Volcano's CEO Hosts NASDAQ Analyst and Investor Day (Transcript)

Mar. 8.13 | About: Volcano Corporation (VOLC)

Volcano Corporation (NASDAQ:VOLC)

March 07, 2013 10:00 am ET


R. Scott Huennekens - Chief Executive Officer, President and Director

Joseph M. Burnett - Executive Vice President and General Manager of Functional Management Business Unit

David M. Sheehan - Chief Operating Officer

Neil Hattangadi - Vice President and General Manager of Peripheral Vascular Business Unit

Michel E. Lussier - President of Clinical and Scientific Affairs

Jonathan T. Hartmann - Vice President and General Manager of Forward Looking Ivus, Structural Heart & Impact Medical

Dale C. Flanders - Chairman of the Board, Chief Executive Officer, President and Chief Technology Officer

John T. Dahldorf - Chief Finance Officer and Principal Accounting Officer


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

Brooks E. West - Piper Jaffray Companies, Research Division

Raj Denhoy - Jefferies & Company, Inc., Research Division

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Danielle Antalffy - Leerink Swann LLC, Research Division

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

Ben Andrew - William Blair & Company L.L.C., Research Division

Ross W. Comeaux - JP Morgan Chase & Co, Research Division

Matthew Keeler - Crédit Suisse AG, Research Division

R. Scott Huennekens

Okay. So let's go ahead and get started. Thank you, all, very much for making the time today to come to Volcano's NASDAQ Analyst and Investor Day. Just a reminder of our Safe Harbor statement here, as well as our disclosures relative to presentations today containing information about products that don't have FDA approval and non-GAAP financial measures as well.

We've got an exciting day planned for you where we're going to cover Volcano's baseline business, as well as our pipeline of business, organized around me giving you opening. Joe Burnett, who runs our physiology business, will talk about our growth there, then we'll have Dave Sheehan and Neil Hattangadi talk about intravascular imaging, which includes both IVUS, as well as OCT, applications in coronary and peripheral. And then we'll talk about our pipeline, which includes forward-looking products, clinical studies that are going to drive applications and Axsun Medical.

So jumping right into things, if you look back at 2012, we're very proud of what we accomplished. We generated double-digit revenue growth in a challenging environment, continued our core business market share gains in every geography, that is every one of our geographies: Europe, U.S., Japan. We gained market share in intravascular imaging, as well as FFR. We produced FFR disposable revenue growth of 45% on a constant currency basis, continued to be a leader in innovation, bringing new technologies to the market, as well as hit our major milestones for the development of our new products in our pipeline. We're going to go into that in more detail today and show you where we're at and where things are at relative to launching and producing revenue. We also made 2 significant acquisitions of for us with Sync-Rx, which Dave will talk more about; and Crux, which Neil will talk more about. We also, as you know, had a significant success in our patent litigation with St. Jude, and we expect to have continuing success in that regard. We're also excited in April to shift our FIRST product from Costa Rica. We still have a lot more to be done. We're transferring more production volume to Costa Rica, and that will be a big effort for us this year, which will result in future gross margin improvement, which John will talk about.

We did all this in the face of a challenging environment. Some of these things are onetime things. Some are things that are going to be persistent in the marketplace. And we're going to talk today about how we're going to be able to grow at over 13% on a 5-year compound annual growth rate through these things. One of the things I really hope you walk away with today is a better understanding of the PCI market and the PCI market in 2 buckets: the stable coronary PCI market, which is declining; and the ACS portion of the market, which is growing. Overall total PCIs are down, but the ACS portion is growing. So we're going to talk about how a lot of our business today is in a stable portion, but as we grow, more and more of it is going to be in the growing portion of that market, the ACS portion. So both Dave in the IVI or intravascular imaging part and Michel in the clinical part will touch upon that. There are also constrained resources that you're well aware of for health care spending in the U.S., Europe and elsewhere. There are austerity constraints across Europe. We had reduced reimbursement, as well as the hit, relative to the yen in Japan, and we transitioned to direct in Spain, which was a major factor. On top of that, you have the cyclicality relative to the telecom business.

But as we sit here, we've been a public company since 2006. We've had a compound annual growth rate of 24%. The question I think a lot of you have is how is Volcano going to grow going forward, and today, it's all about that growth, all about showing you that we feel comfortable growing at over 13% on a compound annual growth rate over the next 5 years and we're going to show you how. Overall, our vision is to be a platform company for guiding and optimizing minimally invasive therapies, utilizing visualization, physiology and future technologies. Well, is that compelling? Is that interesting? What do I mean by that? So if you look up here historically, the world of medical devices is really based on the noninvasive market, the Philips, GE, Siemens of the world. And then these invasive therapeutic companies, the Medtronics, Covidiens, Boston, J&J, et cetera, where we saw an opportunity back when we founded Volcano, was really to build on the middle bucket and especially in the cardiac area and then growing from there, where we could take visualization and other physiologic parameters and do a better job of doing 3 things: deciding who really should be treated with better diagnostics invasively; determine how to treat somebody if they needed it; and then validate that you did the treatment well so there weren't long-term events associated with it. So, again, 3 things: before the procedure, during it and after it to optimize it, okay?

So is that a growing market? Is that a sizable market? When we started Volcano, that market was less than $300 million. This year, that market, which is comprised of all the areas on the right-hand slide here, will total over $1 billion market. You know our guidance of over $400 million, we are the major player in that market segment. And by looking at other analysts' reports, consulting reports, our own internal estimates, we project those markets to grow to over $2.5 billion, the actual market by 2021 to over $1.5 billion by 2017. That doesn't include the therapeutic products like Crux that we're involved in, just the diagnostic products that are listed there on the right-hand side. So it's an attractive market projected to grow at 11%. We're projecting to grow faster than that market.

Our winning growth strategy has 3 basic tenets: grow our base business; add onto that with our pipeline; supplement that, thirdly, with business model expansion through M&A. Let's talk about each of those individually. First is the base business. We expect our base business revenue growth between 2013 and '17 to be 11% to 13%. We're going to do that by expanding physiology, IVUS, OCT and our Axsun Industrial leadership, their innovation, also by expanding into new clinical indications to grow the market penetrations and market sizes and to continue to expand our direct distribution around the world. Those markets currently are greater than $700 million. The addressable markets are over $2.5 billion. So Joe on physiology and Dave on intravascular imaging will go into more detail about how we're going to accomplish that.

Next is our pipeline. We will continue to develop new products and markets from our existing technologies. These include Forward Looking IVUS; forward-looking ICE; OCT, both for coronary applications, as well as ophthalmology and others, which Dale Flanders, who heads our Axsun business, will talk about; Crux IVC filter; Sync-Rx; and as I mentioned, Dale with the Axsun Medical. Here, you have addressable markets of over $1.5 billion. These are going to push our revenue growth, we believe, to over 13%, okay?

And then the third, and I'll touch upon it more on a slide later in my presentation, is M&A. We will have targeted acquisitions that meet our Volcano-specific criteria, which I'll go into. Separate from this, we'll continue to invest like we've done in the past with things like CVI or Vessix Vascular, 2 things we had invested in the past that were both bought this year and partner. We'll look to build out therapeutic solutions in the areas around CTOs, which Jonathan Hartmann will talk about, peripherals and structural parts.

So that basically leads to this slide where our base business, as you see here, which comprised of physiology, imaging and Axsun Industrial, addressable markets, as I touched on, $2.5 billion, growth of 11% to 13%. On top of that, pipeline products: Crux; Structural Heart products, FL.ICE, Sync-Rx, Crux embolic protection; CTO products, FLIVUS, microcatheters therapy; OCT ophthalmology, addressable markets of $1.5 billion. These product categories will grow over 20% in this 5-year period that will supplement this 11% to 13% growth. And then the strategic expansion M&A had additional addressable markets and additional market growth -- or Volcano growth, I should say. So at the end of 2017, our vision is for Volcano to have a base business that's grown 11% to 13%, growth from the guidance this year to approximately $700 million in revenue, our pipeline to contribute over $100 million. So you have $800 million there through acquisitions. You could add a couple hundred million of additional revenue. Those could take place over time. And you end with a company that's doing over $1 billion in revenue, 11% to 13% growth, with operating leverage, which John will talk about in more detail. 8 verticals at that point in time per the last slide, all with $500-million-plus addressable markets, where we're #1 or #2, with very defensible positions in each market. And just as importantly, a decrease dependence on stable coronary PCI, which as I talked about in my earlier comments is a market that's probably likely to decline slightly, especially if we're talking about the U.S., Europe and Japan. That market does continue to grow in China and other Asia Pacific, Latin America and India countries. In our 5-year window, those don't significantly move the needle, although I think that as China and India mature in the relative number of stable coronary PCI procedures they have, they will start to adopt more the tools that Volcano has.

Okay. So I'm going to pause here. I want to make sure everybody understands this slide, this is probably the money slide of the day from my standpoint, and that is for you to understand what we're going to provide the detail for. That is 13% 5-year compound annual growth rate, with the base business at 11% to 13%, our pipeline adding to that to get you to 13% plus. The physiology business, which is part of that baseline, we're projecting market growth of 15% to 17%. That doesn't include new opportunities. That's for indications today, so that's upside to our model. And Joe will talk about that. And we're projecting Volcano growth at faster than the market, like we have been generating 5%, 7%, 8% faster than market growth at 20% plus. You're going to see that growth rate be higher in the near term of the 5 years, slower in the outer years, and that's just the law of larger numbers, okay? On the intravascular imaging business, that includes IVUS, OCT, FACT and our systems platform, we're assuming in the 11% to 13% growth that the market growth is going to be 3% to 4%. We expect 6% to 8%, but we're basing our 11% to 13% around the market growing 3% to 4%, okay? This is an important thing that I want to make sure you all understand. When Dave gets up here and talks about imaging, he's going to talk about the market growing 6% to 8%. To grow 6% to 8% and we grow at 6% to 8% or faster, that is upside in our model. We have in our 11% to 13% the Volcano's intravascular imaging is going to grow 3% to 4%, okay? So you're going to see that be lower in the near term than the 3% to 4%, but as we introduce OCT and FACT, that growth rate will increase as the ADAPT data gets out and starts to drive procedural growth in the ACS patient population, again, that part of the PCR market that's growing. You'll see more growth, and as the peripheral data gets out there more, we'll continue to not only grow at our current rates in the 15-plus percent rate but accelerate that growth. And Neil will talk about that. So higher growth in the near term on FM, lower than market growth on IVUS in the short term but balancing each other out as we move forward. Then the pipeline will push growth to greater than 13%. We'll go through the Crux, Synx-Rx, FLIVUS, OCT ophthalmology, FL.ICE and M&A during the presentations this morning, and the growth in those areas will be tied to the product introduction rates, okay? Take that one in. Everything will kind of build and support this slide.

