CRM space at minus 5%. If you look at the core CRM market, we predict an improved performance for the market over the next 5 years through 2017. So we see that market as going from minus 5% today in 2012 to a minus 2% performance for the market.

So how does that happen? In our view, that improved CRM core market dynamics are driven by improved de novo implant rates, improved pricing dynamics, moving from something in the neighborhood of mid-single digits over the past couple of years to something that looks like low-single digit pricing decline. We see obviously the opportunity in emerging markets, and we see new therapies late in the 5-year strat plan period in the 16, 17 range, where things like autonomic modulation therapy, carotid sinus stim, we believe EPs will play somewhat of a role in renal denervation and other new technologies aimed at congestive heart failure will clearly add, call it, momentum and accelerate the global CRM market.

And specific to our presence in that 5-year timeframe, we will see an improved BSC performance, and we believe we can take substantial share in that core CRM market, and I'll get it into that later in terms of how we're going to do that.

So let's talk about EP for a moment. Similar to CRM, we lagged market growth in 2012. We put up 1% growth in a market that's clearly growing double digits. And in a market, the electrophysiology market, think of that as the core ablation, mapping, navigation, diagnostic of -- diagnosis of complex arrhythmias, we see that market growing double digits today and we see a sustained strong double-digit growth for that market approaching 11% over the next 5-year period.

We also see, in that same place, very strong pricing dynamics and underlying procedure growth, AFib Ablation, VT ablations that will continue to fuel that strong double-digit EP growth.

So if you look at that, we see, and I'll get into this on the next slide, strong near $1 billion growth coming from the electrophysiologist customer. And that's important because that EP customer globally, they control $13 billion today in purchasing power around the globe. So from our standpoint, we believe we have portfolio strength and we believe that we can execute commercially to take share in all 4 of the key segments within the EP and core CRM spaces.

If you look at our plan, first, it has to start with a renewed CRM portfolio. As I think everybody in the room knows, we have essentially turned over our entire CRM portfolio globally in the last 12 months. You'll hear me talk about the Progeny family of high-voltage devices and the INGENIO family of low-voltage devices.

We must bring a comprehensive offering to the EP customer through our electrophysiology business. We'll go deep on Rhythmia medical, that acquisition and the promise of that technology. Second, we believe we have to combine our market leadership in areas of longevity, lead reliability and overall system reliability or survivability to take share from competitors who don't offer those same 2 advantages. And then lastly, we need to reinvent and reinvigorate the entire EP business. It's a huge market, plus $2.5 billion today, growing at double digits, and we see that as a major growth driver for us. So overall, in the core CRM and EP markets, we think we're clearly positioned to take share over the next 5 years, and the rest of my presentation will dig into the details on that.

So I won't spend a lot of time on this slide, but clearly, in the core Rhythm Management electrophysiology spaces, we have a very large number of disease states that have high prevalence. So if you look at the numbers on this slide, these are U.S. numbers noted. Obviously, if you can take a global view of this, the prevalence in these disease states, sudden cardiac arrest, bradycardia, AFib, ventricular fibrillation and tachycardias, stroke prevention, you're talking about market sizes that are well in excess of 2x the numbers noted here in the U.S. If you think about emerging markets, while smaller than many other med tech segments, so the core electrophysiology and core CRM, the percentage of sales that come from emerging markets today in those markets is less than, for instance, interventional cardiology. But clearly, emerging markets represents a big growth driver in core CRM and EP. And of course, the electrophysiology business and AFib ablation will be a key growth story for us moving forward.

Again, just to wrap that up, the core CRM market we see improving from what has looked like 5% down in 2012 and quite honestly, a fairly rough market dynamic in 2011 and 2012. We see that improving to a minus 2% CAGR over the next 5 years, driven by improved implant, de novo implant dynamics, improved worldwide ASP pressures, average selling price going from the mid-single digits to the low single digits, new therapies, things like vagal nerve stimulation, things like carotid sinus stim, things like multi-sense and other congestive heart failure therapies and growth in emerging markets will drive that improved overall CRM market dynamic.

We also see, as you see here, the gray bar, you see -- and our electrophysiology business that today is $2.5 billion, growing to near $4.3 billion, strong double-digit CAGR. And then the third thing you see is the actual emergence of an entirely new therapy. Mike referred to this as one of our adjacencies, and that's the creation of a left atrial appendage closure market. Obviously, we've been in Europe. I'll talk about WATCHMAN at length in a few slides, but we clearly see this as a realistic $500 million new segment within the 5-year period.

So overall, the slide demonstrates more than $1 billion of growth coming from our core electrophysiology customer, and we believe we can take share across all 4 of the major market segments: pacing, ICDs, CRT-D and electrophysiology.

So now, let me talk about this comprehensive sort of surround the electrophysiology customer strategy that we've been executing on. And again, I just spoke about the 4 distinct segments within the electrophysiologist's control.

We've been executing on the surround the EP strategy. That began with a refresh and a rejuvenation of our core CRM portfolio. I'll talk more about that in a moment. Secondly, we dedicated ourselves to entering and leading new markets that the electrophysiologist will either control or play a huge part in. An example of that is our purchase of Cameron Health and our desire to enter, lead the first and only S-ICD in the world.

The other one is WATCHMAN. We made the decision 2 years ago to purchase Atritech. We've got that product doing really well in Europe, and we plan to go country to country and utilize our first mover leadership advantage in that key new segment, addressing the AFib population.

We also, Rhythmia being an example, we have a foundational strategy to reinvent the EP business. It is not only dependent upon Rhythmia, but I'll talk about other capital launches, et cetera, that we'll dedicate there.

We also have this area called next-generation stimulative or ablative therapies, things like vagal nerve stim, autonomic modulation, things like carotid sinus stim for hypertension, that we intend to enter and lead those markets either through internal development or selective acquisition. So we are clearly committed to providing EPs a comprehensive solution set to take share and to drive our growth in these segments over the next 5 years.

So let's talk about our current offense, because I mentioned earlier that we have essentially rejuvenated and refreshed the entire core CRM bag. And let's first talk about Progeny. That's the internal codename, we don't have a product name Progeny, so I don't want to confuse anybody. The brand names there are things like ENERGEN, INCEPTA and PUNCTUA, our first multi-tier launch covering the entire spectrum of ICD and CRT-D devices. We launched these globally between the years mid-2011 and the end of '12. Those launches clearly demonstrated that when we launch new novel high-reliability, high-longevity devices, that we can take share in the de novo market. Clearly did that with the Progeny, ENERGEN, INCEPTA and PUNCTUA launches.

If you look at our RELIANCE DF-4 that we launched at approximately the same time, we have clearly shown 2 consecutive years that our lead share, sometimes referred to in the CRM industry as lead per port [ph], we have had record breaking years in both '11 and '12 as customers move towards our RELIANCE G platform. So we feel really good about our current offense on the high-voltage side.

Now let's talk about the low-voltage side. So we launched a family, and the codename inside the company was the INGENIO family of devices. The brand names, such as ADVANTIO, INGENIO, INVIVE, INLIVEN, we're still in the midst of that launch. And I'll remind everybody in the room and it's on the webcast that we began those launches in limited fashion in mid-2012. We really didn't even get into the full launch until late in Q4 in many markets around the globe. INGENIO, the family of Brady and CRTP devices, highly featured, world-class RF telemetry and the long-awaited remote patient management capability spanning our entire product portfolio now from high voltage to low voltage.

But let me also talk about the right side of the screen, as you look at it. And this is the major investment that we made in lead development over the past 5 to 7 years. And let me begin with RELIANCE 4-FRONT. We began a limited launch of RELIANCE 4-FRONT, which is our new RELIANCE G platform that is 7 French, okay? We launched that in Europe in a very limited fashion, mid-summer, and we have had outstanding comments and feedback from customers on the performance of that lead.

Secondly, we continue to look at strategies to bring that to the market. And you may have noticed that there is a little bit of lead noise, no pun intended, in the market with regards to the approval of new leads. But we have that development project for RELIANCE 4-FRONT, a 7 French RELIANCE lead, completely done. Now we're either in launch mode or approval mode around the world.

And on the Brady side, we developed an entirely new platform called INGEVITY. It's an entirely new 6 French Brady platform. It was born from the day we started the project to be the world-class MRI-compatible lead. So that can [ph], INGENIO and that lead INGEVITY will really form the basis of our global MRI no compromises solutions that we think will really help us in this share gaining journey that we're on.

So with that, let's talk about the overall portfolio, both in core CRM and electrophysiology. So I'll remind everybody that we have kept R&D investment in this space at greater than 10% over the past 5 years. If you look at the past 3 to 4 years, we've invested $1 billion to accomplish the refresh of the core CRM bag and to reinvigorate and reinvent our EP business. We believe when you look at all of these product launches, and these are all futuristic product launches, that we have a great near, mid and long-term approach to thrilling our customers.

So I'll walk through each of these. I won't go down into the technical details of each of these products, but I'll give you a sense for where our portfolio is going. So on the high-voltage side, with the launch of Progeny, brand names INCEPTA, ENERGEN and PUNCTUA, currently ongoing globally right now, the next big priority is to get what we call S-ICD Gen1.5 across the goal line later this year. That is very important, because as I talk about S-ICD later, getting to a highly manufacturable robust supply chain within Cameron Health, that allows us to go to full launch with the S-ICD. We're currently in a very limited launch mode with what we called Gen1.0. Gen1.5 for Cameron is well down the path and we expect later in the year to have that completed.

Now another thing that we're pretty proud of. It was in December of 2011, so let's call it 14 months ago, that we launched the new high-voltage family of devices, INCEPTA, ENERGEN and PUNCTUA, okay? What we call internally NG3 [ph] or Galaxy program, which is yet another complete line, all of the different types of tiers that you could think about, ICD and CRT-D platforms, that program is very near completion. So this isn't a program that we're talking about delivering in 3 or 4 or 5 years. This is a program that about mid-year, that development cycle, multi-hundred million dollar development cycle, will be completed. That's extremely important to this quest of taking share because it will fuel our non-Quad launch in early '14. It will fuel our Quad-pole global program. It will fuel our tachy MRI programs, and it will fuel and will be the data collection engine in the platform for our multi-sense program.

Then, maybe not in that order, we also want to point out that we have a Gen2.0 S-ICD system currently fully staffed and making great progress. I'm sure I'll get questions on that later.

Now let me turn to low voltage. So remember, we've just really hit about the seventh or eighth month anniversary of launching INGENIO, the INGENIO family globally. We do have up next, we have the launch of Latitude NXT, our remote patient management, both home-based connector and the systems. We're in the process of launching that right now. We just got approval midyear or late in Q3 for our first MRI-compatible can and lead. That's INGENIO plus our fine line lead in Europe, and we will need to then go on the course of getting MRI approvals on our Brady platforms globally.

We also have well down the path of the development cycle what we call internally springboard or externally, we call it INGENIO 2. So that's a whole new family of Brady devices, multiple new features and, most importantly, a significant reduction in cost to produce, to address, let's call it, emerging markets or pricing issues around the globe. INGENIO 2 will also fuel and be the engine for autonomic modulation therapy for vagal nerve stim. So feel pretty good about the high-voltage and low-voltage segments.

In the area of patient management, there are multiple technologies. Mike talked about this sort of IT revolution that's occurring in the CRM business. So remember, we have the capability today to connect every one of our patients in their home to the web, to the cloud, call it what you may, and monitor them 24/7 if we so choose. So we have multiple investments to address that connectivity, to improve that, to make that more patient-friendly and, quite honestly, aimed at reducing the cost of the service burden in the core CRM business. So that's the patient management area.

In the EP space, we have multiple near-term launches, right? We've already announced publicly that the IntellaTip MiFi platform, our plan is to launch that at HRS this coming year. I think that is one of the most underappreciated things in our portfolio, because as Ken Stein, our Chief Medical Officer, has said, that kind of puts the electrophysiology back in electrophysiology. So for those of you who will be at HRS, I'm sure we'll be able to preview that there. But then, we'll talk about Rhythmia and I'll go into depth into the Rhythmia medical acquisition, its new novel mapping and navigation platform. We still have the opportunity to launch Blazer Open-Irrigated in big markets like Japan, Australia, the United States and other very large markets. So that's ahead of us.

And then lastly, we have a suite of next-generation catheters that will leverage this IntellaTip concept in the electrophysiology space, and I won't go into detail -- great detail on that here, but that's a pretty exciting area for us.

And then lastly, in the area of stroke prevention via closure of the left atrial appendage, we're very happy with our current WATCHMAN 1.0 performance. We're in launch mode in multiple countries, both in Europe, Asia Pacific region and in the Latin America region. We also are beginning down the path of indication expansion trials. We have a Generation 2.0 WATCHMAN. That team is fully formed, and we intend to bring that to markets worldwide and post that launch, also look at indication expansion with the second gen WATCHMAN. And Keith Dawkins, our Chief Medical Officer, will go in-depth on the clinical progress of WATCHMAN later.

So our commitment to market leadership, at the core of that is our commitment to highly effective and the highly efficient R&D, and we believe that this will be one of the most important foundational elements to our ability to take share over the next 5 years as I spoke about earlier.

Okay. So let me talk a moment about this quality journey that Boston Scientific has been on. And I really want to focus first on this large vertical integration investment that we made in battery longevity. And I want to remind the investment community and those on the web that we are the only company today to offer warranties on a single-chamber ICD at 10 years. We offer warranties on dual-chamber ICDs that are stated at 8 years, and we have CRT-D warranties globally that are at 6 years. If you compare that to one of our competitors, one of the other market leaders, their current single-chamber ICD warranty globally is 5 years. And you can see on the left side of the slide, right, we're very confident that our single-chamber ICD will last substantially longer than 10 years. And this is all due to the vertical integration that we made, built a plant, switched battery chemistry and this all happened and began longer than a decade ago. We see this as a key differentiator for us today and tomorrow, no matter what kind of health care system that we face around the globe.

But let's also talk about system reliability or lead reliability. We have unmatched data on our RELIANCE G platform, right? So what is that data? That data is that we have lead survivability of greater than 98% out past 8 years. I think it's interesting to note, you might have heard that one of our competitors has some lead issues today. I have yet to see that particular competitor ever compare their lead performance to RELIANCE G's. They choose to pick a different competitor when they talk about lead survivability.

So if we think about overall system reliability, this is -- I'm going to put a can in a lead or a set of leads in a patient and then guarantee the long-term survival of that first system to avoid things like repeat procedures, avoid things like complications and infections associated with repeat procedures. We think we have a fabulous story to tell with longevity due to our battery vertical integration, and the phenomenal track record of our RELIANCE G RV tachy lead portfolio.

So now, I'm going to switch gears and I'll start talking about S-ICD. So I'm starting with this slide because I'm anticipating we're going to get some questions on this. So previously, we have talked about a $750 million market opportunity for the S-ICD, okay? So let's walk down this sort of funnel. So first, we know that the high-voltage market, okay, is about $6 billion in total. $4 billion of that represents the worldwide high-voltage segment, okay, de novo and replacement indications. So lastly, if you think about that market, and you even take out those patients who are pacer-dependent, and you exclude those that you think will have a high probability of benefiting from antitachycardia pacing. And to do that, you have to have a transvenous ICD system implant. We believe the realistic market opportunity in the next 5 years is 30% of that ICD patient population, which equates to a $750 million opportunity. So we're also very proud to have the world's first and only S-ICD option for patients referring physicians and physicians around the world.

So let me review that while this technology has been growing rapidly in Europe, as an example, where we've launched it for the past 3 years, I want to make sure this group understands that we have been, and we'll continue to be, in a very limited launch mode with this product. The reason for that is our need to rapidly mature the Cameron S-ICD manufacturing capability and supply chain. Now as we penetrate new hospitals, establish positive reimbursement country to country to country and build awareness among both patients and referral physicians, we expect to get further along that 30% journey that I talked about earlier and significantly accelerate revenues in the future.

So if you look at this slide in the 5-year time horizon, we very conservatively estimate that S-ICD can produce greater than $0.25 billion of new revenue for Boston Scientific. And again, I'll just mention that developing the Cameron manufacturing capability and supply chain capability and the delivery of this Gen1.5 device later in the year is critical to getting down that journey. If we do that, we strongly believe we can be in the plus hundreds of accounts by the end of 2013.

