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Boston Scientific Corporation (NYSE:BSX)

Citi 2013 Global Healthcare Conference

February 25, 2013 11:05 am ET

Executives

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

Michael Campbell

Analysts

Matthew J. Dodds - Citigroup Inc, Research Division

Matthew J. Dodds - Citigroup Inc, Research Division

[Audio Gap] Citigroup, and it is my pleasure to introduce, for our next session, Boston Scientific. We have Jeff Capello, who is the Chief Financial Officer; and also Michael Campbell, who is Vice President of Investor Relations.

Boston Scientific had the best start in large-cap med tech in 2013, up nearly 30%. It does look to me like the business is turning. It's been part of my thesis on the stock, and that was after a strong run at the end of last year. So a very, very good start to 2013. And they most recently just held their investor meeting. So Jeff is going to start off with a few slides, and then we'll turn over to Q&A.

Jeff, thank you.

Jeffrey D. Capello

Okay. Thanks, Matt. Good morning, everyone. I'd like to start off by thanking Matt and his team for giving us the opportunity to speak today to the audience. And I very much appreciate your interest in Boston Scientific.

Before I start, I need to cover a couple of required disclosures, though. Let me start with our Safe Harbor statement. Obviously, we're going to be sharing information with you this morning that contains judgments and estimates. Those revolve around a number of key factors. Those factors may or not turn out to be quite accurate, so we encourage you to look at our risk disclosures in our 10-Qs and 10-Ks, as with any other public investment.

To round out the rest of the disclosures, we will talk about products, some of which have not yet been approved for sale in the U.S. or aren't being sold in the U.S. at this point in time. So obviously, those revolve around certain regulatory filings and other commercial milestones which may or may not turn out to be quite accurate, so bear that in mind. Also, we'll have a number of non-GAAP measures in our presentation. Those will be fully reconciled on our website and will be available along with the presentation.

With those disclosures now out of the way, let me start with kind of an overview of Boston Scientific. As Matt has said, clearly a company in turnaround mode. This whole turnaround plan started about 3 years ago, so we're well into it now. 2013, we feel, is going to be a pivotal year for the company, a year where we return to growth and deliver a lot of shareholder value for our constituents. However, we do know that we're playing in a market that is challenging. There's no question about that. I'll address that in a minute in terms of some of the things we're doing to address those challenges. We have made significant changes to our execution and our performance. I'll highlight a few of those for you this morning. And we've got a clear strategy in a path toward accelerating revenue growth, which will accelerate our earnings growth.

We are a company that has consistently delivered very strong cash flow, and we intend to continue to do that. And we've got a very disciplined path and approach at allocating that capital back to shareholders, and we'll continue that as well. And we've got a new team, a new senior leadership team, focused on driving the business forward. So I think we're well positioned.

However, we're not being -- we're being very realistic about the market that we compete in. Clearly, there are some headwinds from a macro perspective. The affordability of health care, both in the mature, developed markets as well as the developing markets, is a challenge, and that brings pricing pressures. We've got the new medical device tax, which we think will cost us roughly $75 million in 2013. And certainly, there's some pressure with regard to winnowing down the number of suppliers as we look at our customers. We're doing a number of things in each of these areas to address those, which I'll talk about with you this morning.

Fortunately, from a tailwind perspective, we do have the benefit of favorable demographics. In fact, by the year 2013 -- 2030, excuse me, 13% of all people will be over the age 65, which is kind of our targeted patient population for many of our treatments. We do have emerging markets as a big point of growth for us. I'll touch on that as well. And we've got the benefits of having a very broad portfolio from a funneling [ph] perspective. So all told, certainly there are some headwinds, but we have a number of tailwinds as well that will help us.

If you look at our strategy in terms of how we expect to deal with some of these dynamics, our whole strategy is focused on delivering unique platforms that drive not only clinical value but economic value, and it revolves around 3 main thrusts, if you will.