All right. On the acquisition criteria, which we've got a lot of questions on post our convert rates, our general acquisition criteria are listed on the side here. The clinical or vertical areas that we'll look to do M&A are coronary, peripheral, Structural Heart and CTO that support our businesses there. We want to invest in companies for M&A that have over $500 million addressable market, that we view can be #1 or 2 in their markets by 2017, that create limited dilution. There might be 1-year dilution, second year not diluted, where we can leverage distribution, geography, manufacturing and G&A. They don't have to be coupled with imaging at this point. And we like things that are take-ins, not takeouts, and it is a strong team and culture that fits with Volcano as we move forward.

So 2 examples of those things for us, #1, are products that are beginning commercialization, so Crux would be an example of this. Crux has regulatory approval. The technology is done. There's no more R&D there. There's limited clinical risk. The data has been generated. So we're taking Crux into Volcano. We're qualifying it for our manufacturing. We're going to get manufacturing leverage, geographic distribution leverage and clinical leverage with its combination with the Volcano visualization technologies. The second opportunity or target type for us would be things that are ramping commercialization, companies that have $20 million, $30 million, $50 million in revenue and existing revenue base and growth of 20% or greater. They may have limited clinical indications, products only sold in peripheral. So they don't have distribution and coronary but they're applications in coronary. They may have limited distribution. It's only sold in Europe. They don't have Japan or U.S. distribution. Then they may have limited volumes, which make their manufacturing cost side, where we could put in into Costa Rica and create leverage. So they would be in a situation of high SG&A relative to sales in Volcano you would create leverage, okay?

So in finale here of my opening, why Volcano now? We are the precision guided therapy leader. In over $1 billion market, we are the 800-pound gorilla, so to speak, with over 40% of the market. We're providing solutions for the issues facing the health care system today, where you're really questioning should someone get a therapy, any proof for that therapy, and you need validation for reimbursement, legal concerns that you did a good job. That's what we call functional PCI. Our physiology and imaging business, we're the technology market share and innovation leader. We're rapidly growing our physiology business into a large underpenetrated market, which Joe will elaborate on. We're the global intravascular imaging market leader and growing share. So that base business has tremendous leverage across our multi-modality system, which I'll talk about next, with over 15 applications on 1 device. Our competitors have 1 to 2, possibly 3 on their device. So we have over 7,700 installed systems, over 250 sales reps directly around. The world's strong partnerships with the likes of GE, Siemens, Philips, Medtronic. We have a very rich pipeline of over $1.5 billion of addressable market that we'll talk about. And John will talk about the financial leverage that we're going to drive over this time period, with sales growth, operating expenses not growing as fast as sales, gross margin expanding and operating margin expansion as a result, okay?

So now on to kind of the meat of Volcano. And the reason I'm doing this first is one of the business unit leaders is -- this applies across all of our technologies. It's kind of like Android for the phone or it's like Microsoft Office, where you have Microsoft Office with Internet Explorer, Excel, PowerPoint, and that is our system infrastructure, our base system in the software that runs on it to allow all these different apps to run. So we draw great parallels to the mobile phone market or to the desktop market where we're trying to be at the center of that and have apps work on our platform. So we're 1 system, many solution. We want to be like Starbucks on everybody's corner. If we're that, we're going to have our disposables used. So we're committed to integration, expanding the number of applications that are on our platform, and today, we're driving to over 15 applications honored.

So how does that show up? It starts here at the systems. These systems, whether they're roll-around systems or integrated systems in the cath lab, they need to be there for the disposables sort. We have over 7,700 leverageable assets. We're generating or increasing that installed base about 1,000 units a year. Then we want to have all of these disposables, which represent over 80% of our revenue, run on those consoles. Then we want to further differentiate that by having state-of-the-art software, kind of Apple-ize the software, make it simple, fast and easy to use. So our technology, we want to be always there, always on, everything to work on everything and then make it really, really simple to use. We go to the fourth bucket now as well, and the fourth bucket is, when you're done, we want to be able to send that information out to anywhere you want it, whether it's your -- a patient's record, the quality records within the hospital, et cetera, the cloud relative to managing things remotely if you're a physician. So Volcano becomes very difficult to compete with. If you make a little bit better IVUS catheter, then you're going to be able to compete with this kind of solution. It's like saying, "I'm going to make Lotus 1-2-3 a little bit better than Excel." It's not going to work. You got to have PowerPoint. You have to have Internet Explorer, et cetera. So this is the differentiation we drive. So we're creating a cath lab where you -- of the future where you have all these pre-procedural information from offices, imaging centers, emergency department, which funnels in, and Sync-Rx helps us do that. This software, you can bring CT images, MRI images, et cetera, onto our software platform projected in the cath lab. We're like guidance central. You can project that to your IVUS images, your FFR images during the procedure.

So let's start with FFR. Joe will go into this in more detail. We're the only company with FFR, Flow CFR and iFR. Again, just like we were the only company with rotational IVUS and Phase III IVUS, coronary and peripheral catheters and it's driven us to 65% plus share in the U.S., we're going to do the same thing with FFR.

We have the broadest portfolio of imaging technologies and products that also work on the platform. IVUS technologies, OCT technologies, coronary, peripheral, special software like ChromaFlo and VH, forward-looking portfolios for CTO inside of vessels, forward-looking portfolio for imaging within the heart itself with FL.ICE, then our combination products where we'll sell our eyeball to third party to build on to their device, as well as develop product ourselves. Special software to co-register images with each other, with the sync software so we can do a better job with angio, with our angio-plus product, as well as co-register IVUS, OCT and other things like FFR in the future with co-registration, then as I mentioned, the electronic medical records aspects of things for reimbursement peer review, outcomes measurements. So in all, Volcano has a very unique platform that's leverageable out there in the field, that's very difficult to compete with this level. And that shows up in the numbers. If you look at the last 2 years in the U.S., Volcano has placed 835 systems; Boston, 63. We're winning 93% of new placements, 93%. So our disposables, as the installed base switches to us, continue to grow for the installed base type of numbers. So if you look out 5 years, you keep winning at 90%, you're going to have 90% of the disposables, as well as you go forward.

So in summary here, great markets, great growth. It's going to continue. We're winning and we'll continue to win. These guys are going to go into more detail, showing you how we're going to do that in each segment. So I'll transition over now to Joe Burnett, who heads our physiology business. Joe?

Joseph M. Burnett

Okay, thank you, Scott, and thank you for the invitation to speak here today. There's a lot of excitement around Volcano's physiology business and, in particular, FFR. So I'm here to really convince you as to why I'm excited about this very real opportunity. However, I think it's important for us to take a simple step back and examine what is it that we're trying to accomplish with physiology live in the cath lab.

Now the human heart is arguably the most complex, fascinating, high-performance engine on earth. And when our engine starts to lose performance, the role of a cardiologist is to fix it, to restore performance or to restore function. So I guess the question we need to ask ourselves is, how is it that we've cast ourselves with managing heart function when we don't even measure it during the cath lab procedure today? So to put it another way, the angiogram is very much like looking under the hood, where FFR or physiology is like taking that engine for a functional test drive, okay? I don't know about your expectations, but if my engine starts to lose performance, I drop it off and someone tells me that they fixed it, and then I later find out that they didn't bother to turn on the engine to properly diagnose it at the beginning, and they didn't take the engine for a test drive at the end of the procedure to confirm that they actually fixed it, I'll be a bit disappointed. In fact, I'd probably ask for my money back. And that is exactly what Medicare is doing today through the use of RAC audits [ph] for unnecessary spending. Medicare and the government is effectively asking for their money back.

So to put it quite simply, anatomy and physiology are 2 different things. We're talking about form versus function. And it's okay to have 2 different things; it's, in fact, very important. Now there's a number of different ways to measure anatomy. You can start with an angiogram, and you can improve on that angiogram with precise imaging tools like IVUS and OCT. There's a whole another group of tools, however, physiologic tools like FFR, CFR, iFR and other words and other tools that, again, tell you something very different, and different is good. It's great to be able to double-check all of those angiographic estimates with a completely different perspective or a different point of view in physiology. That's why in the ideal situation, patients would be exposed to both anatomy and physiology in their cases. But independent of what happens on an individual case, it is absolutely essential to have both physiology and anatomy measurements available on that same system because if you have the same system speaking the same language, you can build a large installed base, you have a reason to have your sales channel, not only in every cath lab, but also in every single procedure arguably and you can build up barriers for competitors that might be trying to copy your strategy when you've already built that large installed base.

So I think there's little doubt remaining today that FFR clearly add something to the angiogram. There are more than 14 different studies that show how FFR improves on the functional diagnosis of a patient over the angiogram. And that is why today, FFR is specifically called out in the practice guidelines around the world, and it's even specifically mentioned in today's U.S. appropriate use criteria. However, more important than the technical advantages of FFR over the angiogram is how perfectly aligned FFR is with the global concerns and needs of our health care system. Everyone around the world is trying to improve quality and, at the same time, reduce cost, and FFR is one of those rare technologies that can appeal to all 3 of our major customers: the patient, the provider and the payer. Now we have to ask ourselves some simple questions that they truly are fundamental questions, and FFR is one of the tools that can answer those. Does the patient need an intervention? Did the physician, in fact, deliver therapy properly and adequately? And finally, as a system, should we, in fact, be reimbursing and paying for the procedure because the benefits outweigh the risks? FFR is perfectly aligned with today's mantra of necessity, quality and documentation. And it's because FFR is so well-aligned with these needs that we believe our physiology business is going to be a very significant contributor to Volcano's overall growth story in the past 5 years -- or in the future 5 years, rather. This growth is going to take place essentially in 2 phases. The FIRST phase is that our existing base FFR market will grow between 15% and 17% annually, so from approximately $207 million today in 2012 to approximately $435 million by 2017. But importantly, this growth is going to come from current products and current clinical evidence. We're not waiting for something to accomplish this growth. We have the tools that we need today, and we need to focus our programs on guideline lobbying, education and tweaking the workflow physicians to make sure FFR is second nature. The second part of our growth plans is to introduce new technologies that drive the addressable market much, much larger over that same period of time. And now that we've established a large installed base of more than 6,000 FFR capable systems around the world, we also have more than 250 global clinical sales specialists, we have the perfect tools to be able to educate the market when these new indications and guidelines become available. So when successful, we believe that this strategy will add growth incremental to that 15% to 17% growth we see in the base FFR market.