So let me switch gears from S-ICD and we're going to talk here about a cornerstone or a foundational element of our strategy to reinvent the EP division. And we're going to talk specifically about the Rhythmia Medical acquisition. This is important really because mapping and navigation has become a key enabler in complex and sometimes less complex ablative procedures. If you think about ablative procedures in the AFib space and the VT, ventricular tachycardia space, those are largely done solely with the use of mapping and navigation platforms. And of course, we, during this past 10-year timeframe, where x-ray has essentially been completely displaced by 3D mapping navigation systems, we have not been playing in this space. And again, if you think about those complex procedures like AFib, like VT ablation, those require really good mapping systems.

So if you think about Rhythmia, you think about a system that we are convinced will allow us to penetrate accounts and take share in the multi-hundred million, possibly approaching $1 billion market segment today for revenue generated from mapping and navigation systems. We, obviously, because we bought the company, feel this is a novel differentiated and intriguing system. And I promised Mike I would not go boringly deep into the 3D mapping and navigation space, but at the core of their strategy, Rhythmia's strategy, was to develop a simple system that increased the speed of acquiring a map and increased the speed of doing these complex ablations that was more accurate than currently available systems and could make the physician customer and the lab customer potentially more independent rather than dependent on industry to operate these very complex mapping systems. So we're obviously convinced this system offers significant benefits over the 2 systems, and there are really only 2 systems worldwide that completely dominate the EP 3D mapping and navigation systems globally.

Okay. So part of my -- I'm not going to go down deep into the mapping and navigation. Instead of showing you a video, I'm just going to focus here on -- this is a screenshot of what would be going on in a 3D mapping and navigation procedure, okay? There are basic things that you have to do to play in this space, right? You have to create electroanatomical maps; Rhythmia obviously does that. You have to create voltage maps; we do that. You have to be able to create propagation maps; we do that, right? The other thing you have to do is you have to have really good signal quality, because you're trying to find and ablate and check for the ablation, so you need good fidelity, good signal quality, and we believe that is a foundational element to Rhythmia's development process over the last 8 years.

The other thing that differentiates Rhythmia, and if you look on the bottom left-hand side of the slide, you see these little green boxes right? Rhythmia has this proprietary method to take these thousands of data points that they collect when they are collecting electrograms on the 64-pole basket and automatically accept or reject. Other systems require a person sitting at a console. And for every electrogram you want to select or deselect, that has to be done manually. So hopefully, that wasn't too deep, but obviously, we believe in the key features and benefits that require interest in and commitment to purchase one of these systems, we believe we have very strong features and benefits for the EP physician community.

So from a timing perspective, we are pursuing both CE Mark and FDA approval at the current time. We expect to gain those approvals by midyear, and then we will go into a very limited launch in the second half of 2013. That limited launch will then facilitate a full market release in early 2014. And our target revenue, again, conservative estimate, lab systems alone, with the needed accessories, but excluding any CRM pull-through and any EP ablative revenue pull-through is in the plus-$125 million range.

Now next chapter of my story, we'll talk about left atrial appendage closure and our progress with the WATCHMAN technology. And as a reminder, this is the technology that we acquired in March of 2011. So left atrial appendage closure has targeted AFib patients that want or may need a device or a procedural alternative instead of a lifelong regimen of anti-coagulation. Obviously now, Boston Scientific has several years of experience with WATCHMAN in Europe, where we have continued to grow that business, and where we believe that we have maintained greater than a 50% share. We also, in Europe, continue to progress against milestones for reimbursement in key EU countries. And I'm sure you're all familiar with the economic austerity measures in Europe. Key to launching this product in a market, and let me pick France, is you must have reimbursement or the procedures don't get done. So if I use France as an example, we don't have funded reimbursement today, we've been working down that pathway and we expect reimbursement in France early 2014, maybe mid-2014, and then we will see the acceleration in revenues, just like we have seen in Germany, which is currently our largest market.

Regarding the U.S., I want to reiterate a few of our prior statements on our year-end earnings call. So first, number one, we are in the PREVAIL confirmatory study. We've been conducting that post Atritech's visit to the panel and negotiations with FDA. We've already previously announced that we completed full enrollment in June of 2012 in the PREVAIL study. We also announced on the year-end earnings call that we did, in fact, follow the last patient at their 6-month follow-up by the end of the year. So that puts us in a point in time today where we are analyzing and running the statistics on the PREVAIL data set. We are also beginning discussions with FDA regarding our submission strategy.

The other thing I will remind the group is that our eventual final clinical module submission to FDA is both the PREVAIL data set and that an extensive update on our other clinical data sets, trials like PROTECT-AF 4-year follow-up, cap 2 [ph] long-term follow-up. So this final clinical module is a very large, very complex set of data that we're working on right now and, obviously, beginning discussions with FDA on our submission strategy and timing. And as I think everybody knows, we did submit an abstract for ACC regarding the PREVAIL results. And so those of you will who will be in San Francisco in early March, will I'm sure be there with your pens in hand hearing the results.

So the next update on WATCHMAN as we analyze the data, put the clinical module, final clinical module together and discuss and negotiate with FDA, is most likely going to be during our Q1 earnings call in April. Okay, so let's frame the market for this opportunity called left atrial appendage closure. I think everybody is familiar with the 10-plus million patients with AF. If you come down this funnel and you look at, what is our expected penetration into that non-valvular AF patient population? Right? We believe it is very realistic to target something in the low- to mid-single-digit penetration into that market. And if we do that, we're very confident that we've conservatively estimated the left atrial appendage closure global market at plus $500 million in 2017.

Now we believe that we can achieve that, obviously. That creates this $500 million segment. And today, and we believe in the future, we will be the market leader in this space. We are today internationally, we have a first-mover advantage in the U.S. Keith Dawkins, our Chief Medical Officer, will cover the extensive clinical evidence of our WATCHMAN clinical program to date, later today. So we have a significant adjacency right smack dab in the middle of what we call the CRV market. And although I'm up here presenting this LAAC, and that business reports to me, this is one of the businesses that will clearly be shared, the procedure will be shared across interventional cardiology and the electrophysiologist customer. So it's as close to a CRV product as we've ever launched.

Okay, so what does WATCHMAN do? Clearly, this is to provide permanent sustained closure of the left atrial appendage, which is known to be the nidus of stroke. We have a demonstrated risk reduction of stroke versus warfarin in our prior clinical evidence, and we have the -- we proved the ability to get patients off of a lifelong anti-coagulative OAT therapy. We also have patient options for patients who may be unwilling or unable. I think everybody knows we just got our expanded indication for warfarin-intolerant patients in Europe back in late summer. And we have a therapy that is supported by a very large body of clinical evidence.

So, in conclusion, talking about the Rhythm Management businesses. We really like the fact that we have a collection of $2 billion-plus of businesses with good scale in this sector. We have the global infrastructure to leverage the improved portfolio. So the portfolio that I talked about, we don't need to build massive amounts of new infrastructure. It exists. We're already executing on this reinvention and reinvigoration of our EP business. Rhythmia is a key foundational element, as well are our ablative therapies such as IntellaTip MiFi, which we'll hopefully have at the booth at HRS.

We have and believe we will continue to have for some time a market-leadership position in left atrial appendage closure, both abroad and in the U.S., and we believe that this rejuvenated CRM portfolio and improved market dynamics will allow us to grow this business and take share in this 5-year time horizon. So with that, I'll thank you for your attention, and I will now turn it over to our President of peripheral interventions, Jeff Mirviss.

Jeffrey B. Mirviss

Thanks, Joe. It's a pleasure to be with you today to talk about our Peripheral Interventions division. Boston Scientific's peripheral division is a worldwide leader in a growing market. With revenue approaching $800 million, we delivered above-market growth last year due to a strong cadence of new technologies, expansions into new market spaces such as CTOs, and a renewed focus on innovation. The core peripheral market is estimated to be in excess of $4 billion globally and has demonstrated solid mid-single-digit growth. We expect the same market growth trend to continue over the next 5 years. And we've identified 4 key areas of investment to build upon this above-market growth that we saw last year, and they are: renal denervation; drug elution; crossing solutions; and embolization technologies.

Our focus on innovation and new product launches and expanding into new growth areas has been a winning formula that we plan to build upon over the next 5 years. Our focus continues to be on bringing novel solutions to disease states that are underserved and growing globally. We break up this $4 billion market opportunity into these 3 main categories: The first, peripheral arterial disease. We estimate that there are over 27 million people around the world that have blockages in their peripheral arteries and this translates into a market opportunity that's over $3 billion, and we estimate is growing at a 5% CAGR.

The clinical and economic benefits of treating peripheral vascular disease with a minimally invasive approach is becoming much more clear to patients and to providers and to physicians.

The second area is liver cancer, where the diagnosis and treatment is expanding, especially in Asia, and is currently a $1 billion market opportunity. And we estimate that there are over 700,000 newly diagnosed cases each year and is growing at a 7% CAGR.

Finally, our fastest-growing opportunity is in treating patients with resistant hypertension. We estimate that the market to be under $100 million today, but growing rapidly. And we believe this could become a multi-billion dollar market over the next 5 to 10 years.

The worldwide revenue in the core peripheral market is growing steadily in the mid-single-digit range, and we expect this to continue over the next 5 years. We believe that being a supplier with a broad and deep product portfolio enables Boston Scientific to capture a significant share of this market growth. We view our broad product portfolio as a sustainable competitive advantage and part of our overall strategy to lead.

In addition, we expect that as hospitals look to become more efficient and partner with fewer vendors, our pipeline and our portfolio of new technologies puts us in a position to win even more share of this market growth. And while the core peripheral market is healthy and growing steadily, the addition of high-growth adjacencies, such as renal denervation, doubles the market growth rate to over 10% in peripheral.

And we plan to build upon our leadership position by continuing to launch advanced technologies in this core peripheral market. We have an impressive lineup of new innovation in all of our key segments, and we're extremely well positioned over the next 5 years as our global pipeline continues at an extremely robust pace. This has been a part of our winning formula. For example, we will launch 3 new stents around the world, including the Epic Iliac stent, the Innova stent for SFA lesions, and the new Cobalt-Chromium Balloon Expandable Stent. We will also launch several new PTA balloons where we're the clear market leader today. We'll launch new crossing devices and multiple new interventional oncology devices such as new coils and new micro catheters.

While at the same time, we will be entering new spaces such as atherectomy, drug elution and renal denervation. In fact, with our drug eluting portfolio, we'll be expanding upon the commercialization of our PROMUS Element Plus, below-the-knee drug eluting stent in Europe, and we will start 2 first-human-use trials with different drug eluting technologies in the next couple of months. One, is the drug-coated balloon; and the other is the drug-coated stent for the treatment of SFA lesions.

We're very excited about our entry into the renal denervation market this year with the acquisition of Vessix Vascular. We believe that Vessix is highly differentiated and will allow Boston Scientific to compete for leadership in this large and growing market. The Vessix system is a balloon on a wire that is intuitive and virtually identical to the procedures that interventionists do every day. And unlike competitive devices that are mono-polar and don't have a wire to aid delivery, with Vessix, the physician delivers a balloon into the renal artery and simply presses a button on the generator to ablate the renal nerves. And after only 30 seconds, up to 8 bipolar treatments have occurred simultaneously.

Competitive systems require significantly longer treatment times. Some current devices require up to 0.5 hours or longer to complete the denervation. And the short procedure time with Vessix is better for the patient. Because any pain that the patient may experience occurs for only a minute and the short Vessix procedure time also has the ability to reduce resource utilization for the hospital such as less contrast media, less pain medications and lower costs for additional personnel in the hospital such as anesthesiologists. In addition, the speed of the Vessix procedure enables lower radiation exposure for the physician and may allow for increased patient flow through the cath lab.

The intelligent design of the Vessix system provides the physician with real-time feedback on electro vessel wall apposition and independently turns off any electrode that is not in contact with the internal [ph] wall. And Vessix is the only device on the market to have these important and differentiated features.

We believe that the Vessix procedure may demonstrate enhanced safety as a result of the bipolar electrode design, the ability to precisely measure actual tissue temperature. And the device will automatically power off electrodes that are not in contact with the vessel wall. In addition, it appears that the Vessix device utilizes the lowest effective dose with a power setting that is 8x to 25x lower than competitive devices. It doesn't require a grounding pad or accessory equipment that is needed by competitive devices to cool the catheter. We also believe that Vessix has the potential to demonstrate improved efficacy over competitive devices. With electrode apposition confirmation, Vessix can make the procedure more reliable. It can create a more consistent lesion pattern and potentially eliminate nonresponders that result from a lack of proper ablation consistency.

And to give you a sense of what the Vessix technology is like, take a look at this video.


Jeffrey B. Mirviss

Now the video you just saw is longer than the actual Vessix treatment of a renal artery. The elegance, ease of use and speed has been validated by our global physician customers, and we're looking forward to launching the product this year in many countries outside of the United States.

We estimate that the renal denervation market will deliver a new option for difficult-to-treat patients with resistant hypertension. There are nearly 1 billion patients globally with hypertension, of which, roughly 10% are resistant to medication. Of those patients that are resistant, roughly 1 in 5 are stage 2 with anatomy that is suitable for renal denervation. And with only a 5% penetration per year, the annual market opportunity is around $2.5 billion. And this market estimate at $2.5 billion does not take into account either moving down the continuum of hypertensive patients or the additional applications of the technology for other disease states. And the Vessix platform technology is extremely well suited to be leveraged for treating new disease states that may prove beneficial for patients.

The Boston Scientific Vessix team is aggressively working on demonstrating the safety and efficacy and clinical benefits of the procedure, integrating all aspects of the technology and preparing for a full launch later this year in many countries around the world. And we're working collaboratively with the FDA, and we expect to begin enrollment for a U.S. IDE trial later this year or in the first half of next year. And leveraging the vast global resources at Boston Scientific, we have high expectations to achieve a leadership position in this large and growing market and bring this highly differentiated Vessix technology to our customers and their patients.

So to summarize. The Boston Scientific Peripheral Interventions business is a worldwide leader in a large and growing $4 billion market with growth rates above 10%. We believe that our balanced R&D investments between several high-growth initiatives and the stable and growing core markets will enable us to continue above-market growth rates for the years to come.

Thank you very much. Let me turn it over to Kevin Ballinger.

Kevin Ballinger

All right. Thank you, Jeff. Thanks, everyone, for hanging in before a break. So as Jeff said, my name's Kevin Ballinger, and I'm the President of Boston Scientific's Interventional Cardiology division. Now earlier, you heard Mike Mahoney outline our vision for returning Boston Scientific to growth. And as one of the largest divisions and a significant source of operating income, the Intervention Cardiology, or IC, group plays a critical role in making that vision a reality. And over the next 20 minutes, I'll outline how we plan to accomplish our dual objectives of maintaining leadership in our traditional or core IC product categories, while positioning our group to capture growth in the emerging markets and in transformative technology areas such as structural heart.

So how will we accomplish these objectives? Well, in our traditional product categories, it really comes down to execution. We must capitalize on a broad product portfolio and deliver a steady cadence of compelling product innovations, something that I believe, we, as Boston Scientific, are uniquely good at. And today, we're going to unveil another one of those exciting technologies in our drug eluting stent franchise, and I'll come back to that in a few minutes. Now in the emerging markets, our success depends on continuing to build our development capabilities to improve our current share position. And lastly, in transformative technology areas, such as structural heart, we intend to win by capitalizing on our recent acquisitions, that we believe bring meaningful clinical advances over the current generation of products.

So let me just state that by most measures, 2012 was a very difficult year for Intervention Cardiology. In the U.S., we weathered the approval of a new competitive stent, and we felt the lingering effects of appropriate use concerns, which continue to pressure PCIs. In addition, we experienced pricing pressure in several regions around the world due to challenging economic conditions. When we look forward, however, we see many reasons to be positive about the interventional cardiology market. We believe that underlying patient demographics remain very strong, and the challenges that we faced in traditional markets are being countered by unique opportunities in the emerging markets and significant growth opportunities in transformative, adjacent technology areas. And while we feel we're being appropriately conservative, estimating that the cardiology market worldwide will stabilize in the midterm and achieve a negative 2% compounded annual growth over the next 5 years. If we're successful in executing our strategy, we do anticipate growing faster than the market over that same time period.