The first one is around improving patient outcomes. So most of our devices have that as its principal goal: for example, our Asthmatx product, which treats severely asthmatic patients. This product has been proven to reduce hospitalizations -- emergency room hospitalizations in severely asthmatic patients by 84% and reduce severe asthma attacks by 32%. A good example of a technology that improves patient outcomes.

Second of all, reducing health care costs. Our battery lives in our ICDs last, on average, twice as long as the competition. That has a definite beneficial impact for payers and providers in terms of reducing the number of devices that have to go in.

And then finally, in terms of patient access to therapy, our revolutionary and exclusive S-ICD therapy prevents someone from having a lead placed in their heart. One of the largest costs to the ICD treatment is having complications due to leads in the heart, and our device avoids that.

So we've got a number of different -- these 3 different areas, a number of different examples that show how we address the headwinds that are happening in the market today.

If you look at our transformation, we realized at the company, 3 years ago, that our 2 largest end markets, the IC market and CRM market, were slowing. So we embarked on a program to kind of diversify -- to strengthen those markets, but also to diversify ourselves around and away from some of those markets from a revenue perspective. In 2012, we played in markets that were roughly $30 million, and we're basically flattish, down 1% or less. Over the next 5 years, we anticipate that the markets we play in will grow from $30 billion up to $40 billion, or by 1/3. Some of that growth will come from slight expansion in our existing markets based on better demographics, the aging population, and the growth of the international markets; some of that growth will come from our MedSurg businesses that have been consistently growing in the upper single digits; and then a large piece will come from the adjacencies that I'll talk about in a moment that we think can generate somewhere between $800 million and $1.2 billion of revenue for the company.

So clearly, we've made a number of interesting investments, from an R&D perspective and an acquisition perspective, to kind of better diversify the base and be able to play in larger markets that are growing. But we are cognizant of the fact that this change in the markets will not happen overnight. So in 2012, our end markets were down 1%. In 2013, we think that improves slightly as the year-over-year challenges in the CRM market completely anniversary through, and we think some contributions of adjacencies will put our end markets at roughly 1% growth in 2013.

The next 2 years, 2014 and 2015, on the strength of the growth of the international markets, particularly in the emerging markets, which I'll talk about in a moment, plus the favorable demographics and some easing in pricing will help our end markets get to roughly 2% growth in that '14-to-'15 time period. Then by '16 and '17, the final 2 years in the 5-year period, we'll have those improvements to the end markets, plus the growth of the 6 large adjacencies we've entered in the last 2 years will help average up the end markets' growth to roughly 4%. And with all the investments we are making from an R&D perspective and from a business development perspective, we think we're going to be very well positioned to grow north of that 4% within that time period.

The other benefit, from a revenue perspective, is balance to the portfolio. In 2012, roughly 60% of our revenue was concentrated in the IC/CRM space, and both those markets were down in kind of the low to mid single digits. The other 40% was in MedSurg and PI, which are growing in the upper single digits.

Our strategy revolves around strengthening our core and allowing ourselves to grow faster than the market in the core, which is the IC and CRM; continue to invest on an aggressive basis from an internal perspective R&D wise and business development to grow the MedSurg; and then developing the adjacencies. What we anticipate is going to happen over the next 5 years is: In the next 2 years, IC and CRM will grow for us but will become a smaller part of our portfolio, down to roughly 50%. MedSurg will stay similar, in the low 40s, but the adjacencies will become more meaningful. In the next 2 years, we expect to see a relative balance between the IC/CRM portfolio, which we expect to grow; MedSurg/PI, which will grow more quickly; and then the adjacencies to be roughly 13%. As I mentioned earlier, we think the adjacencies can be somewhere around $1 billion of our revenue base in 5 years, which is very encouraging.

But the revenue story is not the only story. There's also operational changes that we're making at the company to kind of drive the story forward. The first is around creating a global operating model. Historically, our businesses have been run very geographically constrained, with most of the R&D and the thought process happening in the U.S. and the sales entities just executing.