Now if we take a look at the evidence that exists today, it's very, very compelling. In fact, you could argue that the diagnostic angiogram, where you drop a wire down the vessel and record the FFR, is the most evidence-based functional assessment that's possible today, both for the patient, as well as for the lesions. There are multiple randomized clinical trials that have been performed. We've achieved practice guidelines in Europe of 1A evidence and practice guidelines here in the United States of 2A evidence. Use of FFR can actually improve a hospital's quality score as recognized by the CathPCI Registry. And finally, FFR is specifically called out in the appropriate use criteria, where there are certain patients that can transform from an inappropriate PCI to an appropriate PCI simply based on that FFR measurement. So the story is very, very compelling for FFR in its current form.

Now if we try to understand how big is that base FFR opportunity today, it's best to look at the patients that it would service. The 2 primary situations of patients that will benefit from this tool is, #1, patients that show up in the cath lab today without any documented evidence of ischemia. So these are patients that are about to become a stent patient for life and everything that goes along with that, prolonged Plavix, risk of stent thrombosis, even increased insurance premiums in some cases. Before you make a patient a stent patient for life, it's nice to double-check your work with a different measurement like physiology. The second group of patients that benefit are those that, in fact, already have evidence of ischemia. So they've already had some form of noninvasive test that's been positive. However, they also have multivessel disease. So where that noninvasive test might give you regional information as to where the ischemia is coming from, FFR can give you lesion-specific information to help you prioritize where you need to place that stent.

Now if we try to translate that benefit into actual PCI volume so we can understand how many patients or how many procedures could benefit from FFR, it's important to look at 3 different buckets. Now the first bucket is one that is commonly overlooked. So these are patients that have stable coronary artery disease. They're scheduled to go into the cath lab for a routine PCI, and, in fact, they are FFR-negative. Now tools like the CathPCI Registry do not pick up on these patients because no stent is placed in these patients. They're viewed as a diagnostic angiogram in that effect. In reality, FAME II showed us that about 28% of those stable PCI patients, in fact, are diagnostic angios because they have a negative FFR. So if you translate that into a percentage of PCI volume, sort of the way we've described the opportunity in the past, that represents approximately 11% of PCI volumes are technically potential diagnostic angios where FFR would be used. In addition to that group, the CathPCI Registry tells us that 24% of patients that come into the cath lab today have no documented evidence of ischemia. Again, if you're going to make that stent patient a stent patient for life, why not spend 2 or 3 minutes to confirm ischemia with the readily available and very safe diagnostic test like FFR. That adds another 24% to the opportunity. The final bucket is, as we discussed, patients that do, in fact, have proven ischemia from a noninvasive test but also have multivessel disease, and we believe this takes place in about 50% of those patients that have a positive noninvasive exam. Here, FFR can again reduce the number of stents and prioritize which lesion should be treated first and hopefully measure -- do a functional assessment afterwards to see if that first stent is enough for that particular patient. So in aggregate, if you add up 3 -- these 3 buckets and use PCI as the denominator, this represents approximately 40% -- 44% of PCIs today that we feel make up the current addressable market.

So now to put that in perspective, if you look at the penetration that we have of FFR today, we are still significantly penetrated versus that 44% addressable market, and we are underserved in every single one of those major geographies. Arguably more important is that as we continue to grow the market 15% to 17% over those next 5 years, even in 2017, we are still going to be underpenetrated versus that 44% target, okay? We still have a significant amount of runway to go. Now importantly -- it's important for us all to recognize as well that there are significant other growth drivers that we have not incorporated into that 15% to 17% growth, different changes in the market, for example, elevation of U.S. guidelines to 1A evidence, coverage decisions by governments or private payers to actually require documented evidence of ischemia prior to reimbursement for a stent procedure, that's another positive growth factor, and also utilization of this new Japanese reimbursement code, which we have put modest utilization into our model, but there is a code that's less than 12 months old in Japan right now that reimburses hospitals for use of FFR during a diagnostic angiogram procedure and not just during a PCI procedure. If you combine that with public awareness around the impact and potential cost savings of this underutilized tool, then we believe that any one of these 4 drivers could expand the growth beyond that 15% to 17% that we're predicting.

So as Scott mentioned, we are going to continue to innovate. We are going to continue to introduce new products and provide physicians with choice. An example of this innovation is the fact that we have now launched 4 new coronary stenting [ph] guide wires in the past 4 years, which emphasizes that commitment to innovation. We have also taken significant market share in every major geography over that period of time as well. This combination of continuing to introduce new products and our 250-plus global sales specialists have helped us to build an installed base of more than 6,000 FM-capable systems, and we continue to add new systems each and every quarter. We believe that's going to allow us to continue to grow our current installed base, as well as protect that sales channel for years to come from other competitors that might come onto the horizon.

Now we talked a little bit about the stable coronary PCI market, which is dominated by FFR and supported by the evidence and guidelines today. The next chapter of the story is to talk about how we expand beyond stable coronary PCI, and there are effectively 2 major strategies that we're following at this point. The first one is to deliver a fast, simple and cost-effective tool that importantly fits today's angiographic workflow. So if you think about how an angiographic PCI procedure takes place today, a frontline guide wire is dropped down the vessel, they look at an angiogram, they determine if they're going to treat or not and then they place the stent or balloon over that same guide wire, remove the system, take one last angiographic photo and the very last step is they remove that frontline guide wire. So the guide wire is the first device in and the last device out. Our goal is to deliver a tool that is as close as possible to mimicking the workflow that physicians already use with angiography today without introducing additional catheters or additional costs. So that's the first part of our strategy. The second part is once we've delivered that tool that already fits into the workflow that physicians have adopted around the world, we want to prove that physiology is superior to angiography in each one of these multiple new indications. And we're going to use not just clinical evidence but economic evidence to prove that value.

So let's start by talking about a tool for today's workflow. Again, every PCI procedure starts and ends with that frontline guide wire, and as a reference point, there are more than 5 million interventions performed every single year that are based on using a frontline guide wire. This includes coronary, peripheral, neuro and some new expanding applications in renal denervation and Pavi [ph] as well. Now I sat up here 2 years ago, at the same exact event, and we presented 5 requirements of our technology that will allow us to mimic that frontline angiographic workflow. Over the past 4 years, we've launched 4 new products that we believe have been accessible in addressing 3 of those 5 barriers. And we believe here in 2013, we're going to introduce 2 new tools, which will address those final remaining 2 barriers.

Now when you talk to a physician about their expectations of a frontline coronary guide wire, they'll talk about a few key elements. They'll talk about the durability of the wires, they'll talk about the support that's required to be able to deliver stents and balloons over that device and they'll also talk about the reliability and the fact that it cannot kink so that you can use those same guide wires in longer procedures, sometimes 30 to 45 minutes.

Our next-generation wire, which will effectively be our fifth new wire that we've launched in 5 years, is designed to specifically address that issue of durability and support. We've designed a new proximal end of our wire connector that is flexible enough so that you do not lose or deteriorate the signal as you deliver stents and balloons over it. And we've also designed a new connector handle that hops on and off the guide wire, very similar to the way you put a device on in a desired workflow for a PCI. Well, this will allow physicians to quickly disconnect and reconnect the wire and make measurements not just at the beginning but throughout the PCI procedure as well. So you're effectively monitoring the physiology and not just measuring it there at the beginning.

This year, we will also introduce a new tool called iFR or the instantaneous wave-free ratio. iFR is a proprietary Volcano algorithm that will represent a new modality on our current installed base of Volcano s5 and s5 systems. Now iFR is designed to pull as much physiologic information as possible out of that resting pressure gradient to help you diagnose that patient before having to introduce a powerful drug like adenosine into the patient. An analogy here will be how often can you diagnose the problem with an engine by simply turning on the engine and then driving it around under normal driving conditions? It's not every single case where you have to floor it at 200 miles an hour with a drug like adenosine to be able to get the information you need to guide a PCI procedure. Now we believe iFR will open some new opportunities in additional, in addition to where FFR has really established itself today by reducing procedure time and costs, by helping make complex multivessel disease a little bit more practical based on the time savings and simplicity. And we believe it will also help us bridge into acute coronary syndrome or ACS patients where if you talk to physicians, they're a little bit more reluctant to take the extra time and inject adenosine in patients that have a little bit more acute presentation.

We have now performed our first live human case of iFR. We did it at Hammersmith Hospital, Imperial College in London about 4 weeks ago. We have since expanded the iFR installed base to approximately 10 systems across Europe, and we've now performed our first 100 cases. Now the exciting thing about this technology, having seen a number of the cases myself, is to understand how physicians use this tool without being prompted by anyone at Volcano. Because you don't have to introduce the prime or the complexity of repeatedly injecting adenosine into the patient, physicians are asking to take measurements throughout the procedure, not just at the very beginning, not just in a single vessel, but in multiple vessels, and also measuring the iFR after each therapeutic introduction. So, for example, they would measure the iFR at the beginning of the vessel, they would introduce the stent, hold the stent catheter out and then simply push the button. You only have to wait about 5 seconds or 5 heartbeats to get that iFR measurement, and you can see the functional improvement that, that stent has just made on the patient. Again, if we can deliver this over a frontline guide wire, we have the opportunity to change some of these practice patterns. In addition, another sort of reaffirming part of our vision is the fact that during these first 100 cases, physicians are routinely delivering stents and balloons over this guide wire, showing that our current guide wire with Prestige PLUS is, in fact, capable of serving as a frontline guide wire in many places, in many situations. Again, that's a strong and an important part of our vision because we want you to be able to monitor that physiology throughout an entire 30- or 45-minute case and not have to exchange wires during that procedure.