So before discussing our detailed plans, I just want to take a moment to address what I think can be fairly characterized as unprecedented change that's been occurring in the worldwide cardiology market. And I've personally been with the BSC cardiology team for over 17 years, so I've seen a fair amount of change. The transition from balloons to bare metal stents to drug eluting stents, the stent thrombosis scare and the COURAGE trial. But I've never seen such a high degree of uncertainty in this market around healthcare reform, economics and the regulatory environment. And no one knows precisely will the market -- where it'll precisely end up, but there are several universal requirements that we believe will remain.

Industry and providers must seek solutions that improve the quality of care, reduce healthcare costs and expand access in the availability of care. And these requirements have prompted many health care providers to seek strategic partners to help navigate that evolving landscape. And whether this means consolidation, physician and hospital alignment, vertical integration or choosing strategic vendors, Boston Scientific has taken proactive steps to position ourselves as the preferred partner in interventional cardiology. We've realigned our global selling organizations. We've reorganized and upgraded our GPO and IDN sales teams. And as Mike mentioned, we've optimized R&D efforts by adopting laser-focused initiatives that aim directly at reducing the overall cost of care. And we've made moves to improve our operating margins, such as migrating to self-manufactured DES, as well as a series of other manufacturing margin improvement programs.

And finally, we've shifted investment to high-growth areas, such as the emerging markets, and to acquisitions like Sadra and Atritech, BridgePoint Medical, and most recently, Vessix.

Providing clinical value has always been a focus area for us, but now it's really only one very important component to providing overall economic value for all key stakeholders. And we believe we've taken the steps to align with this changing market and with our customers. And in doing so, we believe we're poised to grow faster than the worldwide cardiology market and return this division to positive revenue growth over our planning horizon.

Boston Scientific was born from Intervention Cardiology and it really continues to be a very important market for us. Despite some of the headwinds facing this largest segment of the traditional market, PCI, there remains a large and very profitable segment. Approximately 4 million PCIs are performed around the world each year, and demographic trends support growth, modest procedural growth, over the next few years. And the increasing prevalence of diabetes, obesity and hypertension, along with an aging population in developed markets, such as the U.S., Western Europe and Japan, coupled with the increased access to PCI in BRIC countries, lead us to expect mid-single-digit growth in PCIs globally.

In addition, we see tremendous growth opportunities in transformative technology areas, such as structural heart, hypertension and complex coronary procedures like CTOs. The worldwide cardiology market really is a tale of 2 vastly different segments, and we expect that the steep declines in established markets, such as the U.S., Europe and Japan, will moderate over time as appropriate use concerns normalize, ASP declines moderate and the demographic growth I just spoke about takes hold.

And ultimately, we expect that these declines will be largely offset by growth in the emerging markets, as we believe a rising middle class population and increasing urbanization will improve access to PCI. For example, we anticipate that the capacities of cardiovascular care in hospitals in China will more than double by 2017. We project similar growth in India, with cardiovascular -- the cardiovascular market expanding by greater than 15% per year. Finally, we project PCI penetration in Latin America will expand over time, and that's a region where we're very, very strong. Currently, it's estimated that fewer than 400 PCIs per 1 million people are performed in Latin America. That's less than 1/4 of the rate that we see in Europe and the U.S. So net-net, we expect the worldwide markets to stabilize over the next few years as emerging markets represent an increasing proportion of the overall global cardiology market.

And importantly, we've already made significant moves to capitalize on that growth in the emerging markets and improve upon a relatively low regional market share position in several of those markets. We've invested in talent, bringing in new but proven med tech leadership in both China and India, and they're focused on commercial execution, understanding customer segments based on ability to pay, based on location of hospital, based on PCI volume and patient coverage and maximizing the value of our broad portfolio. In 2012, these efforts resulted in greater than 20% year-over-year IC revenue growth in BRIC countries, with some of those countries experiencing growth greater than 30%, and that's a rate we think we can actually accelerate going forward.

So we believe that a key to our success in both the established and the emerging markets will be capitalizing on our broad portfolio. Physicians and administrators are increasingly looking for partners who can bring both clinical and the economic value to their institutions. And Boston Scientific is the only company that can provide a full suite of solutions, not only for standard PCI, technologies like DES, angioplasty balloons, and vascular access products, but can offer our physicians opportunities to differentiate and grow their practices by providing solutions for complex PCI, including the quickly growing segment of CTOs. And perhaps more importantly, we don't believe any other company is better positioned than Boston Scientific to lead across many of these high-growth segments like left atrial appendage, hypertension, CAVR and FFR. The bottom line, our goal is for customers to recognize Boston Scientific as an indispensable partner with relevant products today and an expected near-term pipeline for leadership in the future.

As an example of our unmatched commitment to cardiology, we're thrilled to introduce an entirely new drug-eluting stent platform that's been designed in partnership with physicians.

Promus PREMIER is customized for premier outcomes. Let's take a look.


Kevin Ballinger

So I'm very pleased that earlier today, we announced CE Mark for this very important product. Promus PREMIER represents the next advance in stent technology. It'll be the first and only stent on the market that features customized stent architecture. So why does this customized stent architecture matter?

Well, 2 issues facing stents today are perceived concerns around axial compression and increasingly, the dramatic increase in adverse events caused by stent fracture. Promus PREMIER design offers best-in-class performance on both of these dimensions, delivering strength where it matters most. PREMIER optimize and builds upon the performance of the Promus Element stent, keeping what physicians like most: superior visibility; radial strength; flexibility, while making improvements to axial strength and overall deliverability. In short, we believe the best stent platform on the market just got better.

Our European limited launch is set to begin in just a few short weeks, and we expect full launch in Europe for Promus PREMIER in the second quarter of this year and FDA approval by the end of 2013.

In our quest to regain DES leadership, we're very excited about both PREMIER and SYNERGY. SYNERGY is really a third-generation drug-eluting stent, and we see SYNERGY as truly game-changing technology.

SYNERGY features a unique, ultra-thin coating of both drug and polymer that is absorbed within 90 days, and this distinctive capability was designed to improve post-implant healing, reduce the ap [ph] therapy and potentially, provide freedom from late events like stent thrombosis.

The clinical data has been very strong for 12 months in the EVOLVE I trial, and the U.S. IDE trial, EVOLVE II, has begun, and it's anticipated that we'll enroll around 1,700 patients worldwide. SYNERGY received CE mark back in October of last year and feedback from our initial launch evaluations in Europe has surpassed expectations. We've had strong adoption of this premium technology in centers where we've launched, and the feedback on the acute performance has been absolutely outstanding. We continue to hear from many physicians who are excited about this next chapter in drug-eluting stents.

It's really the richness of our stent portfolio that gives us the opportunity and the luxury of doing this launch the right way, and that's building clinical evidence to support this game-changing technology. And Dr. Dawkins will talk more about SYNERGY during his section. I'll just note that we expect to fully launch SYNERGY in Europe in 2014, and in the U.S. and Japan, approval's expected in early 2016.

Boston Scientific's unmatched offering in DES allows us to provide a range of products that no other competitor can. From the value segment to the premium segment, we are best positioned to serve all of our global customers. This product breadth, combined with unparalleled innovation in PREMIER and SYNERGY, are why we're so confident that we will regain the #1 DES share position.

Beyond innovation with our stent portfolio, we're also committed to investing across all of our other product franchises. We're revitalizing our core portfolio, we're continuing to add strength to many of our already market-leading franchises. In addition, we're revamping our imaging portfolio. We plan to launch a new imaging catheter, OPTICROSS, later this year, as well as next generation IVUS software and an integrated FFR technology over the next couple of years. And while it doesn't get the attention of our stent portfolio, the other IC product category represents almost 40% of our global IC business. And we anticipate that this segment of our business will become increasingly important going forward. We've seen a dramatic shift over time, migrating from relatively straightforward procedures to physicians treating more and more complex disease. And compared to the highly competitive market with stents, many of our other product categories enjoy relatively stable margins.

We're finding that the unique breadth of product line that Boston Scientific has is proving to be very advantageous as we grow our business in the emerging markets. So what makes Boston Scientific unique in this space is really our unmatched portfolio to treat increasingly complex disease. We're the only company that can offer important solutions like the Flextome Cutting Balloon, like Rotablator, and with the acquisition of BridgePoint Medical, the only approved chronic total occlusion crossing devices on the U.S. market, the CrossBoss and Stingray catheters, and these tools have provided a strategic advantage for us, helping us to gain access to labs where we've been previously been blocked. And I think the CrossBoss and Stingray, in particular, are great examples of a solution set that we expect will make Boston Scientific a preferred partner moving forward. This technology provides opportunities for our partners to differentiate and grow their procedural volume in really what is an underserved patient population today. In fact, we've seen PCIs increase 10% to 15% in hospitals that have embraced this methodology for treating CTOs.

And as I've stated, we've also reinvested in our imaging franchise, a segment of cardiology that actually has very healthy growth. Particularly in the FFR market, as requirements for lesion assessment and documentation continue to increase. We believe we're poised to take share and drive incremental revenue with this new lineup of imaging technologies. So again, we believe the breadth and uniqueness of our non-stent portfolio is a real advantage for Boston Scientific when you compare us to the competition.

In addition to capturing growth in these emerging markets and increasing our share position in stent and our other IC product categories, we're obviously also investing in attractive adjacent market opportunities like hypertension, left atrial appendage and TAVR. In looking beyond the traditional cardiology markets of today, we believe that the total cardiology market remains very attractive as emerging -- and significant new market growth. As an example, we estimate that the TAVR market alone will contribute more than $2 billion to the overall cardiology market by 2017.

And although we're not first to market in the TAVR space, we believe that we will be able to take share and drive differentiation given the Lotus Valve system's unique features, and also with the broad presence we have with cardiologists. The Lotus Valve system gives interventional cardiologists total control when implanting the valve. It's the only current valve on the market that's fully recaptureable, prior to release [ph], and it can be redeployed and repositioned at any time during the procedure. So it's this precise, predictable placement with Lotus that gives the physician total control. Additionally, the adaptive seal conforms to the anatomy and that's designed to minimize paravalvular leak, which has been shown to improve patient outcomes. We continue to make steady progress towards the commercialization of this product. The REPRISE I trial is complete. REPRISE II, our CE Mark trial, is currently enrolling. And Dr. Dawkins will speak more about that as well. So we anticipate CE Mark for this important product by the end of 2013, with the U.S. trial to commence in the first half of next year.

So in conclusion, we look forward to stabilizing interventional cardiology, regaining DES leadership and returning this business to growth, and we've made substantial and significant organizational and structural changes to adapt to the evolving needs of this new marketplace. We've added proven talent in the emerging markets and by doing so, we're going to improve our current share position and drive incremental revenue. We've refocused our R&D and acquisition strategy to assemble an unmatched product portfolio that we believe will help us gain access and take share, and finally, despite some of the continued near-term challenges, we do see signs of stabilization in our largest, established markets and significant growth opportunity in those emerging new therapies that our customers really care about.

So the bottom line is that we believe we are well-positioned to be the preferred partner for interventional cardiology, by offering the broadest suite of products, by driving unmatched clinical and economic value for clinicians, for hospitals and for payers. Thank you very much. So I think with that. We're finally going to transition to a break, and I think we'll take a 10-minute break and be back in the room at 11:30. So thank you.


Unknown Executive

Ladies and gentlemen, please welcome Executive Vice President and Global Chief Medical Officer, Keith Dawkins.

Keith D. Dawkins

Thank you very much. It's a pleasure for me to be here, and over the next few minutes, I'm going to talk to you about some of the clinical data that underpins the rich Boston Scientific product portfolio.

During 2012, we've undergone internally a clinical transformation, so that the corporate clinical group was decentralized, so that now clinical is strategically aligned and managerially accountable to the division and the regional presidents. We've expanded the global clinical footprint. Two years ago, we developed a China clinical hub, and later this year, a Latin America clinical hub, so that we can bring our clinical trial activity close to where the action is in the emerging markets.

We now have BSC physician-led teams in Asia Pacific, China and India, and we deliberately investing our research dollars in investigator-sponsored research, which suits Boston Scientific and obviously, our clinical investigators and scientists. We have a very proud track record of clinical investigation in Boston Scientific, and we currently have almost 149,000 patients under planned investigation in 122 trials across the enterprise.

You heard from Kevin Ballinger about SYNERGY. SYNERGY is based on the Element platform. It's a Bioerodable PLGA Polymer stent and the PLGA polymer is only applied to the abluminal side of the stent and therefore, delivers the drug to the vessel wall where it's needed. The polymer modulates the release of everolimus and the polymer and the drug are gone within 3 months. SYNERGY is actually built on Element, but it has enhanced stent geometry, reduced stent profile and the laser-cut hypotube, which improves push.

We anticipate that SYNERGY will be the first bioerodable polymer stent in the U.S. We have a cascade of clinical trials supporting SYNERGY. The EVOLVE First Human Use Trial, you know the data have been written up and presented out to 12 months clinically, with 6 months angiographic analysis [ph] follow up. EVOLVE II is the IDE trial, which is ongoing and on track and recruiting well. This is a global trial, includes many countries and for the first time, we've included Latin America, Brazil in an IDE trial. The EVOLVE II QCA trial, which is 100-patient angiographic analysis [ph] follow up, which is not part of the IDE trial. As an SFDA requirement, we have EVOLVE China, which is shown there. And then finally, and I think in many ways most excitingly, the EVOLVE DAPT trial. The SYNERGY stent gets back to a bare metal stent within 3 months. And of course the cost of the PCI procedure is not really just the cost of the stent, it's the cost of the stent and the cost of the dual anti-platelet therapy, and many patients spend more money or the health care system spends more money on DAPT than the stent.

So we're going to formally study with a randomized prospective study 3 months against 12 months of DAPT in a worldwide trial with approximately 9,000 patients using the SYNERGY stent. The obvious question, of course, is how SYNERGY relates to BVS. We think -- we anticipate we will have approval in the U.S. before BVS, but these 2 platforms are very different. And the acute performance of the 2 platforms is also very different. We obviously have more than 10,000 patients with the Element stent formally investigated in clinical trials, and that includes real-world patients, and there are limited real-world data on BVS. BVS is a thick strut stent, you see the strut thickness is about 2x the thickness of the Element SYNERGY stent and this actually takes us back in time, 10 or more years in terms of strut thickness. So the acute performance is key. If you can't deliver the stent, there's no point in having a discussion about outcomes or what drug is loaded on the stent, and we think the SYNERGY stent combines radial strengths, fracture resistance, good visualization, the ability to post-dilate, a full matrix importantly, and obviously, as I've said already, a low drug and polymer load compared with BVS.

If you want to explore short dual anti-platelet therapy, we don't think it's logical to explore that with a platform that takes up to 3 years to disappear. Now moving to Lotus, we obviously made the Sadra acquisition in 2011 and very excited about this Lotus Valve, truly differentiated second-generation product. Being a little later to the market allows you to understand the data better and allows you to understand the limitations of the existing devices. This is a preloaded valve, a minimal valve prep. They need a special person to prep the valve, 18 French delivery system currently, 2 sizes, 23 and 27 millimeter and a very simple, as you see on the lower left, intuitive handle, counterclockwise to deploy the stent, clockwise to retrieve the stent, slide the black slider to release the stent. This allows very precise, accurate placement. The valve functions very early, so there's complete hemodynamic stability. And despite claims from some of our competitors, this is the only valve that is truly retrievable, recaptureable, and you can take it out of the patient, having deployed it fully and having it function fully, you can then take it all back again, and start again. And this will allow the operators to change the valve size should they feel that, that's necessary.

Importantly, the design of the valve allows negligible aortic regurgitation. I'm going to show you now for the first time, 2 short angiograms, which were taken from an Australian patient, an 88-year old patient with severe aortic stenosis, multiple co-morbidities, who, when the operator sized the patient based on CT criteria, felt that the patient may get away with a 23-millimeter valve, but possibly would need a 27-millimeter valve, and he could make this decision with impunity because he knew he could take the valve out without any complications.

So these are important, 2 very short angiograms which you won't have seen before. Can we run the first angiogram?