We've now put in place global incentives and global business leaders to run the businesses globally and make decisions to optimize the portfolio on a global basis. We've also brought in significant new talents in certain regions, namely Asia-Pacific, where we brought in a whole new local senior experienced leadership team. That's beginning to pay off. We've adapted our sales model in the U.S. and brought in stronger corporate sales talent to deal with the new economic buyers within the U.S. And we've also aligned the R&D infrastructure to be more productive and get things done more quickly, and we've leaned out the organization.

So these are some of the operational changes we made to drive faster revenue growth.

From a strategic perspective, we've narrowed down our imperatives to 5. The first one revolves around strengthening our execution to grow share. That's all around kind of our globalization efforts; our execution in the marketplace to deal with economic buyers; the portfolio and the strengthening of the portfolio, which I'll talk about in a moment, to name a few.

The second one is around expanding into high-growth adjacencies. 3 years ago, we started the transformation of the portfolio with the acquisition of Asthmatx. Then we did Sadra and the TAVR. We've done 10 acquisitions in the last 1.5 years, all designed to kind of diversify ourselves away from certain markets that weren't growing as quickly.

Global expansion was a key part of our focus 3 years ago. It's in -- a more important focus now. Our markets outside the U.S. are growing faster, and we've developed capabilities, and we've got a broad portfolio to maximize those capabilities.

From a revenue perspective, the first 3 address that. The fourth kind of is the funding mechanisms. We recognized a couple of years ago we had the opportunity to improve our profitability and to invest some of that into high-growth areas, and we're going to that. And then finally, developing key capabilities.

As you look at strengthening our core. So a couple of examples in terms of things we've done over the past couple of years. One is SYNERGY, our ultra-thin bioabsorbable polymer technology. It synchronizes the benefits of fully absorbable polymer with the benefit of the drug elution in 90 days. It's going to be the next-generation drug-eluting stent portfolio, and it hits the market -- it's already in the market in Europe, and we expect it in the U.S. in '16 or '17. We announced Promus PREMIER at the Investor Day, the next-generation drug-eluting stent that has an improvement in terms of strength and deliverability of the platform, all on the base of the leading everolimus drug platform. And then, of course, we did the BridgePoint acquisition, which is our Chronic Total Occlusion technology.

So if you look at where that leaves us relative to the IC portfolio, we've always been the market leader in IC, and we've been very strong in the standard PCI space. We've now strengthened our complex PCI with the addition of our coronary CTO acquisition.

With all the acquisitions we've done and the strengthening of the adjacencies, we've also added 4 high-growth adjacencies to position us as the clear partner of choice when you talk about cardiologists and who they want to deal with. But strengthening the core has not only been done on the IC side. We've also made a number of investments on the CRM side.

So you start with our next-generation ICD Progeny devices, which were released about 1.5 years ago; then you get into our INGENIO, our next-generation pacer devices, which is really the first new technology we've come out with in 10 years. So we've done a lot to kind of strengthen our core within ICDs and pacers.

Our acquisition of Cameron, which is the only S-ICD system where the lead does not go into the heart. It exists in the marketplace today, which is going extremely well. We then did an acquisition earlier -- late last year, Rhythmia Medical, which is a mapping ablation system in a couple billion dollar market, which positions us very well there.

You go on to WATCHMAN, which is our left atrial appendage closure device, which helps prevent stroke in AFib patients. We did that acquisition about 1.5 years ago. We just closed out our U.S. trial. We expect word from the FDA shortly in terms of that introduction in the U.S. And then, of course, we did the renal denervation.

So what this chart kind of demonstrates is we've done a lot in the last year, 1.5 years, to surround electrophysiologists and be their partner of choice in terms of their devices they use.

We also continued to strengthen the core as it relates to our MedSurg businesses: Endoscopy, Urology/Women's Health and Neuromodulation. A couple of examples here. You've got the transhepatic stent on the left side. It deals with biliary strictures and resolving those. You've got the Women's Health Genesys HTA that helps address abnormal uterine bleeding with -- in women. And then finally, our new Spectra advanced spinal cord stimulation device, which just got released. It is a 32-contact lead system, twice as many contacts as the closest competitor's. So we have not stopped innovating, and we have a leadership position in all of these MedSurg businesses.