So now that we're on the precipice of -- in 2013 of delivering these new tools that can be used and fit a current angiographic workflow, we're going to focus our clinical efforts, as Michel will touch on, on proving how physiology is superior to angiography in a number of new indications. Now we already understand the role and the value of FFR in physiology, in coronary stable PCI. The next step for us will be to expand into ACS patients where there is sort of incomplete but very promising initial data for physiology and ACS. And you might not be aware of this, but in the original FAME study, 30% of the patients in the same trial were, in fact, categorized as ACS patients and they saw and experienced the same clinical and economic benefit that the stable patients receive. It's just simply not in the guidelines yet, and there's more work for us to do clinically. We believe that there is a role in physiology for ACS patients to help properly diagnose unstable angina patients and also help us to diagnose the non-culprit lesions in patients that are presenting with acute myocardial infarction, either STEMI or non-STEMI. So there's a very large proportion of the ACS patient population that would benefit from a functional assessment while you have access to the patient, and they're right there on the table.

Beyond that, there are a number of diagnostic angiograms that are performed immediately before bypass surgery. There is, again, initial compelling data that shows FFR and physiology is capable of predicting which bypass graft will, in fact, close down or fail within the first 12 months. Our role would be to provide a functional map for a surgeon before and during that diagnostic angiogram that allows physicians to determine which vessels are, in fact, going to graft the bypass and, importantly, where to locate the anastomosis or where to attach the graft as well. This is a market that we, in fact, need to develop and start collecting the data on.

And then many of those same limitations for the angiogram and the coronary anatomy exist in the peripheral anatomy as well, where angiography provides an estimate and having a frontline peripheral guide wire that's capable of measuring pressure or flow can add to the detail that's provided. An example of this would be limb salvage in patients with peripheral artery disease below the knee. Today, our goal in treating these patients is to restore flow to the distal extremities, but the reality is, during the cath lab procedure, we don't do anything today to actually measure or monitor flow. We simply look at an angiogram. Having a frontline wire that can give you that real-time feedback is an important part of our peripheral strategy, which Neil will talk about as well.

So if you combine all of these different applications together, we feel the future addressable market can represent more than 1 million procedures in the U.S. alone and can represent by 2017 more than 4 million procedures worldwide that would benefit from a frontline wire that allows you to monitor physiology throughout a procedure. As we develop these new indications and collect this new clinical evidence, we believe that we have that perfect machine of more than 6,000 systems installed around the world and more than 250 clinical experts out there that can educate the market and change some of these practice patterns with a new attractive tool.

So to put that in perspective, this is the slide that Scott showed you earlier. We believe that physiology, as it exists today, will continue to grow to approximately a $650 million market over the next 10 years. However, if we're successful in executing on our vision and developing a tool that allows you to monitor physiology throughout a procedure and that becomes the standard of care, we believe the opportunity is significantly greater. It could be a $2 billion market just for physiology alone, and that would push Volcano's total overall market that we participate in to more than $4 billion.

So in summary, we believe that physiology and FFR will grow -- that market will grow 15% to 17% over the next 5 years, and importantly, this is based on current products and current clinical evidence. We believe that there are more than 5 million interventional procedures between coronary, peripheral, neuro and others, where an interventional frontline guide wire is used to guide a therapy, and an additional 5 million diagnostic angiograms, where you already have a patient on the table, you've already done a cutdown and you've already inserted a guide catheter. The only difference that we're talking about is simply dropping a frontline wire down into that vessel. These are very large and relatively underpenetrated opportunities. We know that we have the team and the technology in place today that will allow us to bridge the gap between a physician's expectations of a frontline mechanical wire and our expectations of a high-performance Volcano sensing wire, a more intelligent wire. Our recent investment and continuing investment in clinical research will prove the clinical and economic value in these new indications, and we believe that we will execute on this very credible opportunity to make physiology the standard of care in interventional-based therapies.

With that, I thank you for your time. And I'll now introduce Mr. David Sheehan, who's our Chief Operating Officer, and he's going to talk a bit about our intravascular imaging business. Thanks.

David M. Sheehan

Thanks, Joe. I'm David Sheehan, the Chief Operating Officer for Volcano. We're going to talk today about intravascular imaging, this is the business unit that I'm responsible for, and how we're going to continue to grow and maintain our share and leadership in intravascular imaging. This is actually an exciting time for IVI, and my sense is, when I'm done, you'll feel the same.

We look at intravascular imaging as encompassing coronary and peripheral IVUS, OCT and systems. These markets are large and well-established and continue to grow because they change outcome for the physicians that use them. With years of clinical publications and some recent released articles, the evidence continues to mount that you cannot count on angio alone to guide an intervention. Volcano has a unique position with the largest installed base, the broadest product portfolio and share leadership in every major market we sell in, and we continue to expand that share leadership. Most important, as we look ahead, we have a set of new products coming out that we believe extend our leadership, remove barriers and reinforce that Volcano offers choice as the right tool for the clinical need. And all of this on 1 system.

As Scott said in his opening, our top line 5-year growth is 11% to 13%, and that is based on a model of IVI growing at 3% to 4%. However, we believe intravascular imaging is a very attractive market that can grow 6% to 8% and achieve $700 million over the next 5 years, driven primarily by growth in high-resolution imaging, in which we will have the broadest portfolio and we see 30-plus-percent growth, and peripheral imaging, which would be driven by phased array technology, which is unique to Volcano and we see growing 20-plus percent. In addition, our 3% to 4% plan for IVI has us growing at market rates, but our expectation is Volcano will continue to grow faster than the market, with higher growth in the 3- to 5-year planning horizon as both OCT and FACT come into the marketplace.

So before I get into how we'll continue to grow and maintain our leadership in IVI, it's probably worthwhile to step back and look at the changes with our customers. These are putting pressures on PCIs and also on stenting, and it's more importantly putting pressure to improve the quality of a therapy which, hence, will drive the use of our products. We have lawyers, legislators, payers and patients all trying to force hospitals and doctors to change by hitting them in the pocketbook and further compressing hospital margins. Medical necessity, overstenting lawsuits, RAC audits, payer quality metrics, reimbursement cuts are all putting the pressure on the hospital. Hospital CFOs and cath lab directors are looking for how they can improve quality, reduce readmission rates and improve the quality of their PCI.

Volcano's unique answer is functional PCI, FFR to decide, IVUS to guide, and the outcomes are proving that out. I want to give you a typical example. Here's a case study about a large southwestern hospital system. This is an example of how functional PCI can change and what it can accomplish for a hospital. This is a pioneer accountable care organization, and through collaborating with their doctors, they were able to implement policy guidelines to use FFR to establish and document evidence of ischemia and IVUS to guide these interventions. They were able to minimize their 30-day readmission rate, and the results were dramatic: supply cost savings of $600,000-plus and a 9% reduction in readmissions. Most importantly, they also had no penalties during this period. Volcano is actively working to get this message out through summits and roundtables around the U.S.

So now we know the use of IVUS to guide is having a powerful impact in spite of PCI pressure. Volcano will accelerate the adoption of IVI through 5 key focus areas: clinical evidence through adapt data for complex lesions and continuing to educate on the already published data for left mains and bifurcation indications; increasing access to IVI in the cath lab and beyond and by continuing to place integrated, multi-modality systems; shortening time for each procedure through integration and co-registration; and impacting financial to the hospitals by reducing 30-day readmission rates and driving complications down; and finally, improving interpretation through proliferation of high-resolution imaging and co-registration and the benefits of this technology.

So let's start with clinical evidence. ADAPT-DES study, for us, this is quite simply the most significant imaging study ever. There were 8,500 patients, and it was an all-comer study with nearly half ACS -- more than half ACS. There were over 60 physicians participating across the U.S. and Europe, so this was not biased by any single institution. IVUS changed the course of therapy 75% of the time. This was primarily longer and more appropriately placed stents. And perhaps, in terms of -- most significantly in terms of outcomes, it reduced MI by 33% and stent thrombosis by 50% in a patient population that had 40% more STEMI. So this was a sicker population, and IVUS -- through IVUS intervention, the outcomes were better. So the overwhelming story is that the sicker the patient, the better the outcome. This is more support for use of IVUS in MIs, and future publications of the patient subsets open up the potential for more support for use of IVUS in ACS.

So let's dig a little deeper on ACS. ACS are the sickest patients. This includes MIs and unstable angina. The ACS population is expected to grow, while PCIs are going to shrink. Our current penetration of IVI in ACS is relatively low based on the current evidence, but we expect that this will continue to expand. And with the ADAPT data later this year, this publication will come out. It will support the use of IVUS in ACS patients and allow us to tap -- further tap this $1 billion market. So existing evidence for IVUS usage is compelling, both in left mains and bifurcations. The ADAPT data will be added to this formidable amount of evidence. For left mains, the 3-year survival rate is for -- untreated is less than 50% for patients with greater than a 50% stenosis. Left main is commonly misdiagnosed over 50% of the time, and it's a high mortality rate, also known as the widow-maker. It has class 2A level evidence -- level of evidence b in the ACC guidelines. So it's established as a clinical tool. The opportunity is 5% to 7% of PCIs or over 200,000 worldwide procedures. Importantly, OCT is not a tool to be used in left mains, it's not indicated. Bifurcations are routinely -- the MACE is routinely greater than 10% at 12 months. And recently seen published a great article, 42% less death, 71% lower MI and no stent thrombosis in the IVUS bifurcation group. So that's approximately 20% of all cases worldwide and around 640,000 procedures. So the evidence is compelling for the use of IVUS in these 2 clinical indications. So we approach the left main and bifurcation markets with the broadest portfolio, with both phased array and coronary imaging catheters. These catheters are custom-tailored for both coronary and peripheral applications. We also have an advanced software -- set of advanced software features, and all of these run on our multi-modality system.

We are now #1 imaging leader in all markets. With our current portfolio and our current organization, we've been able to not only establish share leadership but continue to take share. We're also winning the landgrab in the U.S. We have placed 93% of new placements and our success rate continues in the U.S. Our focus has been on integrated Cath Labs, which we defined as systems that are hardwired in the Cath Lab. With that approach, we're now to 75% integrated. This is very important because it allows access for the physician. It's one less thing they need to worry about. The system is always there and always on. Our installed base of 7,700 worldwide systems is unmatched and creates a railroad by which we can bring new modalities in without the challenges of placing new consoles.

So we're going to sustain that systems leadership with the release this year of our core platform. This is a platform that has both integrated and mobile capabilities. We'll continue to support all of our new modalities plus our advanced features like co-registration and FACT. This product will facilitate us to our new bedside controller and other future planned releases. We know making our products easier and faster will remove another barrier to use. The Innova study which was published shows that it was 3.5 minutes to use an integrated -- use IVUS on an integrated system. This allows the physician to get the information quickly. It's fewer views, less contrast, less radiation and more answers. We also continue to support our partnerships with all of the big iron manufacturers.