So just to orientate you, here's the valve, here's the pigtail catheter in the ascending aorta, pacing wire, a super stiff wire caught up in the left ventricle and the nose cone [ph], and you can see here the valve has no waste [ph] on it, and the operator has shut the aorta gram and you can see black contrast coming back and swirling into the left ventricle. This valve is clearly too small, but the operator has complete hold of the valve despite the valve being unsheathed.

So that valve was removed completely without complication, and the 27-millimeter valve was introduced. You can see that there's the transcopic geoscope [ph], now the 27-millimeter valve, clearly larger, has the waste [ph] on it. So it's a good size and you can see the angiogram [ph] shows absolutely no aortic regurgitation. There is no other valve either commercially or available or in trials, that can do this.

We know from the short-term German registry data, and the long term partner data that paravalvular regurgitation drives early and late mortality. If we all feel as we, Boston Scientific, do that TAVR will be a reasonable treatment option for patients at normal risk from surgical aortic valve replacement. Those patients cannot be left with 1 or 2 plus aortic regurgitation.

If you look at the left image, the typical AORTIC disease [indiscernible] is eccentric and of course the typical TAVR valve is concentric, so where the arrows are, you can see small intestisis [ph] where the paravalve aortic regurgitation occurs. If you look at the right-hand image, you can see the Lotus Valve and you can see our [ph] the unique adaptive seal, which is a loosely attached polymer sleeve, which when the valve is deployed, shortens and bunches up and fills in the gaps around the anualis [ph], the diseased anualis [ph] and prevents aortic regurgitation.

And this phenomenon of preventing aortic regurgitation was confirmed in the trial data that have already been presented. So there's a series of trials, so the REPRISE I trial was the 11-patient trial. It was completed in 6 days in Australia, just at the 23-millimeter valve. The 3-month data were represented at TCT, the 6-month data will be presented at ACC, and REPRISE II is the CE Mark trial, which is ongoing of both the 23- and the 27-millimeter valve, with the aim of gaining CE Mark for both valve sizes at the same time, unlike one of our competitors who's done this sequentially or is doing this sequentially.

More than 70 patients have been recruited in the REPRISE II trial and only 60 patients are needed for CE Mark application. So we're in good shape. This will be followed by REPRISE -- immediately followed by REPRISE II extension, which is another 130 patients in 9 European sites, which are necessary for reimbursement in some European countries.

We've started discussions with the FDA for REPRISE III, the IDE trial, and what we're going to do differently with the IDE trial is this is going to be a large trial that combines multiple patient groups, including the unsuitable for surgery, surgical high-risk and moderate risk. So we'll be in a position we feel, to accelerate the timelines in relation to some of our competition with a very large IDE trial.

We are all aware of the global pandemic of hypertension, so that 1 in 3 of the population will get hypertension. So clearly, huge numbers of patients by 2025 on a global scale. You heard from Jeff Mirviss our excitement around the Vessix technology, and this slide just shows the beginning of our clinical trial portfolio to support Vessix, the REDUCE - HTN trial, 150-patient, single-cohort trial. Enrollment will complete this quarter, a 500-patient European registry to support safety and efficacy and reimbursement, start date the second half of this year, coincident with the commercial launch in Europe and other CE Mark countries, and then an IDE trial which will be as we are now doing more and more routinely, a worldwide trial with simultaneous recruitment in multiple geographies to support the FDA application, and that will start in the last quarter of this year or the first half of 2014.

Clearly in parallel, we will explore a number of other opportunities, including moderate hypertension, diabetes, heart failure, sleep apnea and end-stage renal disease, a very exciting area of development and an exciting area for clinical investigation. Jim Margolis at TCT presented the 6-month data from the first Vessix trial, and you can see on the right-hand side the blood pressure reduction at 6 months matched almost exactly the blood pressure reduction shown in the simplicity trial, and there will be later time points of data presented as we move forward in 2013.

So there are a number of competing technologies clearly in the renal denervation space, but we feel that the Vessix acquisition really does put us head and shoulders above that competition. You can see the longest ablation time on the left with the Medtronic device moving to the shortest on the right with the Vessix device. You heard from Jeff that it's a bipolar system, RF system, low energy, no ground place, good control, it's intuitive, smart system, and it's intuitive also because it's run over a guidewire that any interventionist can use.

Importantly, from the patient perspective, there's an order of magnitude shorter treatment with the Vessix system compared with the first and indeed the second generation systems of some of our competitors.

So the whole treatment is done within 60 seconds as opposed to half an hour. This has implications for patient safety patient, patient comfort and of course cath lab throughput.

You heard from Joe Fitzgerald about the importance of WATCHMAN and the opportunity for left atrial appendage occlusion, which we're very excited about. Atrial fibrillation is the most common cardiac arrhythmia and patients with atrial fibrillation have a much higher risk of stroke. Stroke rates are increased with age significantly, but paradoxically, the use of warfarin and other anticoagulants decreases with age because of concern about warfarin control.

It's important to remember that all anti-coagulants, including the new anti-coagulants, cause bleeding and of course, you are all well aware of some of the issues regarding safety and efficacy of the newer agents. Boston Scientific now has 7 clinical trials supporting this technology. 4,000 patient years of data and the next important presentation, as you know, will be at the PREVAIL data [ph], as the late-breaking trial at ACC in San Francisco on the 9th of March.

We are asked quite commonly whether the newer agents, the antithrombin [ph] and so on will dent our projections in terms of market share for left atrial appendage closure. The simple answer is no. These are data from the RE-LY study showing the bleeding risk, the major bleeding risk with warfarin and 2 doses of dabigatran. And you can see that there's an approximately 3% hazard rate of major bleeding with both the newer anti-coagulant and the conventional anti-coagulant with warfarin.

This must be compared with the small front-loaded risks associated with putting in a WATCHMAN device as opposed to the 3% hazard ratio year-on-year-on-year of bleeding risk with anti-coagulation. So at some point, when you follow the patients, the lines for superiority will cross and there will be data that will be presented that I'm sure will support that.

Let's switch to S-ICD. You're all well aware on the left of the classical transvenous ICDs. We know they're effective in the treatment of ventricular arrhythmias and in fact, Boston Scientific, through the MADIT series of trials has provided with financial support for much of the data underpinning this area of high-voltage therapy. We know that they can provide brady pacing, anti-tachycardia pacing for all VT and we understand the diagnostics and the implant technique.

On the right, we have to compare conventional transvenous ICDs with a completely new technology, the S-ICD. We know this is effective to deal with ventricular fibrillation. We know also that the heart is not touched and there's no risk of vascular injury and there's a low-risk of systemic infection. Venous access of course is preserved and it avoids the risks associated with high-voltage leads, which have been a particular issue for 2 of our major competitors. Fluoroscopy is not required. Indeed, the patient needs not even have the procedure in a cath lab.

And so what are we going to do in terms of the study profile to support S-ICD? The U.S. Post-approval observational registry, you can see here, is going to commence enrollment in this quarter, more than 1,600 patients. The EFFORTLESS registry in Europe, 1,000 patients supporting in the European observational registry, expecting full enrollment in 1 year's time. And then most importantly and some of you may not know about this study, the PRAETORIAN investigator-sponsored research study out of the Netherlands, which is comparing 1 to 1 in a non-inferiority way more than 800 patients compared with conventional transvenous ICDs and the S-ICD.

We feel confident that this will support the S-ICD as the treatment option for a large proportion of patients who are currently treated with conventional transvenous ICDs.

I'm sure many of you are aware of the MADIT-RIT study. This was presented as the late-breaking trial at the AHA and more recently published in the New England Journal of Medicine are led [ph] as typical of the MADIT trials by Art Moss in Rochester. And this is another trial and we see these fairly commonly, obviously, in medicine when everybody thinks they know what they're doing and then there's a complete paradigm shift with a new piece of clinical research and this was such a paradigm shift. And it's important that everybody remembers that this study was instigated before we made the acquisition of Cameron. So this showed that improved ICD programming, optimum programming reduced the risk of inappropriate therapy in very large numbers of patients and indeed the risk of death was reduced by approximately 50%, compared with conventional programming in over 1,500 patients.

So this supports the design strategy with S-ICD of delayed intervention and intervention only at rapid heart rates and that's fundamental to the S-ICD technology. And it also questions the importance of anti-tachycardia pacing for primary prevention patients. So the actual way that the S-ICD works really is in accord of the conclusions of the MADIT-RIT study.

A word on bronchial thermoplasty, the Alair products. There have been a series of trials as you know supporting bronchial thermoplasty, and one of the most important time points now are the 4-year data set for the AIR2 study -- sorry, the 5-year data set for the AIR2 study. The AIR2 study 5-year manuscript is written and will be submitted within the next few weeks to a peer-reviewed journal, and this will trigger widespread reimbursement in the U.S., because many reimbursement systems have been waiting for the publication of these 5-year figures.

And finally, a note on deep brain stimulation. You heard from Mike Phalen the excitement around deep brain stimulation for Parkinson's disease. I'm not sure whether any of you have seen the videos of patients treated with the VANTAGE system, DBS with Parkinson's disease. But a patient who is rigid, tremulous, unable to walk has the device turned on, walks across the room, has the device turned off and is back to having severe Parkinson's disease, a very profound technology.

So the first human use trial for DBS in Parkinson's disease in the EU is complete, and later this year, the INTREPID study will be commenced. This is the U.S. IDE trial to support DBS for Parkinson's disease.

So over the last few minutes, I've shown you a number of disruptive technologies, and the speakers before me have included other technologies that are disruptive. Technologies that are disruptive drive growth, and they drive growth even in a macroeconomic environment which is harsh, as we're now in, both in the EU and the U.S. But if you have technologies that reduce stroke, reduce mortality, reduce the need for being in the cath lab, reduce venous access, these are the sort of technologies that will, we feel, drive growth in Boston Scientific across multiple divisions. Thank you.

Jeffrey D. Capello

Okay. Thank you, Keith, and thank you to all the presenters of Boston Scientific. I think, I hope everyone would agree that the team has done a great job laying out our outlook for the company and the strong progress we've made. Now I want to spend the next 25 minutes taking you through our financial outlook. Then we'll have Mike Mahoney come up and conclude with some concluding remarks.

Let's go ahead and start with 2012. I think as Mike has highlighted at the beginning, 2012 was a little bit of a challenging year from a revenue perspective. As a company, we declined 3% organically without the impact of foreign exchange and divestitures in a market that was down 1%, clearly a disappointment, really driven by 2 main factors:

One factor was the CRM market, which, back in the second quarter of '11, got readjusted for appropriateness [ph] of use and that lasted right through the middle of 2012 and the second major factor was competitive stent share loss as a result of competitors coming into the market in the U.S. DES space in the U.S., and as a reminder, that really started in the first quarter 2012.

Encouraging news here is that both of those dynamics appear to be abating. We've now seen 4 straight quarters where the average daily unit implants across the whole market for the CRM market in the U.S. have been relatively stable, so that's good news. Second piece of good news is we appear to have stabilized our DES share in the mid-30s.

We have one more quarter, as a reminder, the first quarter of '13 will be another bit of a challenging quarter because we'll be up against a more difficult comparable, but we've cycled through what we think are the strongest headwinds that we faced in some time in both the CRM market and DES market. And I think as you've heard today from both Kevin and from Jeff, we've never had a stronger product pipeline to go off and attack those markets.

On the other side of that house, the MedSurg businesses and the PI business, we had a very strong year in 2012, both of those businesses grew at least 100 or 200 basis points, in some cases, 300 basis points faster than market and they're all in growth markets as you've heard today. And we have a number of exciting new pieces of technology, via [ph] acquisition or R&D that we bringing to the market. So overall, we're not satisfied. We are encouraged by negative 1% growth in the fourth quarter, which is odd to say, but we're certainly not satisfied, and we're not where we need to be yet. However, despite some revenue disappointment in 2012, we actually had a pretty good financial year. If you look at our financial statements for 2012, despite the company contracting 3% on the topline, we did increase our gross margins, as we committed 2.5 years ago here in New York, by over 300 basis points, took those gross margins from 65% up to 68% on the strength of our PROMUS Element introduction, closing 17 -- closing 5 plants, going from 17 down to 12, and through disciplined value improvement programs, offset by some stronger price. From an SG&A perspective, we've balanced the investments in the emerging markets and the investments in our new technologies with the restructuring benefit to hold our SG&A more or less in line with 35%. And we continue to invest in an aggressive format in R&D at 12% of sales which is one of the highest percentages in the sector. Our operating income was roughly 19% and from an adjusted EPS perspective, we achieved slightly above the midpoint of our original range of $0.60 to $0.70 despite lower revenue. Finally from a free cash flow perspective, we entered the year with a forecast of $1 billion of free cash flow as a result of some challenges from a macro perspective in Europe, we exceeded that forecast generating adjusted free cash flow of $1.2 billion or roughly $100 million a month, and we invested that cash very wisely. We used roughly half of our free cash flow to do another 3 acquisitions, to bring in more technology, and we used approximately the other half of that free cash flow to buy back another $600 million worth of stock, at a stock price less than $6. So overall, not a bad outcome from a financial perspective. As we look forward to 2013, a couple of weeks ago, we released our guidance for '13, let me just spend a minute and step you through this. So we expect 2013 to be the year that we return to growth, as Mike said at the beginning. We have guidance that our sales grows organically, which is without the impact of foreign exchange and the Neurovascular divestiture, will be somewhere between down 2% to up 2%, with a reminder that the first quarter of 2013 will be a little bit more of a challenge with more difficult comparables per USDS share, after which point, we'll anniversary that, that comparison. From a growth perspective, we think we'll pick up momentum as we go through the year, as our market continues to stabilize, the International growth continues to accelerate and our adjacent or fast-growth programs begin to kind of take root. We expect our gross margins to be more or less flat at 68% and our SG&A to tick up slightly from 2012, recognizing there's roughly a 100 basis point negative impact for the new medical device tax, which we've chosen to put in the SG&A and the other 2 components are either restructuring savings, which offset more spending with regard to emerging markets and the growth programs. We expect to continue to invest a healthy amount in R&D at 12%. And our tax rate -- we will benefit from 2 R&D tax credits in 2013, both the 2012 R&D tax credit that didn't get enacted until '13 as well as the 2013, which will depress our tax rate and give us a benefit in 2013. Altogether, our adjusted EPS range for earnings is $0.64 to $0.70. If you take the midpoint of that range of $0.67 and you add back the $0.04 of negative medical device tax that's embedded within those numbers, that would represent roughly an upper high-single digit growth rate earnings per share in 2012 to 2013, which I think is a good outcome for shareholders. And all along the way, we expect to be able to generate very strong cash flow of approximately 100 basis point -- $100 million per month for $1.2 million (sic) [billion] for the full year. So clearly, a good economic outcome and outlook for the shareholders. But as I said earlier, the big opportunity for Boston Scientific is improving our growth profile. So Mike talked a little bit about this at the beginning, but let me reiterate and provide a little bit more detail. We recognized back 2.5 years ago in this room, that our 2 largest end markets were slowing. Like our competitors, we didn't recognize how fast they were going to slow, but they slowed more than we anticipated. However, we did recognize that and recognized the need to transform our portfolio. So at that point in time, we were playing in certain markets that were roughly $30 billion in size and -- in 2012 and contracting at a rate of about 1%. As you look at the transformations that we've made, the investments we made in the emerging markets and the growth adjacencies, as well as the stabilization in our core end markets, the large end markets to CRM and DES. We now expect that, that market -- that served market will increase by 1/3 from $30 billion to $40 billion and that the growth rate will go from negative 1% to 4% and we expect to grow at or above that rate. Now we also anticipate that, that transformation will not happen overnight. It's a bit of an eye chart, but let me just step you through the transition we expect to have happen from an end market perspective. As we described upfront, we think the 2012 served markets were roughly down 1%, with the core markets down 1% and the adjacencies being relatively small. In 2013, we expect to see a slight improvement in that growth profile, with the core markets settling out at roughly flattish, with some improvement in the CRM market, which we've now anniversaried the difficult comparables, and some improvement in our Urology/Women's Health business as the mass issues [ph] also anniversaried. We'll see a little bit more of a contribution of the adjacencies to pull the overall growth market up to 1%. Over the next 2-year period, or 2014 and 2015, we expect to see a benefit from both the DES and IC market and the CRM market as the International parts of those businesses start to grow more quickly and get bigger, which I'll talk about in a minute and Kevin and Joe both addressed, as well as the favorable demographics in the U.S. starts to settle down from a stabilization of those end markets. We expect adjacencies to contribute, but not as significant a rate in 2014, 2015. Those together should pull the growth rate of our end markets up from 1% to 2%, and as we move into the second 2-year period within the 5-year window, we expect the core markets to continue to stabilize but settle at roughly 2% and over that 2-year period, we expect these large growth adjacencies to contribute another 200 basis point so that we will play in markets that serve markets that will grow roughly 4%. So it's a gradual improvement from '12 to '13 and then a core market improvement with a little contribution of the adjacencies in '14 and '15 and then a bigger contribution in '16 and '17. Second component of the growth story is the International story. And Mike hit on this as well, let me provide just a little bit more color. So roughly 50% of our business today comes from markets outside the U.S. I think we've talked for the last couple of years on our need to invest more heavily in these large growth markets. These are large markets and for us, they are under-penetrated. So as we look at the BRIC markets, Brazil, Russia, India and China, today, for our served markets, those represent markets that are $2.4 billion in size, growing at 15% to 20%. Over the 5-year period, we anticipate that those markets will go from $2.4 billion to $4.8 billion, or double. Given our significant investments in terms of sales reps, registration of products, training centers, relationships with KOLs, as well as a very seasoned, professional executive management team that are local, we expect to grow faster than the market, and take the percentage of sales represented by those regions from 4% to 10% of our total revenue. And you know what? The strategy's beginning to work. The last 2 quarters of 2012, that 4% of the business by itself has contributed 100 basis points to the overall growth of Boston Scientific, and we're just getting started, major opportunity for the company. Now if you look at the shareholder value opportunity, it's not just relegated from a growth perspective, there's also lots of opportunity from an expansion of profitability. Let me start with gross margins. So as I said, we increased our gross margin in 2012 from 65% to 68% on the strength of PROMUS Element, the plant network optimization program, as well as the value improvement program offset by price. Over the next 5 years, we think we can increase those margins from 68% where they are today to 72%, or up 400 basis points. And I think we're being realistic in our assessment. We continue to believe, as a result of the macroeconomic pressures on healthcare in the developing world, that pricing will be a headwind. In our estimate, we believe that pricing will cost us 100 basis points per year of headwind and reduce gross margins by 500 basis points over that time period. The acquisitions that we've made are all designed to be accretive to our gross margins over time. They'll be more accretive as we work our way through the plan period as the volumes ramp up in our factories and we bring them up to scale, but over the 5-year period, they will contribute 100 basis points. With the increase in volume, with our reduced number of factories, we will drive volume benefits and mix benefits of 100 basis points. The biggest contributor, however, will be our improvement in standard cost, and that's driven by our world-class manufacturing team and I'll come back in a moment to step you through how we'll accomplish that. And then finally, the termination of the Stryker distribution arrangement for the sale of Neurovascular, will free up about 100 basis points approximately of gross margin benefit. We won't stop at 72%. We recognize that 72% is still behind some of our competitors, but this will be a step in the right direction. And I think there's upside to this plan. Probably the single biggest area of upside is in the area of pricing. Recently, we redoubled our efforts around pricing. We've both instituted specific programs in the businesses and regions, and we've also formed a global price council, which is represented by senior leadership across all of the region businesses focused specifically on pricing, and it's going to be a multi-element approach to reduce the impact of pricing. It starts with a clear strategy on how you're going to manage price. The most important element for us, as you've heard today, is we have so much new technology, we have to make sure that we get the value through [ph] our technology, and that's beginning to happen. Products like the S-ICD enjoy a price premium, products like SYNERGY have a price premium. And most of the products you've heard today are designed to have a price premium and work on that price headwind. We have to make sure and we are going to make sure we get those price premiums. Also involves proper targets relative to the expectations for pricing by region and by business. 2.5 years ago, we shared with you a price waterfall that indicated that we believe we were losing $600 million of negative price every year as a result of concessions we were giving customers. We've now rerun that analysis -- I didn't get time to incorporate it into our analysis here, but that number is still a very healthy number, not quite $600 million, but a healthy number. We have specific programs within that price council to go after those programs like free-of-charge goods, rebates and other concessions that we give customers that they may not value but cost us real economic value.