If you think of the adjacencies in terms of the 10 acquisitions we've done. These are just 6 of them. Just let me tick through these very quickly. In the area of Asthmatx, I talked about the reduction in emergency room visits and severe asthma attacks for severe asthmatic patients. We think this technology, where we'll see 5-year data here mid-2013, is on the verge of really starting to grow for us as a business, has tremendous potential. And you get the left atrial appendage all around kind of preventing strokes in severely AFib patients. That, we've done very well in Europe, and we expect FDA approval end of this year, beginning of next year, and hit the U.S. market. Rhythmia is a bit market in terms of electrophysiology, mapping ablation. It has a lot of pull-through benefit relative to our catheters, our S-ICD devices, our ICD devices and our pacers.

And you've got hypertension. We did that deal early this year relative to Vessix. Second-generation technology all targeted towards the whole hypertension issue that exist in this market as well as other markets around the world. The TAVR product, which we did back in our Investor Day in 2010, addressed at a couple billion dollar market, we've just seen tremendous potential. Next-generation device, has a lot of potential for us. And then finally, in the area of deep brain stimulation, we're a market leader in spinal cord stimulation, #2 in the world, behind Medtronic. We're also on the verge of completing our study of deep brain stimulation, and expect to be in Europe this year, 2013, selling that device.

So all 6 of these are just 6 examples of the 10 things we've done in the last 1.5 years. Each individually has the capability of adding $100 million to $200 million in our revenue over the next 5 years, and it's a very exciting opportunity for us in terms of driving revenue forward.

In terms of expansion. The last thing I'll talk about from a revenue perspective is global expansion. Today, roughly half of our revenue comes from outside the U.S., but we are very small in emerging markets. Only 4% of our revenue today comes from emerging markets. Over the next 5 years, we expect to grow that percentage from 4% up to 10% by virtue of the fact that we've got a new seasoned experienced leadership team, we've got a broad portfolio, we've got a lot of products approved and we're running clinical trials to get more products approved. And these are large markets.

Today, the served markets in our areas are 2.4 billion. We expect those to double over the next 5 years. And the strategy is beginning to work. In the last 2 quarters, the third quarter and the fourth quarter of 2012, these -- this 4% of the revenue generated 100 basis points of revenue growth for the company. And we expect that to accelerate in 2013 and 2014.

Let me now move on to the "funding the journey" aspect. So we recognize as a company that we have significant opportunities to increase our profitability, and that opportunity comes in 2 forms. One is expanding gross margins where, over the past year, we've transitioned from an externally sourced drug-eluting stent to an internally manufactured drug-eluting stent. We have a very robust value improvement program to take out at least 6% of our standard costs every year. We do that pretty consistently. And we've got a lot of efforts around pricing. All of those contributions are expected to help us drive gross margin expansion over the next 5 years.

Similarly, but in the opposite direction, from an OpEx perspective, we have a number of programs in place. In fact, we announced, 3 years ago, an opportunity to take out $100 million to $200 million out of our corporate infrastructure and become more efficient. In 2011, we upscaled that to $225 million to $275 million. And then recently, at the end of January, when we released our fourth quarter results and our guidance for 2013, we increased our estimate relative to cost savings to close to $400 million, all on focusing on corporate infrastructure and other costs that we could -- we expect to make more efficient. There are also opportunities in R&D productivity and the corporate functions I spoke about.

So what does that look like in terms of operating margins? Well, we finished 2012 with 19% adjusted operating margins. We think, over the next 5 years, we can expand our operating margins by roughly 600 basis points. 400 basis points, we expect, will come from gross margin expansion. 200 basis points, we expect, will come from better managing our OpEx. And that 25% still is behind some of our competitors, and we don't intend to stop at 25%, as this is a significant opportunity for us to drive shareholder value.