One of the exciting opportunities we see is Sync-Rx in addressing some unique markets there. Sync is our co-registration software. It registers the intravascular imaging with angio and also stabilizes the angio image. This software will allow us to eventually co-register all our all modalities including IVUS, OCT, FACT and FM and it's a significant competitive advantage that will increase the utilization of our disposals. This will now bring X-ray into the Volcano system which will be unique to Volcano and allow the user interface to be with, and the relationship to be with Volcano.

We have 2 initial products that we're going to release, angio PLUS, which will stabilize the image, the angio image; and IVI co-registration, which will co-register the 2 images together. That's going to be submitted in third quarter of 2013. This is a $300 million market, and that is just in hardware sales. So it doesn't count the impact of the disposal sales.

So let me step back and explain the need. Right now the physician has islands of clinical information, an angio that shows kind of a roadmap of what's going on and then an IVUS image. What they have to do is take those 2 pieces of information and not only co-register, interpret them and then decide the therapy based on it. So the co-registration is really happening in their head. What Volcano has done is take those 2 images and bring them together on one platform and created a three-way association. So not only can you see where you are on the angio roadmap, the specific IVUS slice, but you can also scroll back and forth realtime and all the images update. This allows you to place, decide where you're going to intervene, simulate that and then make sure that you're stenting healthy to healthy and covering the suspect lesion. We believe this will improve the quality of care.

This will also allow Volcano to become the focal point of the Cath Lab. This is critical. Now the relationship with the physician is going to be with the Volcano system. We deliver that information and it's going to be more actionable. It's going to be something they can look at and make a decision quickly so it's going to speed time. It's a packet of information that can be used post procedural as documentation and support for the intervention and it's a unified user experience. This will also increase the consumption of our modalities.

So we said before that high res was a significant driver for intravascular imaging, and Volcano will have the broadest and most complete offering in this space. First fact, this is a product that will have sub-50 micron actual resolution and really comparable to OCT. It will allow really high-quality near-field imaging and far-field imaging. So we have several activities to get to commercialization and this will be a $2 billion market, addressable market. And we expect this product to be released in 2014.

We also have OCT. So now we have the broadest -- with the launch of OCT we'll have the broadest high resolution imaging platform out there, both a high resolution sound base technology and a high resolution light base technology. We expect to be the only company with that offering. This allows sub-50 micron resolution so very high quality imaging and visualization of different layers within the tissue. We also just completed our first successful animal trial with our end to end, first end-to-end OCT system and that addresses a huge market, a $500 million addressable market.

So stepping back and you look at this, we have the broadest product portfolio in intravascular imaging. Whether phased array which is unique and perfectly tailored for our peripheral applications, or a rotational with Revo and FACT, we have a broad range of resolutions of catheter sizes and deliverability. We're the only company with this broad a solution and we offer choice for the physicians. All of these will function on our multi-modality system and we believe this is going to be an impressive lineup in the future.

So why will we win? We've got a proven team. We've been capturing, growing share leadership in every geography. We've built in servicing the largest multi-modality installed base, over 7,700 systems worldwide. We are innovation-based, that's what allowed us to obtain our share leadership. We have the broadest portfolio and a game-changing pipeline, with FACT and OCT. This gives more choice to the physician. Now with co-registered angio and intravascular imaging, it's going to revolutionize the user experience. And we have a new core console so maintain our systems leadership, expand and offer more modalities on that platform and advance features and therapy guidance focus. We give physicians more choice to use the best diagnostic tool for the clinical indication or anatomy. Physician therapy depends on better diagnostics supported by clinical research.

In summary, IVI, we're excited about IVI. It's a $500 million market that we see growing to $700 million, that's 6% to 8% growth but our plan is based on 3% to 4% growth. And as I said in the beginning, that's on us growing at the same rate as the market. Market and hospital pressure means demand for better guidance and proof. As Joe talked about, FFR to decide, IVUS to guide. Angio alone is not enough. We have several key growth levers that are going to help us with intravascular imaging. Strong clinical evidence already exists for left main and bifurcations, around 20% of all cases. So there's an opportunity to continue to educate physicians on that evidence.

ACS, it's an under-penetrated $1 billion market opportunity with new clinical evidence coming. And peripheral, under-penetrated clinical applications with existing needs. We see that market growing to $170 million and Neil is going to talk more about it. And new technologies, we make it easier for the physicians to use our technologies. It's going to increase the penetration of the modality and also our share. FACT, OCT and Sync-Rx co-registration.

I'm going to turn it over to Neil now. Thank you.

Neil Hattangadi

Great. Thanks a lot, Dave. I'm Neil Hattangadi, General Manager of our Peripheral Vascular Division. Great to be here in New York and seeing old friends. So Volcano's on a very interesting trajectory right now. A strategic expansion along 2 completely independent dimensions. So the horizontal axis here, Volcano's undergoing a transformation where historically we've gone into Cath Labs and sold only diagnostic catheters. But we really have the capability to not just sell diagnostics but sell therapeutics as well, and we've got a great sales force that historically has had a therapeutic background. So we have this immediate sales force leverage where instead of selling 1 or 2 products at ASP of $900,000, we're now selling an incremental therapeutic at another ASP that's quite a bit higher than that often.

And then as we progress along this axis, we start taking that diagnostic element and putting it directly on to a therapeutic product and integrating, improving workflow and really changing the game around how physicians treat disease. The other expansion we're doing is on the vertical here, going from coronaries to non-coronaries, and it's really following our customers. A number of our cardiologists are seeing PCI volumes decline, they're doing peripheral arterial procedures, they're doing venous procedures so it's really the same call point that we're going into leverage. The other part of this is as we've dug into the past few years, our clinical value that we bring with our tools is as great or sometimes higher in these non-coronary applications. I'm going to talk a lot about that today. And because of this growth opportunity, 2-dimensional growth opportunity, we created a peripheral vascular business unit in the fourth quarter of last year.

We've been growing in these areas over the past 3, 4 years globally but it's been somewhat an uncoordinated effort, not fully resourced. We've still been growing kind of mid to high teens, but we made a strategic decision with our board last year to organize this, put dedicated resources into it and that's why we formed this business unit that we'll talk about today. So what are the peripheral vascular applications? This is it, kind of head to toe and essentially we play in all of these today to some degree. So it's neuro vascular, corroded arteries, structural heart. Jonathan Hartmann will talk more about that. On the lower left, we've got venous application, so IVC filter placement, baby fistulas for fistulas and grafts for dialysis, iliac vein compression which is new to many people because this is actually a broad class of venous outflow disorders. They're closely related to DVTs and superficial venous reflex disease. I'll talk quite a bit more about vein compression coming up.

On the right side, our arterial applications so TEVAR and EVAR, endograft, aortic aneurysm repair, renal arteries, iliac arteries, SFA, which is a very big market and then below the knee, popliteal tibial arteries. So as I mentioned we do have a play in all of these. Neurovascular for us is still investigational. But the main 5 that we're going after are here in bold. So IVC filters, fistulas, vein compression, EVAR, TEVAR and SFA. And the reason for that is these markets are large, they're growing and most importantly, we have clinical and economic evidence for IVUS and to some degree FFR in these applications.

So when we think this is the aggregate of these opportunities that I showed you on the last slide, globally we're talking about 3.1 million procedures. We're only 2% penetrated today, so incredibly under-penetrated. Our market share is greater than 75% though, and that's because of 2 reasons. The first is we're the only ones that offer phased array technology. Phased array is plug-and-play. It's easy to use so when you talk about peripheral usage where time is of the essence, these cases get churned, phased array is super important. You also can't really use OCT because you constantly have to flush the vessel so there's a big ease-of-use advantage that we have. The second advantage is that our catheters have the largest imaging diameters compared to our peers. So often we're talking about larger vessels in the peripherals than we are in coronary, that's the second reason why we've got really great high market share.

So revenues in 2012, we aggregate our products, we think it's around $50 million in 2012. So fast forward to 2017, there's 3.1 million procedure volumes growing to 4.6 million, this is a composite CAGR of 8%. So if we just keep our penetration as it is, this business would grow 8%. We think that, however, our penetration is going to increase going from 2% to 6% to 8%, a combination of both diagnostics and therapeutics. Our market share we expect to stay north of 75% and if we do these things, our revenue in peripheral will grow from $50 million to somewhere between $200 million and $250 million by 2017.

So if you take that $200 million to $250 million, it breaks out to about $125 million in diagnostics and that's growing at a 17% to 22% CAGR. But as Scott mentioned, we've got a forecast of 11% to 13% overall Volcano top line. When we build that model, we only take into account our peripheral business growing 12% to 14% which is well under what we've done historically, It's well under what we think we can do prospectively. The other part of that $200 million to $250 million is the therapeutics in combo devices, which we think will be somewhere between $75 million and $125 million in 5 years. Most of that is Crux and the Crux combo filter which I'll also talk about as well.

So what are our peripheral products? Starting in the top left here, the bulk of what we sell in peripheral are peripheral IVUS catheters, the phased array products that I mentioned. Going clockwise, the physiology guide wires. So these guide wires are mostly used in renal arteries to measure pressures, they're used in the SFA to some extent in below the knee vessels as Joe mentioned in critical limb ischemia. They're also used somewhat in neuro on investigational basis. Hardware is another part of our peripheral offering. It's very important here because we're very under-penetrated in peripherals. They prefer the cart typically because they're sometimes physician office labs so they're moving them between labs but it's a really new capital console sales for us where we're grossly under-penetrated.

We've got therapeutic products so we currently sell a product called the AngioScore, the angio scope which is a balloon that's got scoring elements on it. We sell it into the peripheral arterial and AV fistula markets in Japan. We've got a Crux IVC filter, as well as a Crux retrieval kit. And then finally, in the bottom left here, we've got combination products, some that we do ourselves, some that we do with OEMs. And what you'll see from us is a tendency with these combo products to increasingly do them ourselves. So historically it's been attractive for us to sell a tadpole with the Intel Inside or the QUALCOMM inside to a therapeutic player. But as I mentioned at the start, we feel, no, we've gotten an extremely talented and capable global sales force, capable of selling therapeutic devices. And so we're increasingly going to be doing this ourselves. That's why we did an acquisition like Crux and are building our own combo product so we can capture that incremental ASP, that incremental margin. So that initial slide that I showed of 2 dimensional expansion, this is the same thing now populated as a matrix with different cells. I won't go into the detail but it really reflects 2 kind of broad themes.