Third part is around processes. There's a lot of processes, but I think the most important one is around incentives. Historically, our sales force has been incented on selling, on revenue, not on profitability. One of the first things Mike has done in coming on the business is challenging the regions and businesses as to why there aren't specific incentives in place for the sales force to sell our products at above-market growth rates with good gross margins. So we put those in place. I think that's a big change from what we've done historically.

And finally capabilities. We're putting technology in place and sharing best practices around the world to drive better price. Second major element of improving the gross margins is around the cost side of the equation. We have one of the best manufacturing groups in the world. This group has accomplished 5% standard cost reductions per year over the last 5 years. They've also managed our Plant Network down from 17 plants down to 12, with no issue from an operational perspective. Good news here is the leader from the manufacturing organization has stepped forward and said, "I can take the 5% standard cost reductions and I can increase that to 6% over the next 5 years." And he and his group will accomplish that by redesigning the way we do manufacturing, looking at our raw material vendors and looking for better procurement deals and just tightening down the manufacturing process amongst our portfolio of products. 6% standard cost reduction per year, there's a lot to kind of offset any challenges from a price perspective. Looking at our gross product in terms of our portfolio's scatter graphs, looking at the lower gross margin products and how we can improve those is another dimension part of the program. The new products that we've put in place, particularly the acquisitions, are all designed to be accretive, but we're also looking at our portfolio to say, every new product that we put in place, which components are we using, where we manufacture and get the lowest possible cost with appropriate quality. And finally, we're looking at the other cost of goods sold, which is roughly -- which is a big piece of our equation in terms of freight and scrap and we're looking to reduce that. So overall, we're pretty confident that we can hit the 72% gross margins and we think with some better price management and some attention to gross margin, we could potentially drive some upside. But gross margin isn't the only area in terms of profitability where there's opportunity. Today, in 2012, we spent $0.49 out of every dollar on our operating expense. $0.35 went towards SG&A, $0.12 for R&D and $0.02 for royalties. Over the course of the next 5 years, we think we can lower that burden from 49% to 47% and the principal source of that benefit will be in SG&A, where we expect to be able to take it from 35% down to 33%. Let me just step you through this waterfall quickly. So as I mentioned earlier, the medical device tax will cost us roughly 100 basis points of headwind over the 5-year period and that will be in SG&A. Economics, in terms of paying our people more and dealing with vendors and suppliers, will put another 300 basis points of pressure, and then our growth initiatives in terms of building out the commercial capabilities for these 7 new high-growth opportunities we shared with you today. In addition to funding the R&D, we'll put another 600 basis points of pressure in the system. Given we have most of the infrastructure we need in terms of sales offices and leadership and so on, we think we can drive 400-basis point volume benefit, and productivity, we think, will drive about an 800-basis point improvement. Take you back 2.5 years ago, when we talked about the potential to save $100 million to $200 million of SG&A-type costs, predominantly in the corporate area. It was part of our EMI-ZBB strategy. Back in the second quarter of 2011, we stepped up with a $225 million to $275 million restructuring program to seize on that opportunity, well above the $100 million to $200 million. Two weeks ago, we came out and we said we're going to do another $100 million to $150 million, even on top of that. So we're now up to close to $400 million of savings, a piece of which we recognized in '12, a large piece we'll get in '13 and the rest in '14. So how do we accomplish that type of savings? One perfect example of that is our emerging markets initiative. A couple of years ago, we talked about $100 million to $200 million, roughly half of that was earmarked in looking at where we do some of our work. So we looked at some of this critical areas, such as quality, clinical, finance, IS [ph], some of the support areas are very important in terms of how run our business, and we looked at where those activities were being performed. Majority of them were being performed in very expensive western locations. We then went out and developed kind of an ecosystem of leading-edge partners to work with, to look at whether we could move some of that activity to cheaper areas. I'm proud to say from a personal perspective that we've now taken what used to represent a very small handful of people in those areas. We've grown that to a reasonable group of people and we're well on our way to having roughly 25% of those activities now occur at a much less expensive location, at a very high quality. Important to note that we get roughly a 30% to 40% savings when we migrate those activities, and that's a big reason why we can generate close to $100 million in our Emerging Markets Initiative, which is a goal we set a couple of years ago, and frankly the list of candidates is getting longer. But it also involves more of a culture of continuous improvement. So as we think about kind of how we run the SG&A infrastructure, how we continue to create opportunities in terms of bringing our cost down, we've done 2 things: We've leveraged the strong discipline that exists within the manufacturing organization to drive continuous improvement and LEAN business practices and leverage those tools. We've also gone out and hired some experts in areas like shared service centers and International expertise to help drive those programs. We then kind of mixed that together with some training programs around benefits of LEAN essentials and continuous improvement, you've got a pretty winning equation in terms of developing a culture of responsible cost management, and also steps -- starts with leadership, if you look really carefully -- really, really carefully, on the far box of this chart, you will see one of our senior-most leaders, he's a very tall leader, and he's standing up at one of our awards and recognition events, where we're recognizing success in the SG&A area. It takes senior leadership to kind of breed that type of culture. The third area from the OpEx perspective is how we manage the R&D. As I mentioned, we spend 12% of sales in R&D and we expect to kind of continue to kind of invest at a heavy level. We're now doing a much better job of combining the quality, technical and business aspects of how you run R&D projects. Our manufacturing leader, who's kind of our expert in LEAN business practices is now -- has a much heavier hand in how R&D projects are run. Driving in LEAN business practices, driving a technology council, where we bring our best minds together on a regular basis and talk about development projects and improving the way we do R&D. With that discipline, we expect to increase our velocity of bringing new products to the market, where we expect to shorten the average time to bring a PMA or a 510(k) to market, roughly 30% over the next 3 or 4 years, and that will have the significant benefit in terms of our yield on R&D. So from an OpEx perspective, and from managing our operating income, we ended 2012 at roughly 19%. We feel pretty confident we can increase our gross margins roughly 400 basis points and drop our operating expenses by roughly 200 basis points, to increase our overall operating income from 19% to 25%. We recognize that 25% is still not where some of our competitors are, but it's a good step forward, and we certainly won't limit ourselves to 25%. Third major area, on top of revenue growth and profitability, is managing cash. We are a company that continues to do a pretty good job at driving cash flow, but we have significant opportunities in the area of working capital management. Today, we carry roughly 140 days of supply and inventory, which is a high number by any standard. We think there's a good size opportunity for us to work on areas like safety stock and consignment levels to drop that days inventory on hand pretty significantly. Our days sales outstanding at 61 days is not bad, but it's not world-class. There are further opportunities in the areas of factoring and implementing EDI technology to drive those days down. And finally, our days payable outstanding at 35 days doesn't equal our days with our customers, so we're offering our suppliers better terms than our customers, so we're working at changing that dynamic. If you net the working capital, the components together, we have roughly 166 days of net financing that we provide. Everyday improvement generates $30 million of cash flow for the company, and we've built into our plan which I'm sharing with you today, a 1-day improvement per year, which is rather modest. I think we'll do better than that. From a cash flow perspective, as Mike had said and I'll keep saying every time I get the chance, this is a company that generates a lot of cash. We have consistently generated roughly $100 million a month in good times and bad, ups and downs, economic cycles, and we expect we will continue to do that and build on the revenue growth and the profitability increases and the working capital improvements, so we can continue to generate at least that $1.2 billion, if not more, and grow with revenue. Match the percentages [ph] with the situation where we should be able to generate $6.5 billion of adjusted free cash flow over the next 5 years. We expect to continue to have a very well-balanced program of allocating that capital. As a reminder, we put $1 billion share repurchase program in about 1.5 year ago, and we completed that program recently and have now put in a new $1 billion share repurchase program in the last 2 weeks. And we expect over the next 5 years, to use an equal amount of cash for share repurchases and for acquisitions as we go forward, subject to what happens from a business development perspective. We will, however, maintain a relatively conservative financial profile. We do enjoy investment-grade rating, which is important to us, and we still have some risk contingencies in the areas of legal and tax that continue to get better, but that we need to continue to maintain our flexibility in the event that one goes against us.

So let me now conclude on this before passing it back to Mike. So we feel very optimistic about the future of Boston Scientific. I took you through our 2013 guidance. We expect 2013 -- the back half of 2013 for the year we return to growth. We expect to drive up our operating margins and adjusted for the medical device tax, generate earnings per share that's going to be in the upper single digits compared to what we did in 2012. And in '14 and '15, as the market kind of gets to kind of that 2%, that served markets 2% growth, we expect to grow north of that to do better than that on the strength of our pipeline and the actions we've taken. We expect to be able to increase our operating margins by at least 100 basis points in that 2-year period and drive at least mid- to high-single digit EPS growth and strong cash. Moving to the second 2-year period within the 5-year window, where the market starts to grow at 4%, we expect it -- and again, do better than that on the strength of our portfolio, improve our margins by over 100 basis points and drive high single to low double-digit EPS growth. I would tell you that these estimates, and particularly the 2 second periods -- the 2-year period 2014 to 2015 and '16 to '17, we believe are conservative and involves some level of conservatism that have been put in place relative to profitability. So we'd be disappointed if we didn't exceed these numbers. So overall, we think a very attractive proposition for shareholders. We are in the market today buying back stock, even with the current runup of the stock, we feel very confident that the stock is undervalued, and we continue to be committed to the story and very optimistic going forward. So with that, let me stop and invite Mike Mahoney to come back up for some concluding remarks. Mike?

Michael F. Mahoney

Thank you, Jeff. We'll make this a pretty quick wrap-up. We're running about 10 minutes late. First, I want to thank our Boston Scientific team for the hard work and their good work today and thank you, again, for investing your time with Boston Scientific. And we'll have about 1 hour of time for Q&A, and I think, hopefully, you've seen today that we've been quite transparent on our businesses, on our platforms, on our innovation and our plans for growth in the future. And obviously, this one last slide, this is where we started today. You've heard lots of presentations, there's lots of materials, lots of pipeline, but hopefully, you'll conclude: the first one, we don't underestimate the market challenges. We do believe the markets are stabilizing, and you saw during the projections that Jeff showed all the business leaders, we do believe these markets will improve over time based on the impact in the emerging markets and some of our innovation that will drive higher price points.

The second one, we outlined changes that we're making in terms of our operational processes to improve execution today. We've made a lot of those changes over the past 6 months. We're a leaner organization. We'll be more agile, we're a global company, and you've also seen some of the capabilities that Jeff outlined in terms of our services that we've also expanded overseas. So lots of changes that we've made to improve execution and also a number of leadership changes that we made over the past 18 months.

What we also outlined, I believe, is a clear leadership strategy. So strategy to grow our revenues, to grow our earnings, and to improve our margins, and it's based on these 5 principles we've talked about today: First one, a real focus on execution in our core markets, and you saw a lot of effort and work today by Joe Fitzgerald in our CRM portfolio with S-ICD, the rejuvenation of that portfolio, and how we're surrounding the EP with our investments in Rhythmia and WATCHMAN. You saw a lot of our efforts and innovation in Interventional Cardiology by Kevin Ballinger, to improve our capabilities there, get us back to #1 market share and the brand-new CE Mark stent platform that was just announced today, on the heels of SYNERGY to follow, and then the consistent efforts of our MedSurg business. We talked about the adjacencies that we're entering. We talked about our globalization capabilities. Jeff outlined how we're funding our journey to improve our operating income margins, and we haven't spent a lot of time on this, but just the importance of our people, the capabilities that we have across the company, and really, the spirit from which we'll continue to work to drive growth and make sure that we're providing meaningful innovation and advancing science for the life of the company. Jeff outlined our strong cash flow and capital allocation strategy, and with all that, we've committed to a significant improvement in 2013 to growth in the second half of the year and to really positive consistent leadership positions as we go forward in the strat plan horizon. So hopefully, this was very helpful for you today and I'd like to invite up the Boston Scientific team for the questions and answers. Thank you.

Unknown Executive

Good afternoon. As Mike mentioned, we have all the presenters here to respond to questions for the next hour or so. We're going to be passing out microphones. Please wait to get the microphone before asking the questions, and if you could state your name. We will also be taking questions from the webcast audience. With that, I'd like to open up to questions. Rick?