The final component, in addition to revenue growth and margin expansion, which will lead to profitability, will be cash flow. As I mentioned at the beginning, this company has consistently delivered high cash flow through ups and downs, averaging at least $100 million per month of adjusted free cash flow, or roughly $1.2 billion per year. We estimate that, over the next 5 years, we expect to be able to grow that $1.2 billion a year in line with our growth of earnings and generate roughly $6.5 billion over that 5-year period.

We expect to use that capital very judiciously for acquisitions that help us get into new growth adjacencies and also bring in near-term revenue contributors. We also expect to have a balanced capital allocation strategy, and we've done that. Roughly 2 years ago, we put in place a $1 billion share repurchase program, and then, over the last 18 months, we bought back roughly 12% of the company. At the end of January, we had the board approve another $1 billion share repurchase program, and we intend to be out in the market on a regular basis buying back stock. We will remain conservative, however, because we still have some contingencies relative to legal and tax issues that we need to make sure we're conservative on. But we certainly have a lot of capital, from a cash flow perspective, to continue to invest in the business and drive shareholder value in a very balanced way.

So in summary, where does that leave us? So recently, we released our guidance for 2013. As I mentioned at the very beginning, we're in a turnaround, and we expect 2013 to be a very big year for us. We expect revenue growth of anywhere from down 2% to up 2% in 2013, and we encourage people to model the mid point. As a result of some transitions in BSX share in the U.S., we expect the first quarter to be slightly -- a lot lower than that. We had guidance of down 6% to down 2%, but we expect to grow in the back half of the year, driven by all the initiatives I spoke about this morning.

Our EPS guidance of $0.64 to $0.70, if we take the midpoint of $0.67 and you add back the $0.04 of medical device tax that's in the number in '13 and not in '12, represents high single-digit EPS growth for 2013, and we expect to generate at least $1.2 billion in free cash flow in 2013.

Moving to '14 and '15, we expect to grow in the low single digits, from a revenue perspective; improve our operating margins by about 100 basis points per year; and drive EPS growth that's at least mid single-digit to high single-digit growth and strong cash flow.

Moving to the last 2 years in the 5-year period, we expect revenue growth in the mid single digits, driven by the factors I described in a few of the slides. That will allow us to improve our operating margins more and drive over 100 basis points per year in expansion, which will allow for at least high single-digit, if not low double-digit EPS growth and even better cash flow.

So clearly, we're -- from where the stock stands today, a significant value-creation opportunity. As I mentioned, 2013 we expect to be a watershed year, with growth in the back half and furthering our path towards driving shareholder value.

With that, let me stop and invite Matt to go ahead and poll some questions for us. Matt?

Question-and-Answer Session

Matthew J. Dodds - Citigroup Inc, Research Division

Sure. Thanks, Jeff, so I'll ask a few and then the audience. Anyway, if anyone that wants a question, just to give me a break, just raise your hand. I'll get you. So we go back to the investor meeting and looking at the slides, looking at some other notes, it seems like the pivot point on people's views of the meeting was the margin expansion, the 600 basis points. And I -- and some of the commentary was, well, "Hadn't happened in the past, hadn't been able to deliver these kind of numbers, why now?" My sense is some of this is volume that -- when you're showing declining volume, it's hard to get margin. Is that a lot of it? Or is there incremental cost? I think you said maybe a point. There's a little bit with OEM manufacturing, but how much of it is just the volume in getting there?

Jeffrey D. Capello

Yes, yes, it's a fair question. In 2010, we laid out a program to expand our operating margins. What was different is -- and I think was different for all -- everybody in this sector is the end markets contracted more than we anticipated in CRM. We had more pricing pressure on the VF side. And therefore, we lost more volume than we anticipated in those businesses where we have the richest gross margins. So we had a volume impact and a mix impact that kind of worked against us. What's different going forward is the portfolio has never been better in terms of strength. And we feel -- and we think the end markets have gone through a bit of a turbulent period and have come out the other end of those. So if the end market can stabilize, which we've seen seeing signals that they have stabilized, and we can take share with our portfolio, we're going to see the reverse dynamic. We're going to be able to take share and grow our business in higher-margin businesses. And that'll drive some upside.