The first is that each box or each cell on this matrix really represents tens of millions of dollars of opportunity for us globally. So over the past year, we dug into each individual box and developed a tactical plan of how we're going after them and what you'll see, too, is a progression of left to right. So in most of these applications, we are predominantly a diagnostic player today, transitioning to a therapeutic and then transitioning to a combination product. So our current state which is illustrated on this slide is where IVUS, and to some extent, FFR has some role in diagnostics across these various clinical applications with varying degrees of penetration and I'll go into more detail.

We're developing new products that will continue to populate this matrix. So a couple that I want to highlight on the slide, Sync-Rx, as David mentioned, incredible application for us in peripheral. When you think about SFA disease, very long vessel, very diffuse and for the physician to have to correlate in his head where he is with an IVUS catheter reference to an angio is actually very difficult, even tougher than a coronary where you've got shorter vessels and really only 3 that you're dealing with.

So the ability to co-register IVUS with an angio will play for us very well to enhance our diagnostic portfolio and peripherals. The other I'll point out is Crux, both the filter and the combo, that are undergoing product development. New clinical data. So we have a lot of clinical data supporting IVUS' use in these various peripheral applications today but we're going to continue to generate more, build on what we have and go after specific subpopulations. Michel will talk about that. I'll talk about it more as well. And then finally, partnerships and M&A opportunities. So particular clinical applications where we have a really strong foothold with our diagnostic technologies. And again, we've got the capability, we've got the physician call point, to sell them a therapeutic. We're taking our diagnostic and able to find where the lesions are, what kind of therapeutics they need. Now we can find someone to partner with, acquire and sell them that best-in-class therapeutic device. So it's exactly the model that's playing out on the IVC filter.

So I want to start with the left-hand side here, left column diagnostics. Again, 3.1 million procedures globally, the target markets here are boxed that I've mentioned before. Virtually all of these peripheral markets are showing solid global growth. So we talk about the coronary PCI market not being favorable, especially the stable PCI market. If you look at these and it's a totally different story, right. Most of these are going mid-to high single digits. The ones of particular interest for us, EVAR, TEVAR growing 10%. The same compression market I'll talk more about is growing 13%. And the interesting thing here is some of these markets, we have an opportunity to really accelerate market growth by providing a diagnostic that physicians haven't historically been able to use. So AV fistulas, for example, very difficult to diagnose pathology with just simple X-ray, vein compression same thing and I'll talk about the reasons why. If we can show, and we have, that IVUS is an incredibly valuable diagnostic tool, we believe we can actually accelerate these market growth rates.

And finally, this is maybe the most compelling slide is how under-penetrated IVUS and FFR are in these technologies today. So EVAR, TEVAR is the most penetrated at 11%, vein compression at 5%, but everything else we're talking about is low single-digit penetration. So in summary, again around the markets, they're large, they're growing, IVUS massively under-penetrated. So how are we going to increase penetration? It's about communicating the clinical value of IVUS. And I want to run through 3 examples here.

There's a fair bit of clinical data, more than we normally show, but because it's the first time introducing the community of peripherals, I really want to dig into what's the true clinical value that IVUS brings to the clinician because we've got a lot of questions about it. So starting with endovascular AAA repair, the first is that IVUS has the ability to reduce contrast. So you're constantly shooting dye, in this case, to make sure that your getting your landmarks right, you're putting the graft in the right place and we have data that shows that IVUS reduces contrast on average 50%, sometimes more.

So you're talking about patients that have end state renal disease, contrast induced necropathy, a lot of cost added to a hospital if you actually get these patients in renal failure, frank renal failure, so the ability to avoid that, big clinical value proposition. You also avoid radiation. Physicians are more and more concerned about excessive radiation exposure. You can limit that with IVUS instead of X-ray to get some of your fine sizing. Second point on here, improved graft sizing and placement. So the order's a dynamic vessel, it changes through the respiratory cycle, it changes through the systolic diastolic cycle and if you want to make sure your sizing dynamically, normally you go just off a CT, which as you know is a single static image that's averaged over time. IVUS gives you a dynamic sizing that you can use for graft. It also helps in placement. So when you talk to -- I'm sure you guys follow the AAA EVAR endograft companies. It's very critical that these grafts are placed into the right areas both proximally and distally. You want to make sure that, that landing zone doesn't have calcium, doesn't have clot.

So IVUS gives you an incredibly precise ability to get the graft exactly where you want it and improve the outcomes. The third is kind of purely procedural monitoring. So you want to make sure as you're pulling the graft, you've posted up against a wall; when you're done you want to make sure the graft is enfolding. Those are problems that come back to haunt you. And all 3 of these, 1, 2 and 3, we have evidence for it today. We can go out and market with this data today and we have a number of users who use this in north of 75% of their cases because of these 3 reasons.

#4 is something in development. We're making it easier to detect endoleak. So endoleak is a phenomena where you still have leakage through a graft and it causes cell to optimal result because the aneurysm can't appropriately shrink in that scenario. The technology we expect to develop over the next couple of years, we're going to make it mind-numbingly obvious when you got endoleak. Essentially our ChromoFlo is turn on. You see a bright red signal if you got some leakage. Right now it's very difficult to detect, frankly, whether you've got that.

And finally, over the long term we want to generate data that puts us all together and says that IVUS guided, EVAR, TEVAR placement improves outcomes and saves cost and that ultimately drives economic messaging for the hospital, economic messaging for payers. We do that, we believe that will take penetration from 11% today to around 21% over the next 5 years. And again, this is a rapidly expanding market, 101 procedures -- 101,000 procedures globally today that we think will grow to 160,000 over the next 5 years. So it's kind of this double growth. Markets growing, penetration is growing, it's a great opportunity for us here in EVAR, TEVAR.

The next of the 3 examples I want to talk about in some detail is peripheral arterial disease. So here the clinical value of IVUS, it starts with guiding treatment strategy. So peripheral arterial disease is incredibly heterogeneous and sometimes you have sometimes you have hard calcified clot, sometimes you have soft thrombus, sometimes you have fibrous disease, and so trying to decide whether you want a stent or atherectomy, if you're doing atherectomy, is laser, is it CSI rotational, is it the Covidien product. That choice is difficult.

And so IVUS gives you real ability to guide your treatment strategy. The second is around optimizing stent sizing, both length and diameter. So here we have data already today that in the setting of either covered stents, which is the core of [indiscernible] the main coverage stent that's used or self expanding bare metal stents. We have data that shows that 20% to 30% improvement in patency [ph] and this is the data that's footnoted on the slide. There's also for the first time relatively recently the FIRST drug-eluding stent in the SFA, the Zilver PTX which has just come on the market, got fourth quarter last year's Cook's product. So the product has interesting, compelling clinical data but it's really an unproven technology in terms of the thousands of patients that have been treated with other stents. And if you recall on the coronaries, what really led to the growth of IVUS was the introduction of drug eluting stents and physicians wanting to make sure when you've got some drug alluding platform in the body, that you've completely optimized how it's placed. And so those questions around are you making sure you're placing this Zilver PTX in the right place against the right type of clot or lesion, that's leading to a lot of IVUS use, particularly in Japan where we started a registry of IVUS with the Zilver PTX.

The third optimizing drug-eluting balloon sizing a big effort in Europe among investigators and the reason for this interest is sizing the diameter of drug-eluting balloon is critical. You want to make sure that you've got enough size that the balloon's right up against the vessel wall. It transfers drug effectively from the balloon service to the vessel wall but if you oversize, you have the risk of tearing the vessel and then you've got to put a stent in, and the whole reason you pulled out a drug eluding-balloon is because you didn't want a stent in the first place. So precise sizing is really critical. The fourth point on here is avoiding atherectomy adventitial cut. We have data for this today, it was generated by Mount Sinai in a study called Utopia. The adventitia essentially is the normal vessel wall that if you cut leads to a massive kind of healing responds which leads to re-stenosis. So the data from Utopia shows that in 6 months, there's a four-fold difference in patency depending on whether adventitia was cut or not, and you were able to avoid adventitial cuts through the use of IVUS.

And then finally, the use of pressure and flow to guide where to treat and when to know that you're finished. So very similar to the way FFR is used in the coronaries, you want to intervene in a lesion that's less than 0.80, you want to intervene until you've got a value pro-stenting that's greater than 0.95 and then you know you've intervened where you should have, you're ending with the results that's adequate.

We don't know that in the peripherals today. You go up in angio, if you have the ability in the long diffuse SFA lesion to put a wire in and show exactly where the pressure gradients are, you can selectively intervene there. And when you're finished, you should have a gradient that's below some threshold, say 5 millimeters of mercury and you know that you've got a good long-term result. So again if we execute on these things, we believe we can go from a penetration that's about 2.5% today to 4% in the context of a rapidly growing market.

The third example here is venous compression disease and venous thrombus. So the first clinical value of IVUS is around identifying lesions that you can't see on venography. So the problem with venography is that these lesions are often subtle. They're as fibrous band, they're webbing and contrast still flows through those type of lesions so when you shoot an X-ray and you're looking for dye flowing, it just goes through naturally. It's very difficult to pick them out. The other part of this is the anatomy is three-dimensional. And so when you shoot a venogram or any type of X-ray in a single plane, you can't fully assess the nature of a three-dimensional lesions.

So data already exists that shows that when you compare IVUS to the standard imaging modality venography, there's a 30% greater ability to catch disease. The second is around guiding stent sizing and placement. Interesting thing here is the reason this is so important is on the arterial side, the direction of blood flow is in the direction of smaller vessels. So if you have a stent that's undersized, it can only go so far and then it starts jamming into a normal vessel, so only move a couple of millimeters. On the venous side, blood flows in the direction where vessels get larger.

So you undersize a stent, the thing winds up all the way in the heart. So it's really important to make sure that you size appropriately and we have data that shows IVUS does this. IVUS can also drive thrombus removal strategy so whether you've got old thrombus or new, hard or soft, that determines whether you want to go with the lytic or just mechanical thrombectomy. And finally, over the long term here by diagnosing and effectively treating compressive lesions, we want to show that IVUS can reduce the recurrence of deep vein thrombosis, venous reflux and post thrombotic syndrome.

So essentially so that IVUS can improve outcomes compared to the conventional imaging modalities. We have limited data there today admittedly but it's a field that's rapidly evolving. We're just at the American Venous Forum last week discussing trial ideas to definitively show this. So here again, we're about 5% penetrated in the market about 132,000 procedures globally. We believe if we execute on these things, we should be able to take penetration up to 13%.