Question-and-Answer Session

Frederick A. Wise - Stifel, Nicolaus & Co., Inc., Research Division

Rick Wise, Stifel, Nicolaus. Jeff, you said, you were kind enough to say that you'd be disappointed if you didn't exceed some of these targets you set, but when I think about it, low single digit top line and accelerating operating margins, improving -- buying back stock. All this would seem to suggest a better than upper single digit EPS growth over the period. Maybe help us understand where you could be conservative and one that -- on a similar growth rate, many of your competitors are talking about low double digit EPS growth over this next few years. Help us think through that.

Jeffrey D. Capello

Yes, thanks for the question, Rick. So I think it's a fair question and I guess I would give you a little bit of an expanded answer in terms of, I guess, how we looked at things. I think we approached the whole exercise very conservatively. We approached it conservatively from the standpoint that the business leaders around this table feel that they can drive even higher growth than what we communicated. So we took a conservative view of the growth and we also assumed that a large portion of our cash that we generate, the $6.5 billion sits on the balance sheet again. So there isn't any more expected contribution from a revenue perspective. So both of those are upsides. I think we've done a relatively decent job on the margin expansion, could be some upside. And then relative to EPS, we put forth what I think is a pretty conservative outlook from an EPS perspective, which I'd be disappointed if we didn't hit the high end, if not higher than that.

Frederick A. Wise - Stifel, Nicolaus & Co., Inc., Research Division

If I could just, a product follow-up for Joe Fitzgerald. Joe, maybe you could talk a little bit more about the S-ICD. To what extent do you think the S-ICD is going to simply cannibalize your existing share or is it actually going to expand the market, and maybe talk a little bit about the degree to which you think it's going to open up new accounts and pull through the rest of the product line?

Joseph M. Fitzgerald

In terms of cannibalization, in our models, we clearly are going to cannibalize a small portion of the current ICD market, right? We won't create in that 30% opportunity, that won't be all new patients, new patient referrals from the referring physician group. So there will be a strong sense of cannibalization. We estimate that it will be kind of in the neighborhood of our existing share. When we look at every $10 that we bring in, we will cannibalize a portion of ourselves, but we see a large cannibalization opportunity for share that we don't currently have. Can you do me a favor? Can you repeat the second part of your question?

Frederick A. Wise - Stifel, Nicolaus & Co., Inc., Research Division

Market expansion.

Joseph M. Fitzgerald

Yes, so in terms of pull through, in knowing that we're in a handful of accounts, for instance, in the United States, but even in those accounts, we have clearly seen pull through in the first 4 months of the launch in the U.S. And we started very -- about midway through October and when we look at our October, November, December, January results, we clearly see pull through in those accounts, and we clearly are having different conversations with customers where we're not on contract, where we'd like to be on contract in terms of access to S-ICD. So we're very bullish on the upside pull through opportunity.

Unknown Executive


David R. Lewis - Morgan Stanley, Research Division

David Lewis, Morgan Stanley. The one product that seemed to change in expectations over the last 6 months really was Asthmatx. So if you go back to the June Analyst Day, you were estimating a $400 million market, you're now saying $200 million by 2017. In addition, the outlook for '13 is half of what we would've expected just 6 months ago. So how much of that just reflects timing, delayed reimbursement or a change in your thinking about that market? And then I have a follow-up.

Michael F. Mahoney

That's a good question. I think most of it was based on our modeling. We had anticipated that we'd have the CPT code last year, a CPT I code last year, so it really is a timing issue. It is not for lack of physician acceptance or clinical experience or patient experience with the procedure. I think we backed down a little bit on the number just because of the challenge of driving that established reimbursement. But as I mentioned today, with the 5-year data, we're essentially addressing all of the points that the major payers are asking for, and we think that will be a real big catalyzing event for major coverage decisions. We continue to have good response from clinicians and from the societies. I think this is an important year for us in 2013.

Unknown Analyst

Another follow-up either for Mike or for Jeff. It could be either of you. The message seems like the last several months, and specific today was getting back to a peer-based growth rate or better than peers, getting back to peer-based margins, getting back to peer-based earnings growth to get a peer-based multiple. The one thing that seems missing in the commentary through 2017 is simply the dividend. You're the only large cap med tech company not paying a dividend and there is no commentary of paying a dividend through 2017, which puts you well outside of peers as a kind of important metric. So just help us understand how you're thinking about that today and over the next 5 years.

Jeffrey D. Capello

Let me take that and then maybe Mike will add on it as well. So relative to driving the stock price, I think we're all convinced that the highest return for the shareholder is moving the growth rate of the company up, it has the bigger return, bigger than a 1.5% or 2% dividend yield. So our focus right now is staying flexible, continuing to return cash to shareholders via the buyback of the depressed stock price and continue to add high-growth technologies. Once we move the growth rate of the company up into the upper low-single digit, mid-single digit, then I think a dividend makes a lot of sense. And I think we'd put that on the table as a discussion point, and it's something we discuss with the board on a regular basis. We will continue to reassess that. But right now, the biggest return for shareholders is driving the top line of the company.

Michael F. Mahoney

I'll just add that if you look at the outer years for strat plan and Jeff said it is providing flexibility. So in '13, we talked about 6% share buyback and potentially looking at accretive acquisitions. But as you get out towards the end of that strat plan horizon, that '16, '17 time period, we'll clearly be in a position to offer that.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Mike Weinstein, JPMorgan. Let me first just go back to Rick's questions on the EPS guidance, Jeff. The one element you didn't talk about in your slides was tax. Your tax guidance for '13 to get to that, call it $0.64 to $0.70 cash EPS range your tax guidance is 11% to 13%. So when you're guiding to mid- to high-single digits EPS growth -- cash EPS growth in '14 and '15, what were you assuming happens to the tax rate of those periods?

Jeffrey D. Capello

So the tax rates has moved or around a little bit as a result of changing the distribution of income and now with the R&D tax credits. But for '13, we anticipate somewhere between 11% and 13% tax rate, and that includes 2 years of the R&D tax credit. That's worth about 200 basis points. So pick the midpoint, that puts us at roughly -- if you get 200 basis points of favorability, a 14% normal operational tax rate. I think for planning purposes, I'd plan maybe a little bit higher than that, maybe 14%, 15% for the next 5 years, and then it'll just depend on the distribution of income. But right now, we're comfortable with that 14% to 15% rate.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Okay, that's helpful. Jeff, the piece that you'll probably get the most pushback on is on the margin guidance, because everybody was at the November 2010 meeting, we know about the big margin targets that were put out there and if you kind of fast-forward 27 months later in margins, you adjust for things or base -- are essentially down over that period. If you adjust for -- and particularly, when you consider the PROMUS profit-sharing conversion added 200 basis points to your EBITDA margins, they're actually -- particular to that [ph], they're down. Now you're talking about your EBITDA margins improving 100 basis points annually, not this year but starting in '14 and '15. And so the question or concern would be that, okay well, if they don't get that type of margin expansion in '14 to '15, can they still get to those EPS growth targets and why will they achieve that in '14 or '15 when they've been chopping off this wood over the last 3 years?

Jeffrey D. Capello

I think it's a fair question. I think what you can't lose sight on is that some of our highest gross margined businesses, which is the drug-eluting stent business and then the CRM business, we've been contracting for the last 3 years. And when you lose margin in those businesses, it cuts both ways. When you lose margin in those businesses, the incremental contribution margin of those lost sales is very high. So that is what kind of pressured and didn't allow us to expand our margins as we anticipated. So as you heard today, I think we've got a winning pipeline, we have stabilized markets and we expect to take share in both those and grow. So I think take share in both those and grow that reduces that dynamic. We've also added a number of young technologies, which are weighing on the P&L. They weighed on the P&L in '12, they weigh on the P&L in '13. Thereafter, they start to grow and all are designed to be accretive from a gross margin perspective. And that's also true from an SG&A and R&D perspective as those programs have heavy cost associated with it. So it's the benefit of stabilizing the core and getting growth from the core while the growth adjacencies start to take off that will drive a lot of the margin picture going forward.

Unknown Executive

I did want to mention that Dr. Ken Stein is also joining the panel and he's our Chief Medical Officer for CRM. Next question? Bob?

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Bob Hopkins from Bank of America. A couple on the Cardiac Rhythm Management side. First on the S-ICD, the guidance that you're giving for 2013, could you do better than that? Or do your capacity constraints just limit you to the guidance that you provided?

Joseph M. Fitzgerald

That's precisely it. So if you look at the manufacturing capability in the health or lack of health on the supply chain side, that is the limiter. We don't lack for people who want to sell it and people who want to buy it. We lack for high-volume manufacturability.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

And I've had physicians tell me that you're charging roughly $25,000 for that device and that they can't really get reimbursement under traditional DRG codes today. So that may or may not be a good data point, but can you give me your views on reimbursement and how hospitals are getting paid for this?

Joseph M. Fitzgerald

Yes, so actually the CMS has issued guidance, so it does fall into the traditional national coverage decision on ICDs. So if you have specific examples, maybe we need to go visit those accounts with our HE&R folks. I'm not going to get into specific pricing, just suffice it to say, we think S-ICD, being the first and only on the market, a very novel technology that took 10-plus years to bring to market, that we have aggressive pricing plans in place.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

And then just lastly, you made some comments about increasing market growth over the plan period in CRM due to, I think, better pricings and better trends in de novo implants. So I understand the Boston Scientific's specific comment about new technologies, but why do you think the CRM market will experience better de novo trends and better pricing going forward?

Joseph M. Fitzgerald

So I think to answer that, let's take the U.S. as an example. When you have the publication of the JAMA article on appropriate use according to the guidelines, if you look at government intervention, whether they be RAC audits or DOJ audits and compare what went on second half of '11 where I think we were down in the double digit range in the United States in terms of implant rates, and you look at that continuing through '12, and then you look at, let's say, Europe, right, where you look at some of the austerity measures and just restriction of implants, restriction of therapy in order to save money, we think relative to the next 5 years, that those will abate a bit.

Jeffrey D. Capello

Just to add on to that, we estimate based on the competitors that have released to date, that the CRM market contracted globally 3% in the fourth quarter, which is a marked improvement compared to, as Joe has described. And we estimate that the global DES market was down 2% in the fourth quarter. So as these international regions increase in terms of size and contribute more to the growth rates, that's where we expect a lot of the benefit from a growth perspective, market-wise. And then I think as Joe and Kevin have articulately laid out, our pipeline we think is going to be unmatched and they'll provide [ph] opportunity to take share.

Unknown Executive


Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Glenn Novarro with RBC. A few CRM questions. Your goal is to take market share, but if you look at the ICD portfolio in the U.S., it lacks a quadpole, the pacing portfolio lacks an MRI safe compatibility. So can you talk about the timing of both in the U.S.? And is that what we need for you to gain share or can you gain share with the current portfolio? I have a follow-up on the subcu.

Joseph M. Fitzgerald

Okay, so the comments, Glenn, that I made were, we intend to take global share, right? So obviously, the U.S. is a little bit greater than 50% of the market. So let me answer the questions on our timing for quad first and foremost, in the U.S. So quad is a part of our NG3 [ph] Galaxy program. We should be in a position in the latter half, end of 2013 to begin that quadpole study for the system approval both can and lead. And we believe somewhere in the 2016 timeframe, we launch in the U.S. But more importantly, given that, that program is intended to finish midyear, we believe that quad in the EU market, CE Mark-backed countries, they will be in a position late 2013 or '14 to go on offense. On the MRI part of your question, I do want to point out that we just launched our INGENIO and FINELINE systems in Europe at the end of the summer. I said during my prepared remarks that the system that we've developed, which is INGENIO plus INGEVITY, that was born from the first day of development as a dedicated MRI compatible system. So we're in the safety study for INGEVITY now. We will shortly go down the path of commencing the SAMURAI MRI study, which will support MRI indications in multiple geographies around the globe. So the U.S. date, I think is the second part of your question for MRI, the U.S. date, given how fast the trials enroll, how fast we can do follow-up, is late 2015 in the U.S. INGEVITY should launch with INGENIO as the true next generation Brady MRI platform in the EU early 2014.

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

And just to follow-up on your subcutaneous ICD, you put up on a slide, the 2.0 version. Can you tell us what's differentiated versus current generation or 1.5? Is it smaller? And then the timing, U.S. and Europe?

Joseph M. Fitzgerald

So I am sure that several of my competitors would love for me to sit up here and rattle off the 8 sort of design product specs that we're going to chase, so I won't do that. But I will tell you that as we look at physician feedback, I'll remind everybody that the current S-ICD is the exact same thickness as one of the market leader's market-leading products. So it's in the 15.5-millimeter. So we talk a lot about how big the S-ICD is, et cetera. In terms of thickness, which really matters in a lateral placement, it's exactly -- approximately as big as one of our largest competitors' current transvenous ICD system. So the one thing I will tell you is, we will clearly put as a design spec to make S-ICD 2.0 a thinner device.

Unknown Executive

Matt Dodds?

Matthew J. Dodds - Citigroup Inc, Research Division

Matt Dodds, Citigroup. Jeff, for you first, the $6.5 billion in cash flow. Do you have a rough estimate of milestones you may end up paying out? I assume it will be in the K eventually, but do you have a number there?

Jeffrey D. Capello

Yes, so you'll see here when we file our 10-K, that we currently expect roughly $1 billion worth of milestones to be paid over the next 5 years.

Matthew J. Dodds - Citigroup Inc, Research Division

$1 billion?

Jeffrey D. Capello

$1 billion.

Matthew J. Dodds - Citigroup Inc, Research Division

And then also on the ICD side, the RELIANCE 4-FRONT, in the U.S., are you planning a trial and what do you think the parameters will be to try to get that lead into the U.S.? The 7 French [indiscernible].

Joseph M. Fitzgerald

The downside RELIANCE forefront lead, and I got several questions at the break and I said, please, someone ask me that and I'll clarify, okay? So our current RELIANCE G platform is 8 and a couple of tenths French sizes, it's in its 9 French sheath compatible. Our RELIANCE forefront is a 7 French and a little bit and its 8 French sheath compatible, all right? We did launch that in Europe as I spoke about earlier. We're in discussions with FDA on what the regulatory pathway is. So once those discussions are complete, one of those pathways could be obviously a robust, large clinical study, but we're working through that with FDA. So until we finish those discussions and negotiations, I really don't have any news to report.

Unknown Executive

Okay. Brooks?

Brooks E. West - Piper Jaffray Companies, Research Division

Large picture question for Mike, and then some product questions to follow-up. Having kind of lived through trying to call bottoms in these cardiology markets for some time, I'm wondering if we sit here 2, 3 years from now, and we haven't seen a rebound in the market, what's your reaction to those franchises to the business line [ph]? I guess, do you have a plan B if we don't see a rebound in those markets?

Michael F. Mahoney

I think Jeff commented, we had seen some improvement recently in the fourth quarter and what we show in our market projection there is a stabilization. I think it goes from negative 5 to possibly negative 1 or so in the stat plan horizon, so we've certainly been, I'd say, appropriately conservative in that market calls. We haven't called a dramatic rebound, just a stabilization. So I think we've been appropriate with that. I think a couple of comments. One is, you saw the diversification of the portfolio. So as these adjacencies continue to get larger for us and over time, they'll be approximately $1 billion. We see the strength and size of our MedSurg and PI businesses continue and the improvement of our CRM business. That overall diversification will continue to help us, but also within our IC business. That is a very profitable business for us. We believe that our pipeline that we have with SYNERGY and the PROMUS Premier launch that you just heard about today with our complex fusions [ph]. Even at -- despite a market that may be challenged, we do believe we'll take share and we'll get back to #1 position. So I think we have a strong position. We're not overzealous in the market projection and we continue to drive adjacencies and rebalance the portfolio.

Brooks E. West - Piper Jaffray Companies, Research Division

And then I've got one for Kevin and one for Joe. Kevin, on the drug-eluting stent, we had this conversation before we started, can you make the statement that when RESOLUTE launched, there was a perceived therapeutic benefit -- specific therapeutic benefit that maybe targeted your TAXUS platform. And as you look at stabilizing share in drug-eluting stents, can you make the statement that most of the share that you've lost has been in TAXUS? And then can you make an argument and I don't know, Keith, if you to want to jump in, can you make an argument that you have a more stable product versus RESOLUTE in particular in your PROMUS platform?