Matthew J. Dodds - Citigroup Inc, Research Division

And my other sense is that the spread, maybe, between the businesses isn't quite what it was 3 years ago, so the mix isn't as dramatic if one business grows faster than the other, that...

Jeffrey D. Capello

That's true. And the other dynamic to keep your eye on is we decided to move faster, so we've got more cost-reduction programs than we anticipated 2 years go. But the -- and 2 years ago, we had 2 or 3 high-growth adjacencies. We're now in 6 high-growth adjacencies. And if you put the S-ICD in, it's more of a core than a high-growth, there's 7 large areas that we're funding aggressively. So we're funding those things aggressively and showing pretty good cash flow and operating performance op. When those things start to kind of get more traction from a revenue perspective, which we expect will be kind of '14 and '15, then you'll see significant margin expansion. Because, right now, you see all the costs associated with finishing those products and funding the commercialization. As those mature, you're going to see the revenue benefit, which is going to drop through a very disproportionately high profitability level.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay, and just one more on the cost of goods. How much room is there to still squeeze suppliers? I mean, a lot a people talk about the ability to get your cost down going to emerging markets to get the actual components. I mean, is there still a lot left?

Jeffrey D. Capello

It's interesting. I -- we have a world-class manufacturing group that has consistently driven out 5% gross savings out of our cost of goods sold over the past 5 years. And it's also the same group that has allowed us to go from 17 plants down to 12. That group came to us in the planning cycle and said, "Not only do we see a path to 5%, we have to see path for 6%." And I wouldn't assume that we stop at 12 plants. 12 plants is still a lot of plants. So relative to our cost structure, we see ample opportunity to continue to kind of reduce our cost, be it negotiating with vendors for better purchase prices or reorganizing our manufacturing floors or becoming more efficient or reducing the number of plants, but there's ample opportunity to drive further costs down on the cost of goods sold.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. And then switching gears to SG&A. One of the dynamics here is you want to catch up in some of the emerging markets, and there's a spend there. My assumption is some of that will be offset by developed markets. Is it part of the reason is a head is less in emerging markets sort of a per-dollar basis than in developed markets, so you can still get down in the SG&A while you build out the business?

Jeffrey D. Capello

I mean, we've investing pretty aggressively over the past couple of years, disproportionately aggressively in the past couple of years. And as I mentioned in the prepared comments, we had 100 basis points' contribution: 4% of the business contributed 100 basis points of growth in the third and fourth quarters. So the OpEx spend in terms of the reps, the clinical programs, all the things we do, have all been in the P&L. You haven't seen the revenue. You're just beginning to see the revenue. So you're going to see the revenue take off. We will continue to invest, and you're right, if -- a head costs less in the emerging markets than it does in the developed markets. But we've also, the other side of the equation is that we've also taken out a lot of the cost in the more mature side of the market. So you'll see that as our portfolio strengthens and as we get to kind of parity and start to growth, you get the benefit of that leverage well.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. And then one last comment on the P&L structure. There seems to be some confusion on your tax rate long term and your ability to repatriate. Can you just explain the impact? I -- my impression is it has to do with the Guidant transaction, maybe the legacy component of that. How the repatriation will work for you over that long-term plan?

Jeffrey D. Capello

Sure, yes. So a lot of large companies are constrained in the sense that they produce more cash offshore than they do onshore. And because of tax reasons, if they were bringing that cash back, they would have to kind of increase their tax rate. By virtue of the way that we do the Guidant acquisition, we have significant intercompany notes that exist between the foreign entities and the domestic entities, which allows us to bring that cash without any impact to our tax rate. And those notes should last for at least the next couple of years. In the meantime, we're busy looking at our cost structure. We continue to kind of reduce costs in the U.S. and increase cost, but at a lower rate, outside the U.S. And that helps us to rebalance our cash flows and helps with that dynamic. And we also look at our tax structure going forward. So we've got at least a 2-year window where we can bring cash back without any impact to the tax rate, and we're working on solutions to kind of be able to further that, going forward.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. Then I'm going to ask one more, and I'll let the audience come. On Cardiac Rhythm Management. I'm using that broadly. Of the slides involving opportunities, I feel like the one at the investor meeting that was missed was the cardiac mapping and ablation. If you look at it, it was the biggest dollar market that was established. It's actually the biggest number in terms of sales you expect for 2017, this 350. Everything else was smaller. And I just -- it didn't seem to get a lot of attention. My take on this is that what you've been lacking is an advanced mapping system, is a navigation system, and then an irrigated catheter in the U.S. And it seems like both of those are on track for full launch in 2014. Is that roughly the ballpark? And then, even though you have these numbers for '17, that's really when you get in the game with having a much broader suite in the EP mapping ablation business?