So that's the diagnostic side. On the therapeutic side, there's one area in particular, the number of areas we could talk about the one in particular I wanted to highlight and that was our acquisition of Crux Biomedical in December last year. So the filter itself is really game changing. Forgetting about IVUS, just the filter. Novel helical design and I'll show you comparative devices on the next slide. But the basic idea here is you have 2 full circles of contract along the entire contour of the interior vena cava compared to just single points of contact in a typical basket-shaped filter.

The device self centers, so fundamentally cannot filt compared to other filters that are on the market. Also if you look at this device you'll see a hook on both ends. So one's towards the neck, one's towards the leg and that means that you can retrieve this device from either direction. As Scott mentioned, the IVC filter has already received CE Mark approval and 510(k) clearance. We're just in a process of ramping manufacturing and we're also in process of submitting both 510(k) and CE Mark for a retrieval kit.

So because the retrieval is going to be a very big push for us, for the FDA, so these retrievable filters are supposed to be retrieved after the period of high risk for PE goes away from these patients but only about 15% of filters are actually retrieved. We know that the bidirectional retrieve ability would really help Crux's ability to be retrieved. And in that spirit, we've got our own retrieval kit that's compatible with Crux. It's optimized to pull Crux out so we have an opportunity at the beginning when the filter’s put in, we have an opportunity at the end when the filter is pulled out.

So these are conventional filters on the market, we're showing you for comparison. You'll notice that the conventional filters have a hook only on the top which means you do have to go in through a jugular access to pull it out. This has a hook on either end. In fact, in the trial, the pivotal trial that was used to submit for 510(k) and CE Mark, 70% of physicians, 70% of the time pulled them out from the leg. So when you give the physician the option, they prefer a femoral stick rather than jugular stick to pull this out.

There's additional data on the trial results here, 98% deployment success, 98% retrieval success, no migration, no fracture, no embolization, which is better than the comparative trials if you read the literature. So great filter, we would have bought this even if it was the filter itself but the real reason we went after it was because the incremental value of IVUS.

So IVUS has the ability to change site of care here. Instead of placing filters under X-ray guidance in a cath lab, we can place filters at the bedside. So economic value, it saves costs. When we look at the cost of a catheter plus M.D. staff time at the bedside, it's about $13, $50, if you compare that to what -- especially including the opportunity cost, what it cost to do this procedure in the OR when this 30 minutes or an hour could be used for a complex PCI, a TAVI procedure, this is about $5,000. So the delta, this 36 50 goes directly to the hospital's profit. So again this is an instance where IVUS can change site of care, big profit gains, efficiency gains for the hospital. More importantly, really, it's a clinical value. So these are patients that are often poly trauma, auto accidents, they're often on vents and so when you want to transport them from the ICU down to the cath lab, you've got to pull their vent out and that causes stent associated pneumonia. That's about 20% of the filter population. 5% of population are pregnant women where they get an abdominal shield today to prevent exposure to X-ray. For them, it really makes much more sense to avoid X-ray altogether rather than relying on a shield for field exposure and then reducing contrast fluid. I talked about this in the context of AAAs. 5% of the filter population approximately have end stage renal disease, where you'd really like to avoid a contrast fluid.

So 30% of these patients, just by clinical criteria, are really eligible for IVUS-guided bedside placement. All 100% have an economic justification as we continue to develop the data here.

So again, this is the overall strategy for Volcano, 2 dimensions, the horizontal here evolving from diagnostics to therapeutic, to combo. On the vertical, evolving from coronary to a number of vascular applications across the body. So that's the strategics.

How are we going to execute this? It's really around 7 things. So the first is physician awareness and training. As I mentioned, we have a lot of data today and we want to leverage that. That's the near-term focus. So we're setting up all sorts of avenues for physicians who are advocates of IVUS and FFR and these technologies to educate their peers. So the message isn't coming from us, it's coming from KOLs who are able to use technologies well, get great outcomes, educating their peers. And what you'll find a lot of times is these physicians are using IVUS north of 50%, 60%, 70% of the time. So it's a very kind of bimodal penetration here. Some will use it a lot. A lot who don't use it at all. And so how do you get those verses start to cross over?

#2 very important to us, building up a dedicated peripheral sales force. We had 10 as of the end of last year. We're continuing to add to that. Our head of U.S. sales is here. Great guy to talk about -- talk to you about our evolving peripheral strategy. We're also cross-training our entire global sales force. So all 250-plus sales folks across the world are getting educated deeply in this peripheral opportunity.

The third is new clinical data. We've got great data today. We continue to want to augment that. So Michel will talk about the trials that we're running. The trials are really going in 2 stages. The first is showing how IVUS in physiology change clinical decision-making. So what new information do you have with IVUS that's causing you to do something differently. And then I think about that, that's an acute immediately measurable endpoints. So we don't need years for these trials to play out. The second part here is that IVUS improves outcomes and over time we'll be gathering that data.

The fourth, reimbursement. We know reimbursement is very important in the constancy of peripheral setting. There are 3 things we're doing today that really don't require any change in the reimbursement code. So the first is making sure that physicians know they can get a professional component reimbursed for each vessel interrogated.

So $130 for the first, $108 roughly for the second and third and beyond, and often these peripheral cases, you're interrogating 2, 3, 4 vessels. The next part is getting a supply code reimbursement to the IVUS catheter itself, certain payers allow that. And really the most important part is showing that IVUS identifies new clinically significant, clinically relevant pathology that has itself significant procedural reimbursement.

An example is venous stenting. So I mentioned that IVUS identified 30% more pathology than just venography. So this is 30% more opportunity to go into a clinically justified case, place venous stents and the reimbursement there is sometimes $12,000, $13,000, $14,000 so a new revenue opportunity, but clinically justified revenue opportunity for physicians.

Corporate alliances is another big thing for us, for small companies and large companies. Product development, I mentioned endomet detection for EVAR or TEVAR. We're also developing dedicated peripheral catheters and consoles uniquely positioned for the challenges of the peripheral space also at the peripheral price point. And then finally, selected M&A in synergistic therapeutic technologies, so where we have a very strong diagnostic presence. Again, as I mentioned, we're in that case. We're able to provide diagnostic value, finding a synergistic adjacent therapeutic technology to bring into the portfolio. So very exciting time for peripheral, 5 years of great growth, and I look forward to answering your questions.

R. Scott Huennekens

All right. So, Neil, I'm not sure what -- there we go, Q&A. So if I could have Dave and Joe join me up here with Neil, we'll take questions. Yes? That's you.

Oh, I guess I'm not in charge of who gets to -- Andrea is in charge. All right.

Question-and-Answer Session

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

David Roman from Goldman Sachs. I was hoping you could go to a little more detail on something that came up in the first 2 presentations, which is the impact of FFR on stenting. And my initial perception was that FFR is more reducing the number of stents per case, which is what came up in one of your presentations. But if you actually look at the reported numbers in some of the management commentary in the last couple of calls, it actually sounds like FFR is reducing the number of IVUS procedures and there's some cannibalization. Maybe you elaborate on each of those dynamics, and when you see FFR crossing to make up more than the difference in the cannibalization.

R. Scott Huennekens

Yes, so 3 things. #1 is that if you look at the French FFR data, there's -- the right people are not getting stented. Only about half of the right people are getting stented. You have unnecessary CABG procedures, where people should be getting PCI, and people getting PCI shouldn't get PCI. You have people getting not the right PCI, so we're making errors in each of those buckets. So if you look at it collectively, Joe, the summary at the end of the day is that there are total procedures wide -- or what was it? Michel? 35% is classified, but over stenting was about...

Joseph M. Burnett


R. Scott Huennekens

6%. So there's not that much over-stenting of procedure wise, it's then who's getting the stents that's wrong. Then you go into the same data, and we're putting in too many stents in the people that are getting stented. So about 6% over-stenting in total, the same data multivessel disease cases, the number is...

Joseph M. Burnett

About 30%.

R. Scott Huennekens

About 30%. Now that's kind of, David, the first part of your question. The second part about FFR and its influence relative to trade-offs in accounts economics-wise, I'll let -- maybe Joe can touch on that FFR versus IVUS and what we're seeing.

Joseph M. Burnett

I think the more you reduce stable PCI volume, it can, in fact, put some pressure on IVUS. I think the reality though is if you think about where IVUS catheters are used today, they're used primarily in very complex procedures involving left main, involving bifurcations and also involving some ACS and semi-procedures. And the reality is that those particular subsets aren't really declining. The proportion of patients with very complex disease is increasing, but as far as those number of complex procedures that benefit from IVUS guidance, we don't see those declining nearly as quickly as sort of those, does this patient even need a stent in the first place. And those are the ones that go to FFR.

Brooks E. West - Piper Jaffray Companies, Research Division

Brooks West from Piper Jaffray. David, I want to start with you. Just a little bit more detail on penetrating the ACS opportunity. You've defined it as a nice opportunity. I was a little curious on -- right now, for example, IVUS is a class 2 indication in left main. Does that need to increase? What's the strategy there? Is kind of your whole ACS strategy hanging on the ADAPT study? Or just a little bit more detail on how you intend to penetrate that opportunity? And then I have one follow-up.

Joseph M. Burnett

So there's a couple of things. One, there is existing evidence right now for used file [ph] from ACS. The penetration is extremely low. The penetration is extremely low. What we see is that once -- already the data from ADAPT said that more than 40% -- or there was 40% higher STEMI in the IVUS arm. So there's already data now that's coming out that says you're going to get better results even with more STEMI in the use of IVUS. So we see that, that will improve. And as that subset data comes out, we expect that we'll be able to start this. We've got a formula now for getting that information out through summits and roundtables around the United States, and that's been very successful for left main and bifurcation.

R. Scott Huennekens

So Michel Lussier, who is also up here, runs clinical. Anything more to add on ADAPT from an ACS standpoint?

Michel E. Lussier

Yes, I'll cover that in more detail in my presentation. But basically, it starts from the unmet medical need. And what we're finding out is today there is a large unmet medical need in the ACS operations because the outcomes are not as good. And on the other side, the PCI to start with is not challenged. That data has demonstrated that in all patient partnership [indiscernible] but in particular in the ACS population, IVUS is important. Why? Because you need to stent at the right location. You need to stent healthy to healthy. The acquisition has to be good in order to avoid stent thrombosis. So those are elements where we already have strong evidence, and we will build on that evidence in our clinical study over the next year.