Kevin Ballinger

Thanks, Brooks. Good question. It's absolutely fair to say that most of our share loss over this last year, as Medtronic entered the market, was through TAXUS. So we have the other dynamic going on of us moving away from PROMUS supplied by Abbott and moving to PROMUS Element, but if you just net it out and look at the share loss, it was primarily TAXUS. Having said that, TAXUS itself as a brand, is still very important globally. We are driving more indications for that. We're not expecting a massive resurgence necessarily in our TAXUS business, but it's a very important product category for us as we look around the globe and serve different global customers, who have a lot of experience with TAXUS, number one. There's also value position in certain markets. So it's an important brand that has stabilized now, but a great deal of the share loss did indeed come from the TAXUS franchise.

Brooks E. West - Piper Jaffray Companies, Research Division

And then maybe last for Joe, just on the ICD. So there's been a lot of debate despite what you had in your slides, there's been a lot of debate on what is the appropriate patient for that, maybe narrowing it just to patients with problems with vascular access. Can you talk about kind of patient mix, patient characteristics you've seen in your initial U.S. cases?

Joseph M. Fitzgerald

Just to show you how smart I am, Brooks, I'm going to cede to the good doctor on my left to give you some perspective on that.

Ken Stein

Thanks. I think so far, we're actually seeing much broader penetration just into the overall primary and secondary prevention markets than I think we had anticipated, and certainly not being restricted just to patients with difficult vascular access. We're seeing it in those patients, we're seeing it used in patients with severe renal insufficiency, which actually, in many patients, is a market expansion because they haven't been getting any sort of ICD previously. We've presented and published data from the EFFORTLESS registry that Joe mentioned in his prepared comments to the effect that, at least in that registry, about 20% of the implants have been what we think of as upgrades from preexisting transvenous systems, either due to infection or lead failure or actually for cosmetic reasons and do see this being used in just -- beginning to be used just as a routine tool for primary prevention, particularly as people are starting to integrate the results of MADIT-RIT into their everyday practice.

Unknown Executive


Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Larry Biegelsen, Wells Fargo. Jeff just a quick one. The annual price erosion assumed -- I'm sorry if I missed it on the slide. Is it negative 5% a year going forward? The last time it was 4%, I think, at the 2010 analyst meeting.

Jeffrey D. Capello

Yes, I don't think we commented specifically on that, but I think what you should plan for is roughly 100 basis points of erosion in the gross margin rate.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Okay, and for Dr. Dawkins, on Sadra, when are we going to see the REPRISE II data? For the REPRISE I data, it was a very small study, but there was a high pacemaker rate, have you guys been able to improve upon that? And there are lots of private TAVI companies out there still, would you guys consider adding to Sadra to have another option or is that kind your horse [ph] [indiscernible] in the race?

Keith D. Dawkins

Yes, you're right. The REPRISE I was obviously just 11 patients. Four of them were paced but 2 of them are not using the pacemaker. So I think in terms of working out the pacing rate in relation to safety and core valve, is not possible from that data set. If the REPRISE II data continue -- the recruitment continues at the current rate, we anticipate being able to [indiscernible] of the REPRISE II early trial data, which is what you're really interested in right now at EuroPCR. And that should be the whole 120 patients. And clearly, in that analysis, we will be looking at the details around pacing rate, whether the pacing requirement occurred after the balloon angioplasty, how it rates to the 23- or the 27-millimeter valve and then the sizing of the valve in relation to the calculated size through the CT. So we'll present a lot of detailed data around that. I think right now, the figures -- the numbers are just too low.

Unknown Executive

We have a couple of questions from the webcast audience. How do you ensure you can be profitable in the emerging markets as they become a larger piece of your business?

Michael F. Mahoney

We are today. Latin America and Brazil is an excellent market for us, some of our stronger margins. Our China business continues to grow. We grew almost 45% in the fourth quarter, 35% for the year and it's a profitable market for us. Some other emerging markets are less profitable, but we continue to drive distribution networks and at appropriate contracts for those, but I would say currently, the profit mix, based on emerging markets, is quite positive.

Unknown Executive

Good, another one is, I believe Covidien's hypertension device used irrigation, has that been shown to reduce risk? Is there any reason to add irrigation?

Michael F. Mahoney

Yes, I believe this is one of the benefits of the Vessix technology being that it's a bipolar design. Unlike the Covidien balloon, which is monopolar and requires an extra piece of hardware, which is a pump that profuses saline into the renal artery to cool the balloon. It's a big difference between our balloon and theirs, which is no extra pump and no saline.

Unknown Executive

Great, and one more, the EP is one of your most important customers. When do you expect your product development, business development efforts will bring your atrial fibrillation revenue into the same lane as the market leaders?

Michael F. Mahoney

So the first comment I would make is that I think that's a U.S.-centric-focused question. So we have AFib indicated products on the market in multiple geographies outside the United States. In late 2012, we announced and initiated that our ZERO-AF study for approval of the Blazer Open-Irrigated system had commenced with first patient enrolled. And I think that the whole mapping and navigation space that we intend to enter into, that plays a large role in the safe and efficacious treatment of AFib and VT. It's not a particularly -- or it's not a specifically approved product for AFib, but clearly, it supports all chamber mapping and 3D navigation. And I'll turn it over to Ken to see if he has any other comments.

Ken Stein

I think it's a perceptive comment and I think once again, what Joe tried to lay out in the prepared remarks is the importance of really surrounding the EP with a series of products that appeal to us, which goes beyond just AFib ablation when you think of AFib, but also, Left Atrial Appendage Closure, goes into a comprehensive suite of CRM products and then emerging therapies, potentially like renal denervation, autonomic modulation therapy, et cetera. And so I think you have to look at the EP customer, not just focused on any one particular treatment modality, but in sort of the totality of what that customer wants to see.

Unknown Executive


Bruce M. Nudell - Crédit Suisse AG, Research Division

Bruce Nudell from Crédit Suisse. Jeff, I have a question for you and then a follow-up for Keith. You're guiding to your end markets or served market's growing at about 2% in 2014, '15. The company believes it will gain share in most of the mature markets that it's participating in. So what are the swing fact -- like, where you're guiding for corporate revenues to kind of match the market? And what are the swing factors that will allow you to either grow above the market or the risk factors that it will be below the -- that could cause below-market performance in that 2014, '15 timeframe, where it's -- that will be the nice kind of point in time where investors could say, these guys are on the right track, they are showing significant revenue momentum.

Jeffrey D. Capello

Yes, thanks for the question. So I would say that if the market is growing 2%, which we anticipate it will, that we'd be disappointed if we didn't grow north of that. And as I said in response to Rick's question, I think we've been relatively conservative in kind of leaning on the model a little. Now, if you look at the downside clearly, a further pullback in either the DES market or CRM market would have a negative impact on that. From a worry perspective, that is something you can't control and that has happened in the past. So that's something we have to kind of -- we'd have to manage through. We believe we're through the worst of what we've endured. On the upside, however, all the plans that the regions and businesses have laid out, including the adjacencies, have been pretty significantly discounted to get to those rates. So I would be disappointed if we didn't do better than those numbers. And just to reiterate again, that the large portion of the cash it will generate is going to be backed up on the balance sheet, and it won't be backed up on the balance sheet, it will be deployed either to buy back stock or bring in new technology. So none of the numbers either include any upside in terms of incremental revenue we can bring in over the 5-year period.

Bruce M. Nudell - Crédit Suisse AG, Research Division

And then Keith, with regards to Left Atrial Appendage Closure, how much of a net stroke benefit across ischemic and hemorrhagic stroke are you thinking about over a 5-year period with -- among patients who maybe aren't as tolerant to anti-coagulation?

Keith D. Dawkins

Well as you know, Bruce, hemorrhagic stroke is catastrophic in terms of patient outcome compared with regular thrombotic stroke. And all these anti-coagulants, including all the new drugs seem to have a rate in the 2% to 3% per annum range. It may be that the lack of the need for monitoring in some of the newer drugs may be upside. But I think it's clear and obviously you need to see the late data that will be presented at ACC from PROTECT-AF that the longer you follow the patients, the more likely there is crossover and superiority. So I think Ken can add to that from the EP point of view, but there are so many patients who are not treated with anticoagulants. And their risk often extends over 10 or 20 years. So I think it's profound.

Ken Stein

That was the point that I wanted to amplify. I think, right, if you look at the clinical data and look at our labeling now in the CE Mark countries, right, one issue is the benefit as opposed to using oral anticoagulants as an alternative. But there are 2 other important populations: One population are the patients who are contraindicated for oral anticoagulants, who have no other alternative. The results of our ASAP data, which showed a substantial absolute reduction in stroke in patients who are completely intolerant of anticoagulants and then the second group of the patients who are just relatively contraindicated or poor long-term candidates patients who are not willing to take anticoagulants over the long-term. Again, as Joe showed you, if you look at any of the novel oral anticoagulant trials, 20% to 40% of patients discontinue the drug within a matter of a year or 2. And so we're not going up against the anticoagulants at that point. It's you've got no other alternative, aside from having Left Atrial Appendage Closure.

Keith D. Dawkins

I think patient choice is going to become really important, because when you lay out the constant hazard over the years, many patients -- and the same will be true of Vessix, will choose to have this small upfront risk of the procedure and then forget about it. And I think that's already becoming important in Europe.

Unknown Executive

Okay. Joanne?

Joanne K. Wuensch - BMO Capital Markets U.S.

Joanne Wuensch from BMO Capital Markets. Over the last several years, there have been a variety of corporate restructurings that have occurred. Could you give us an update on where you think you are in that process? Do you have the right number of headcount and the right number of manufacturing facilities?

Michael F. Mahoney

I would just say it's -- we continue to look at it. We've acquired a number of companies recently and there's always opportunities to reduce that footprint down from the acquisitions that we've made. And Jeff outlined a 6% productivity improvement in terms of our standard margins. And so with that is -- part of that is the manufacturing footprint that we have. On the restructuring standpoint, we continued to size our businesses to invest in the regions that are growing most quickly and the businesses that are growing most quickly. And a great example is the one we just recently did, it generated about $120 million of savings. So they're difficult restructurings to do, but we want to make sure we fuel the regions, like the BRIC markets and others, that are growing quickly with the right types of resources, as well as the businesses that are growing fast. So I think you'll see over time a little bit less restructuring in total than what you saw over the past 3 years. I wouldn't say we're done doing it, because we want to continue to monitor and size our businesses appropriately.

Joanne K. Wuensch - BMO Capital Markets U.S.

And as a follow-up. In one of the cascades -- I can't remember which one made it an operating margin, I saw volumes down 4%. Was that referring to patient volumes, manufacturing volumes?

Jeffrey D. Capello

Joanne, can you be a little bit more specific because I think the volumes were up in at least in the financial bridges. So are you referring to one of the businesses from a growth perspective?

Joanne K. Wuensch - BMO Capital Markets U.S.

I can follow-up with you.

Jeffrey D. Capello

Okay. Sure.

Joanne K. Wuensch - BMO Capital Markets U.S.

But it goes to this other question of, how do you think about patient volumes over the next couple of years with ObamaCare, and as you get into these new market opportunities?

Jeffrey D. Capello

Maybe that's a good one for the business leaders each to kind of talk a little bit about volumes they expect. Maybe, Kevin, you can lead off with PCI's.

Kevin Ballinger

Yes, thanks. So it varies vastly by what region in the world you are talking about, obviously. In China, for instance, we're seeing PCI growth in excess of 15%. I'll just make a comment on the U.S. I think what we see in the last couple of years is really kind of this new normal period that I described. So you've had a couple different confluence of factors here, which is hospital and physician alignment. I read a study recently that said in 2010, only 20% of physicians were aligned in some form or fashion with hospitals. That's already up in excess of 60% and is expected to surpass 80%. So between that and then the kind of the implementation of Appropriate Use Criteria and adoption of that criteria, I think obviously we've seen heavy pressure on, not just PCI in the U.S. over the last 2 years, but also how physicians approach a case and how many stents per case they implant, and so there are number of factors that go into the market size and price being another one. So point being, in the U.S. when we look at what's already happened with physician-hospital alignment with the implementation Appropriate Use Criteria and, importantly, the adoption of that and more standardization, I don't think we're going to see the wild swings that we've seen in the last couple of years in the U.S. PCI market. So net-net, slight declines in the U.S. PCI I think will stabilize and return to slight low single-digit growth in the U.S. over the plan period.

Michael P. Phalen

I'll just add a little perspective from the MedSurg businesses. For the most part, those businesses have seen steady patient volume to steady caseloads, the exception being, perhaps a little bit of elective surgery on our Women's Health business. And we saw the effects of that when the economy took a little bit of a hit. But when there is an endoscopic or urological intervention needed -- these patients are pretty sick, and I think there is a potential upside with the Affordable Care Act theoretically driving more patients to those interventions. So we see a steady growth on the MedSurg side in the coming years.

Jeffrey B. Mirviss

In terms of peripheral, we anticipate kind of solid steady mid-single-digit growth in some of the emerging markets. And some of our product categories like liver cancer, we see upper digit -- upper single-digit growth. And so the nice thing about peripheral, it's been under diagnosed and underpenetrated, and we think that will continue to grow steadily as we go forward.

Joseph M. Fitzgerald

And then it's similar to my comments. Core CRM, pacing ICDs, CRT-D, low single-digit volume growth and then on the EP ablation mapping diagnostics, at least double-digit growth over the planning horizon.

Unknown Executive


Joshua T. Jennings - Cowen and Company, LLC, Research Division

Josh Jennings with Cowen. First, just a question on the Vessix vascular acquisition. Obviously, in your diligence process you got comfortable with the IP, the Ardien [ph] patents. Can you talk about how comfortable you got and whether there's any expectations baked in for those Ardien [ph] patents to be defended by Medtronic? And any anticipation of any need for royalty rates in the future, especially with U.S. approval?

Jeffrey B. Mirviss

So we're not publicly going to comment on IP and our views on this going forward. But suffice it to say, we've looked at this question and we're confident in our current position.

Joshua T. Jennings - Cowen and Company, LLC, Research Division

All right. And just a question for Joe Fitzgerald on the CRM business. You're talking about ability to gain market share going forward. If you look at the 2012 performance, some were surprised that you were able to capitalize on a competitor's lead controversy and some of the opportunity there. You have competitors that are launching their own ICD and next generation pacemaker platforms. Can you just talk about why you weren't able to capitalize on competitors' issues in 2012 and what gives you the confidence in 2013 and beyond that you actually would be able to gain shares as you stated in the presentation today?

Joseph M. Fitzgerald

So let's start with the context of market share because -- let's start with lead. So clearly we took share in leads. On the RV tachy lead side, the shocking lead, there's no doubt in our mind that we took substantial share of that market. Then let's turn to replacement share. And we've talked about a replacement share headwind that we've had, and clearly we've stated we've lost share in the replacement, specially on the ICD and CRT-D. Now to put some perspective on that, if you think at the high point of legacy guidance share position, that occurred in the '03 and '04. And with the PRISM, RENEWAL recalls in '05 and '06, and a fairly large midlife battery recall that we had in '07, you saw our share come off of those peaks. So what we've been seeing, let's say, over the last 8 to 12 quarters is a replacement share mirroring what happened in the De Novo share back in '05, '06 and '07. But it's important to point out that we think we hit that low point back in the April, May, June timeframe, and we've seen quite a bit of stabilization in our replacement share over the ensuing 6 to 8 months. So that's important. To figure in our -- if you compare our last 2 years performance to our next 2 to 5 years performance. Lastly, your comment on why haven't we taken share. To be clear, in De Novo ICDs, we believe we took share in the neighborhood of 350 basis points using the U.S. as an example. So I think clearly, we have taken advantage of both our offense with INCEPTA, ENERGEN and PUNCTUA, having a multitiered, brand-new, fresh cadence of products to go talk to customers, and we've had competitors who've stumbled.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Kristen Stewart from Deutsche Bank. A question for Mike. If we just go back to 2 years ago, I guess, the forecast that was given was kind of Boston Scientific without the addition of acquisitions. And clearly, what we heard today is a lot of those acquisitions that you've made are really going to be the contributors to growth. So do you feel now that you have the right portfolio for Boston Scientific for the next 5 years? And just how should we think M&A, because it seems like you're shifting more from perhaps early technology add-ons to maybe something a little bit broader.