Jeffrey D. Capello

Yes, I think most people don't realize, I mean, as you said accurately, that's a big market, and that's a growing market. And we've had roughly $150 million EP business that's been substandard. And in that market and in that business, we have a leadership position on some of the diagnostic catheters. 3 years ago, we supercharged our R&D investment in that area and we started to invest in the open irrigated space and some other strategic programs. that have allowed us to kind of get into some of those areas. And we're now into open irrigated in Europe and doing very well, but you're absolutely correct. And this is one of the areas that Mike has been adamant about, is We needed to get into mapping ablation to be true player in the electrophysiology space. And so the Rhythmia product allows us to get into those large-cap plants and really play in that space and really get close to an electrophysiologist with a product that's actually a significant improvement over what's in the market today. So if you partner that with our open irrigated, then we have an Afib trial, an AFlutter trial, we expect to get into the market some kind of late '14, early '15 with those products. We'll then have a complementary -- the diagnostic catheters, the therapeutic catheters, a mapping ablation system and a couple of other things we're doing strategically we have not been as forthright about for competitive reasons, but we think we're going to have really a true approach into the EP space. And if you marry that, that's why that kind of circle around the electrophysiologist is so important, because we've done so much to strengthen our offerings around EP. Having that strong mapping ablation technology with some catheters is really going to be a big part of the strategy.

Matthew J. Dodds - Citigroup Inc, Research Division

Are there any audience questions? I've got a few more. All right. Let me keep going, then. For the S-ICD, I don't want to minimize it highlighting cardiac mapping ablations, because I think it's a very novel product. The MADIT-RIT study was published. I was there. They looked very, very, I think, positive for the S-ICD. How does that kind of get out into the EP environment? I mean, how well known is it? What can you do to promote it to show the value of the S-ICD for a relatively broad patient population?

Jeffrey D. Capello

Yes, so for people that aren't familiar with the study: the study basically proved that less-sophisticated devices and more of a -- more time passes between treatment or shocking, that's very beneficial for the patients. And that's a big positive factor for our S-ICD technology which kind of has some of those characteristics. So we intend to be very aggressive in terms of marketing kind of that material in an appropriate way. And all I can say is, our S-ICDs, we can't make them fast enough. I mean, the market is...

Matthew J. Dodds - Citigroup Inc, Research Division

And you won't be until next year...

Jeffrey D. Capello

Exactly. That's -- our biggest challenge is product supply. And the encouraging thing that some people realize, some people don't realize, is our biggest challenge is some of these end markets kind of firming up and kind of getting back to 0. And one of the very encouraging things about the S-ICD is we believe that technology will allow us to grow the market. We think there are patients today that cannot get access to ICD therapy because they can't sustain a lead in their heart because they're too young and don't want a lead in their heart forever or they're too old and they can't sustain the lead or their anatomy is specialized that they can't have it. We're seeing a lot of examples with our devices so far where patients are getting treatment where they wouldn't have gotten the treatment before. And so that's hard to kind of -- we don't have enough data yet because of the supply issue, but when we get more data, we expect to be able to kind of come out with more specifics on exactly how big that could be. And that's pretty exciting for us.

Matthew J. Dodds - Citigroup Inc, Research Division

And I -- one of the interesting things at the investor meeting that I heard was that some patients are getting this device put in that don't have venous access, that would be candidates for single-chamber ICD and are actually choosing this device. That seems to me to be earlier than I expected for that type of patient.

Jeffrey D. Capello

Yes. No, it's all very encouraging. And once we get our supply chain on to kind of the parent company supply chain, we'll be able to move much more quickly in terms of sales.

Matthew J. Dodds - Citigroup Inc, Research Division

And there's no way to expend a little more to accelerate that?

Jeffrey D. Capello

We've looked at those areas.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. And then moving on, also on CRM. The multielectrode LV lead. Why has it taken so long to get one out in Europe? I mean, usually, the European approval process isn't that tough, it's getting all the reimbursement. But this product area has that. So what's taking...

Jeffrey D. Capello

Yes -- so I guess what's taken so long, so we expect to be in the market in the back half of '13 with the Quadpole device. I think the reason why we were kind of behind the competition relative to these devices is, and we've been very public about this, is our 2-pole device, we think, is as sensitive and as programmable as their 4-pole or Quadpole device. So it hadn't been as prioritized as highly in our kind of product -- higher tier in terms of products we were coming out with. Having said that, we expect to hit the European market in the second half of '13 and then shortly thereafter relative to the U.S. So we'll have the very -- and we'll have a device which we think will be an improvement over what's in the market today.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. And then shifting gears to Interventional Cardiology. You highlighted this, I think, more broadly in your BRIC comments. You definitely seem to have finally been gaining share in what I call "rest of world" in the stent market. So I feel like that was an effort. We need the infrastructure in place to start gaining share in those markets. And those markets are actually bigger than Western Europe and Japan, maybe even combined. So is that -- is -- have you primarily put the money in BRIC? Because you've talked a lot about BRIC. But a lot of other countries are pretty big in stents that aren't technically -- the emerging markets are not BRIC.

So have you yet -- is this still very early in kind of how far you push your infrastructure to get the share up? Is there a lot more room to go? And this is more specific to stents. I feel, that that's a big emerging market.

Jeffrey D. Capello

Yes. Well, I mean, I'll give you -- by measure of comparison, our market share in India and China is in the mid single digits compared to a market share that's in the mid 30s in the U.S. and very low 30s in Europe. And also it's 1/10 of what it is other -- in other areas of the world. And some of that is because part of the market in China is reserved for kind of the local players, but there's a large part that's still reserved for kind of the multinational foreign corporations. So there's a significant opportunity to expand our share. And one of the reasons why it's moved slower than we anticipated are approval of product and then price reimbursements, many of which occurred in 2012. So we started to pick up some steam in 2012. But we entered 2013 with a significant advantage relative to where we were before in terms of having the right products approved and being available to sell them. So in the back half of the year, kind of starting to prove that out, we are starting to get some serious traction relative to these emerging markets.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay, 2 more for me. I am big fan of Synergy and the concept of Synergy, but the next -- a lot of people believe the next generation is a fully bioabsorbable stent. Do you plan on looking in that area, doing something in that area? Or do you feel Synergy is the last obvious platform in a drug-eluting stent, at least in the near term?

Jeffrey D. Capello

Yes, well, I mean, we look at all the new technology, and we have people focused on that technology internally, and we look externally as well. So we watch the environment pretty carefully in terms of developments. It remains to be seen whether that technology will be broader than niche, and if it is a niche, how big is the niche. So as the market leader in Interventional Cardiology, we constantly have our eye on all new technologies.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. Then last one, in neuro. You briefly highlighted this in the investor meeting, but there wasn't a lot of color around it. You have a trial, I think, for CHF. I actually think it wasn't in neuro, it was -- might have been in the cardiac side of business, because it's heart failure. Where is that? And is that something maybe in 12 months we'll hear more about? It's the NECTAR-HF trial.

Michael Campbell

Yes, yes. Well, so we got -- the trial's about close to 100 patients, and we're a little over halfway done with that. And we expect to have primary endpoint data Q3 of '14.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay, perfect. All right, Jeff, thank you. Michael, thanks very much.

Michael Campbell

All right, thanks.

Jeffrey D. Capello

I appreciate it.

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