Michael F. Mahoney

Sure. On the M&A front, we do have a BSC venture group as well, which we don't talk too much about, but we want -- we place 5 to 10 small investment bets a year that aren't huge -- aren't significant in terms of materiality, but we continue to do that into spaces that we like. We just announced one today on obesity. So those are smart bets in line with the markets that we think will continue to grow. We have made a lot of early acquisitions. You saw it from our lineup of Vessix, of S-ICD and TAVR and so forth. So over the next 12 to 24 months, you'll see us continue to absorb those acquisitions, ensure that we integrate them well and execute commercially. That's really important for us to do. In terms of new acquisitions, I think you'll see us lean more towards clearly less-dilutive acquisitions. Where there's hope for the accretion very quickly and -- in markets that we know and we'll continue to lead in and that will provide synergies.

Unknown Executive


David H. Roman - Goldman Sachs Group Inc., Research Division

David Roman from Goldman Sachs. Jeff, I know you talked about $1 billion of contingent liabilities over the planning period. And in your prepared remarks, you referenced a desire to remain, invest and create as an important part of the strategy. I think you have a number of debt maturities coming due in the '14, '15, '16 timeframe. I think it's -- it adds up to a little over $2 billion or so. Should we just make an assumption that you're going to refi those? And is there any potential of bringing down your interest rate?

Jeffrey D. Capello

Yes. So let me just provide a little more color on those earnouts, the $1 billion. Those $1 billion assume that all the acquisitions that we've done hit the revenue forecast, which are -- which the numbers we shared with you today are far more conservative. So that's one important distinction that I should've pointed out when the question got asked, which would generate more cash flow. With respect to debt maturities, we have $600 million worth of debt due in early '14, and then we have another piece thereafter. We want to maintain our investment grade rating status, that's very important for us going forward. And the sweet spot for us would be kind of BBB+, a couple notches up, so we'll work to continue to erase [ph] our leverage. With the plan we shared with you today, our EBITDA goes up and our debt to EBITDA goes down and we'll be, very comfortably, within investment grade. So what that would then mean would be, we would refinance our debt. The only reason we haven't refinanced our debt yet -- because we could produce a significant savings, is the premium associated with getting that debt back because the debt has traded so well, it doesn't make economic sense. As we get closer to that point, particularly for the '14 debt, then it makes a lot of sense to take that debt out, maybe pay some of it down or if not refinance it at a pretty significant savings. So we'll continue to monitor the capital markets as we approach that timeframe.

David H. Roman - Goldman Sachs Group Inc., Research Division

That's helpful. And maybe some perspective on some of the newer markets that you're entering whether it's transcatheter valves or renal denervation. If you look at Medtronic numbers on RDN, I think that business has been flat sequentially for them for several quarters now in Europe. Maybe you can just talk a little bit about market development initiatives that you can undertake, either to accelerate reimbursement, that it might help jump start the growth rate there. And, I guess, also I asked the same question on just transcatheter valve, which in Europe has slowed down a bit. I guess, as a new entrant, you would have a market share opportunity. But do you envision Boston Scientific being able to expand some of these newer growth markets when you enter them in earnest?

Jeffrey B. Mirviss

So I think the first thing is that, with the speed and ease-of-use of the Vessix technology, we see it as a clear share taker. And so that will be a big part of our commercialization strategy. In conjunction with investing in the appropriate clinical data to expand utilization and get reimbursement. And Germany has demonstrated very solid reimbursement and increasing reimbursement in 2013, which is helpful. And as you saw with the clinical strategy that Keith laid out, we'll obviously be investing a lot in getting the appropriate data to demonstrate the safety and efficacy of Vessix, but also to get reimbursement in many countries around the world. And as I've met with physicians, there's high interest in renal denervation in general and in Vessix, in particular, especially in some countries in the emerging markets, which has very high hypertension rates. So reimbursement and expanding the adoption and utilization will be a key part of our strategy going forward.

Keith D. Dawkins

And I would just add to that, that being a fast follower, you often can watch closely the first into a space, and then be smarter in the clinical trial strategy and follow in terms of reimbursement, which in many countries is not specific for a specific device.

Unknown Executive

There's time for a few more questions. Derrick?

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Derrick Sung of Sanford Bernstein. For Kevin, on your SYNERGY launch, what is preventing you from going more aggressively and launching SYNERGY in Europe today? The feedback that we've gotten from physicians have all been quite positive. So is there a supply constraint here that's keeping you from that? And then kind of related to that, the PREMIER launch -- it sounds like the product addresses kind of some of the shortcomings around longitudinal compression that may have been hurting your share a little bit. What's the ability -- or when can you combine the SYNERGY stent or the bioabsorbable polymer onto the PREMIER platform? And do you anticipate that there might be issues around the SYNERGY, concerns in the marketplace around longitudinal compression with the SYNERGY stent as well?

Kevin Ballinger

A lot in that question, so let me take it piece by piece, and I might ask Keith to comment as well. But the new point that really wasn't known today -- until today was the PREMIER product, so that's an important product for us to establish in Europe. As we build out the clinical evidence and base for SYNERGY. And although we're not going to fully launch SYNERGY until 2014, we're actually in several dozen accounts right now and it's -- the reorder rate's great and the feedback's been great. So we're going at it in a very methodical way with SYNERGY. I think it's important to know that SYNERGY, as designed today, already has many of the elements incorporated in the stent design that PREMIER has, the product that's in Europe today. Now we're going to continue to iterate that platform. But the real basis for not launching SYNERGY more fully is not to make additional stent modifications, although we'll do that. It's really to continue to build the clinical evidence. And I would just state, and I'll ask Keith to comment on the clinical program for SYNERGY, but one comment on PREMIER. I think we sell PREMIERE short if we just think about it as a fix, so to speak, to axial compression because, really, it's an entirely new platform. We've changed delivery system. We've changed the stent design. We've changed the tip. We've changed the shaft. I think it's really a whole new product we designed in conjunction with physicians. And it's really the full package, and it's built off, to me, best-in-class clinical performance with the PLATINUM trial. And the benefit of PREMIERE is really getting that strength where it matters to avoid some of the issues you mentioned, but not sacrificing the important features, the market-leading features that we've got on the rest of the stent. And we could have taken a quick way out of it. We decided to design it the right way to kind of optimize fully the full package. So I don't know, Keith, if you want to just make 1 or 2 comments on SYNERGY clinical strategy in Europe.

Keith D. Dawkins

Yes, I think if we want to garner a significant price premium with SYNERGY then we have to provide, underpin it with clinical data or at least clinical trials. And so you'll see -- and we'll be able to announce this more fully at ACC next month. We have a raft of clinical trials in Europe and other geographies, obviously, including EVOLVE II, EVOLVE Short DAPT. We'll be doing a stemy [ph] trial that we'll announce. And we'll also be announcing a trial of a group patients who's typically treated with surgical revascularization. By the time you've added all those centers in Europe and in the majority, they will be commercial product. They will be purchasing the product in the trial. It's not a soft launch, and obviously we have a full matrix, too.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Great. Follow-up for Mike on Neuromodulation. One thing that caught my eye in terms of your slides was you mentioned that you were pursuing another occipital nerve stimulation program, and that's for migrane, which has been a program that all of -- that companies have pursued and have run trials with sales endpoint. And I was just curious if you could talk about what your strategy for doing that is going forward.

Michael P. Phalen

That's a good question. That was part of the broader leveraging on the platform technology. I mentioned leveraging the core multiple independent current control platform. And we don't know exactly where it's going to yield. We want to point that out as an adjacency. Right now, our major focus is on launching our Precision Spectra and our DBS element. But we'll acquire some data and see where we end up and see whether or not we can make a difference.

Unknown Executive

All right. Mike?

Michael Matson - Mizuho Securities USA Inc., Research Division

I actually just have one question. It's Mike Matson from Mizuho Securities. Just a question for Jeff. It looks like you're developing both drug-eluting stents and drug-coated balloon for peripheral use. And I was just curious where your outlook is for those 2 technologies in the peripheral area. Do you see one kind of winning out? Or do you expect both of them to have a place in that market?

Jeffrey B. Mirviss

So at this time, I mentioned that we're going to be starting first human use trials for both technologies, both with Paclitaxel, leveraging our deep expertise in core technologies in stents and balloons. And we're quite interested in this area. We have commercial plans for many geographies outside the United States, and we'll be kind of playing the field for a while to really fully understand the take up of the Zilver PTX stent, what some of the adoption looks like for drug-coated balloons in countries outside of Europe. Because up until now, the utilization of both of these technologies in CE Mark countries has been quite low. So this gives us flexibility and the opportunity to pivot and go one direction or the other, or potentially both, if we so choose.

Unknown Executive


Matthew Taylor - Barclays Capital, Research Division

A question for -- Matt Taylor from Barclays. A question for Jeff Capello. Just wanted to get a sense from your margin guidance -- that's the real key to the story here over the next couple of years. What can you tell us about the guidance that you set out a couple of years ago? You mentioned maybe some of the pricing programs didn't get quite to where you wanted them to go. But you had good success on the Plant Network Optimization. So based on that experience, what's been instructive about being able to have more confidence about forecasting 100 basis points of expansion here?

Jeffrey D. Capello

I'd come back to the kind of the question with Mike Weinstein in terms of the margins and what's happened. You can't underscore the importance of the drug-eluting stent business and the CRM business from the variable contribution margin, gross margin wise. So as we look back at the model that we had in 2010, clearly the revenue contraction we experienced in both those businesses at the variable contribution margin was a significant headwind of gross margins. As we talked about almost repeatedly here throughout the day, various presenters, we think that those markets have now stabilized and we think we have a very strong portfolio, and we're going to take share. With that presents an excellent opportunity from a margin expansion perspective because just as in the way down it's painful, it's pretty nice on the way up from a volume perspective. And I'd also kind of comment that we've gone from 17 plants down to 12, as Mike had said, Mike Mahoney has mentioned. There's no reason why 12 is the magic number, and there's no reason why we're going to be happy at 72%, whether it'd be looking at our plan at the structure, looking at other opportunities to kind of drive up our gross margins and better manage our SG&A. And one of the benefits of this continuous improvement culture and culture of productivity -- that frankly, has existed within manufacturing, but has not existed in the other [ph] expense areas, is you generate those opportunities. And as we see those opportunities, we'll be pretty aggressive at driving them to the bottom line.

Michael F. Mahoney

Just to add. I think on the innovation on the portfolio side, if you think of 2 years ago, we used to say 1 DS platform when we were at a challenging price dynamic with Abbott, and similarly, with ICD. So now you look at 2013 and moving forward, we have a clear new platform in ICDs at a different price point, a different innovation and different price points. The same thing with patients lines. We're able to best line up our portfolio with the markets and the pricing request matched against value for ICDs. Similarly, now with DES. So ICDs and DES are the most price-challenged markets. We have SYNERGY, which we believe will be a price premium and Promus PREMIER, which we believe potentially could be a price premium as well. And then we have TAXUS Liberté. So our segmentation offerings for drug-eluting stents that we have in '13, '14, '15 going forward, as well as ICD is significantly difference than it was. You combine that with changes we're making to compensation structure and just a stronger muscle on pricing across the company. Hopefully, that will give you more confidence.

Matthew Taylor - Barclays Capital, Research Division

And I wanted to just understand if there have been any changes since you've taken the sole CEO role or if it's been more of a continuous change as you've joined the company? And what are some of the key areas that you brought something new to the table in terms of moving things in the new direction?

Michael F. Mahoney

I think a couple. One is I work very closely with Hank in partnership for -- I've been with the company for almost 18 months now. So we are going to be able [ph] to make significant changes throughout 2013 on our organizational structure. I outlined a lot of the -- 6 or 7 changes that we've made. So in terms of operating structure, in terms of our leadership team, we've had significant changes in our leadership team. We're very comfortable with the leaders that we have on the stage here and also the ones that aren't here, so we've made a number of changes there. I think you've seen us invest -- somebody asked a question about EP. The reality is we haven't performed that well in EP. And it's an incredibly strong market and one that we're sitting right next to with our CRM business. And so you've seen a stronger investment in our EP business with the acquisition of Rhythmia and also our investments in the EP business. And lastly, I'll just say, on globalization. I think most med device companies will seek [ph] globalization, but I think the actions that we're taking on the investments that we're making, not only in commercial capabilities but R&D and others, are pretty significant.

Unknown Executive


Jose T. Haresco - JMP Securities LLC, Research Division

Jose Haresco from JMP. I want to get a better handle on some of the longer-term estimates around the Sadra program, and I'm asking this in the context of the notion that you're launching a product into a competitive environment, it's getting worse. You're a fast follower, but you're -- that will be followed by second- and third-generation devices from other manufacturers that address some of the clinical aspects that Sadra does. So help us to frame that launch a little bit. How do you position it given that dynamic? What should we look for in kind of the longer-term data, and also the second- and perhaps even third-generation device that you have in the Sadra program?

Jeffrey D. Capello

Kevin, do you want to answer that?

Kevin Ballinger

I can start. I think the revenue we showed on the slide in the outer years -- I mean, we're still early in the program, so we need to acknowledge that. Keith talked about where we are in the clinical program. But I can tell you this: for physicians that have used Sadra that have also used -- and this is all of them, Edwards and CoreValve, until they actually have it in their hands, they don't quite realize how transformative it is. And I could give countless examples of physicians that have used the Lotus Valve, that have been heavy Edwards or CoreValve users that really do say, "Wow, this is above and beyond truly next-generation." So I would agree with you that the competitors obviously are not going to stand still. The market's developing as we speak. I think one of the -- in addition to the features -- and we can spend a lot of time on the features in the clinical data, but one of our strengths really is our presence with the intervention cardiologists. And it's really not about a single device necessarily anymore in this new health care system. It's really about this broad suite of technology that you can bring to a health care system. So I think, like I said, it's still early. The U.S. is still a ways away for us. We'll have a good signpost in Europe when we launch later this year. But we are confident, given our presence and what we know about the device thus far, that we can take significant share and be among the leaders in that space.

Keith D. Dawkins

I think the other issue is that many of the models are just looking at surgical rejects or surgical high risks. And that if you can crack aortic regurgitation, paravalvular leakage as what we think we have done, and you can have a device that you can place very accurately and predictably, you can then move down the spectrum and begin to tackle some of the surgical routine cases. Once you get into that group of patients, and obviously we need the clinical trial data to support that, that's a huge market.

Jose T. Haresco - JMP Securities LLC, Research Division

Follow-up for Joe on the S-ICD. I think one of the debates out there is that it has a lower gross margin. But in the accounts where you've seen pull through for the other products, can you talk about, one, what are they pulling through? Perhaps a little bit color on what exactly they are buying that they didn't buy before. And number two, what's the gross margin on that whole order?

Joseph M. Fitzgerald

So on the -- we're not going to get into the pricing and the particular gross margin with each S-ICD sale. We don't do that with any individual product line. The pull-through question -- and again this is a few dozen accounts that we've launched to in the United States, we have seen pull through across all 3 other core categories: transvenous ICDs, CRT-Ds and pacing. So that's early, but that's very encouraging to us. I think as well, just to follow-up on Mike and Jeff's comments on gross margins. Back to the earlier question, suffice it to say, when we are working on our NG3 [ph], our Galaxy program, a big component of that program is a substantial reduction in the cost to manufacture that product, same way on INGENIO 2 and Springboard. Same way on GEN 1.5 Cameron and GEN 2.0 Cameron. And that really wasn't always the case at Boston Scientific. We're chasing a feature war or a particular rush to market to get into a clinical. It's a commonplace sort of discussion that we're having in all of our product development discussions. So let me stop there and maybe you have a follow-up.

Unknown Executive

Okay, on behalf of Mike and the senior team leadership team, I'd like to thank you for your participation and attention over the last 4-plus hours. You're welcome to join us for lunch outside the room. Just as a reminder, the slides from today's meeting will be posted on our website within an hour of this meeting. Again, thank you for your interest in Boston Scientific. Have a great day.

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