Brooks E. West - Piper Jaffray Companies, Research Division

Okay. And then just one follow-up for Joe actually. I'm very curious about making an FFR guide wire, a workhorse wire, which would be tremendous for you guys. But how close do you think you are to the tactical requirements that a position needs? And then can you talk of about the cost comparison? Where are you now versus the workhorse wire? And kind of where do you need to get to be before you can really make that argument?

Joseph M. Burnett

Sure thing. So to think about the first question, which is how close are we to the performance of the frontline wire. If I had to put a number to it, I'd say 85%, 90% or so. The reality is, is that it's very rare that a physician pulls one of our newest wires, the Prestige PLUS, to target a particular lesion and can't reach that lesion to make the measurement. So that's a very, very rare scenario. I would say, less than 5% of the time that, that takes place. The most important part that we do need to continue to improve on, as I mentioned, is this new connector in making the wire a little bit more supportive. But again for your routine PCI procedures that are non-CTO, that are non-large vessels, it's very, very strong performance in the wire that we see today. From a price differential, I think, obviously, it changes by geography. But ballpark, we generally charge between $650, $700 or so as our ASP for our wires, compared to coronary guide wires today, which can range anywhere from $75 to $150 or so for some of the high performance ones. The key for us is to develop the clinical justification and economic justification to bridge that gap or that difference in value between the 2. And those are the investments we're making with Michel on the clinical side of things.

David M. Sheehan

Yes. And some of that data already exists in the same 2 data of economic analysis that justifies -- that more than justifies that with sharing over $2,000 of savings on top of the cost of that wire.

Raj Denhoy - Jefferies & Company, Inc., Research Division

Raj Denhoy with Jefferies. I wonder if I could ask a couple of questions. Actually, 3 questions on FFR. Starting with iFR remained a very controversial topic, I guess. There were a couple of papers recently released that again question the correlation of iFR and FFR. I'm curious how you respond to that? And how confident are you that you're going to be able to prove that it's ultimately a viable competitor to FFR?

David M. Sheehan

So #1, that's not our technology and not iFR. iFR is the Volcano technology. But I'll let Joe go into the detail on that. It's our competitor trying to muddy the waters, I believe.

Joseph M. Burnett

Yes, I think the benefit that Volcano has is that we're both an FFR and an iFR company, so we can heavily promote and focus our energy on education around FFR in the established market for stable PCI, et cetera. And then focus our FFR work in new expanded markets where adenosine is somewhat an issue. So if you think about how we balance our time and energy, today we're still spending 80-plus percent of our time on developing these FFR markets for those core indications as opposed to working on this new incremental technology in iFR. I think the reality that we're going to see for a period of time because FFR is so strongly supported in the guidelines that it is going to take substantial additional data before iFR were to challenge FFR for the way that FFR is used today to determine if a patient should receive our stent or not. But I think FFR is clearly established as the gold standard. I think what iFR can offer is it can be used in that same procedure to be able to monitor the improvement that you make after each stent or balloon that's placed. So the thing that some people don't realize is that iFR and FFR both work on the same system, and they also work with the same wire. You don't need an additional Flow measurement or wire to make that measurement. So for a period of time, I really expect both FFR and iFR to be used together rather than be competitive.

R. Scott Huennekens

So do you -- you kind of get that, Raj? You're getting iFR for free. Go in, do FFR. It's also to treat or not treat. And now you treat it, you put a stent in. You should have been checked to make sure you did a good job and the ischemia is fixed. And a substantial portion of patients, it's not fixed. You put the stent in the wrong place today, not when you use FFR. But then you check afterwards, make sure your appositions good, et cetera. You can see that your FFR is -- or your iFR now is above 0.9. So we're giving you 2 things, our competitor's giving you 1 on the same platform. That's one thing. Then iFR opens up new applications, like the ACS population. We're not going to give adenosine. So some of the thought leaders are looking at this one segment and arguing over this. We're not looking at the one segment. We're looking about the coverage of all the indications, the potential indications for the technology and saying, Volcano is always about choice. We're going to give you a platform that's going to give you a choice, whether you need to use OCT for something or you need to use FACT, or you need to use a peripheral, phased array products. We're going to give you that opportunity. We're not going to tell you which technology to use and only use.

Raj Denhoy - Jefferies & Company, Inc., Research Division

That's very helpful. Just second question is, speaking of competitors, Boston Scientific made some comments about trying to get into the FFR market perhaps as early as 2014, I think they said. Do you have any thoughts around IP whether there's room for another competitor to come in from a technology standpoint?

R. Scott Huennekens

I can't comment because I know nothing about their technology and their approach. I think for the approach that St. Jude and Volcano have to the market, we have a lot of IP, and we questions each other's IP, as you know, so it's a pretty crowded field with additional patents being granted daily. And you may want to check on some of the most recent patents that we've been granted as it relates to St. Jude. Or not patents but indication of claims allowed as they relate to Volcano's IP portfolio.

Joseph M. Burnett

And I think the reality is, is that the biggest barrier a new competitor faces is in the installed base that's already out there. A new competitor would have to give a physician to -- physician in a hospital a reason to leave Volcano and switch to them. And our focus is again not allowing that reason to exist by keeping our customers happy and continuing to launch new products and [indiscernible].

R. Scott Huennekens

I go back to my analogy earlier. Someone makes a little bit better feature in Lotus 1-2-3, but Excel has all these other things, plus it has the whole Microsoft platform. You basically get it on your platform for free. It's very difficult to compete with that, and you see that with St. Jude. Their biggest reason for OCT is not to not have an imaging platform because without imaging they can't tell us apart, if you look at our growth versus theirs. So you may also look at Volcano and say, "Hey, we're conservatively marketing or sharing growth of 3% to 4% per imaging." But you don't get 30-plus percent FFR growth without having imaging. And as we go forward, you don't get 13-plus percent growth by not having the entire platform of technologies. They're synergistic to each other. So to carve them up and isolate them misses part of the point.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Chris Pasquale, JPMorgan. Couple of questions. First for Joe. What's the updated timing on iFR approval in the U.S.? And then you mentioned the DEFINE study looking at FFR in the ACS population. Can you just talk a little bit more about that trial, when we can expect data?

Joseph M. Burnett

Sure. I'll cover the first question, and then I might actually defer to Michel, who I believe is going to talk about that study during his presentation. But from an iFR in the U.S. standpoint, we are currently enrolling what we're referring to as our pivotal clinical trial here in the United States. I believe we've enrolled maybe a hundred patients or so, so far. We plan on submitting that to the FDA for approval some time in Q3. And provided that goes smoothly, it would be a 3-month review cycle based on the level of evidence required for the technology, and then of course any questions back and forth. So first half of next year, I think, is probably a good estimate for today.

R. Scott Huennekens

Yes, we'll postpone DEFINE until the next Q&A after Michel's presentation.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Okay. Maybe I could ask Neil a couple of questions about Crux. Can you just flesh out the pathway to launching that technology a little bit more? What's left to be done on the retrieval system side? Will you wait for that before you launch the filter? And does the plan, the 5-year plan, assume any sales from the IVUS filter combo device, or is that sort of left as upside?

Neil Hattangadi

Yes, on the first question, we're not waiting to launch the filter for the retrieval kit to come back with this 510(k). But it seems like those paths are going to coincide for us anyway. We are going through a lot of quality processes to make sure that we manufacture those filter very well, and at volumes that we know will support the demand. So when we made the acquisition in December of last year, we said it would be early '14 that we thought it would be out. We're sort of sticking to that for now. If we can get out sooner, that would be nice, but, no, it's certainly not on our plan. In terms of the 5-year plan for the combo device, at the very tail end of that 5-year window, we do expect to start to see that combo come in.

Danielle Antalffy - Leerink Swann LLC, Research Division

Danielle Antalffy with Leerink Swann. Can I start with David or Scott? This question is probably for you. The 3% to 4% growth CAGR in the IVUS business versus the 6% to 8% that you said you kind of expected but you're being conservative which is great, but what's the discrepancy there? Is it all about the new indications, the pipeline? Or are there things that we're not thinking about that could be getting you to that 6% to 8% that you expect but you're not currently modeling?

R. Scott Huennekens

Yes, I'll let Dave answer it, but I just want to get you guys in the habit of not saying IVUS market growth of 3%, 4%. It's intravascular imaging 3% to 4% because it includes IVUS, OCT and systems, okay? Dave?

David M. Sheehan

Right now we look at IVI growth in a couple of different buckets. There's 2 main drivers that are going to drive it. One is going to be the high resolution and the launch of our products into the high resolution space. So St. Jude is out there right now with OCT. Once we come into the market, that -- the switch over to high resolution will increase because we'll have a broader product portfolio. And then the second component is peripheral, which Neil talked about, and that's going to be a big driver. Those are the 2 significant drivers. And then on the clinical evidence side, we already have the evidence on left mains and bifurcation. We've been very successful in kind of getting out and educating physicians on that. And now we're going to do the same thing with ACS in getting the ACS message out. So those are kind of the key drivers for us.

R. Scott Huennekens

So in summary we just kind of cross those 3, moving the volume down from 6% to 8% down to 3% to 4%.

Danielle Antalffy - Leerink Swann LLC, Research Division

Got it, great. And then one more question. FFR, curious -- there's a small competitor in Canada that's working on fiber optic technology, curious on your thoughts on that and how competitive you think that could be. Because it seems like they might be able to get to market by late 2014 or so.

Joseph M. Burnett

Yes. I believe you're referring to Opsens, is that the company? I think there are a number of different approaches you can take to physiology. You can absolutely get a good pressure measurement using an optical approach. The focus is getting into the workflow and being as fast and simple to use as possible. And one -- as we've looked at the optical approaches, and one of the restrictions or limitations that they have is you need to have a very, very good connection for the light to transfer from the connector down into the wire to get that pressure measurement. So I think a lot of their development focus is going to have to be on the connector. In reality, it still gets back to the point where they've got the issue of how do you penetrate a large install base. When we were selling our systems, there was a market that was very, very hungry to have access to physiology. And even despite our 250-person sales force, our best year we were able to place maybe 1,000 systems over a period of the year. And now a new competitor has to go into an account with a small sales organization of people that already have access to physiology, they're already happy Volcano customers, how many systems could you really place in that scenario? And then how long would it take?

R. Scott Huennekens

One last question, and then we'll get going with Jonathan.

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

Joanne Wuensch from BMO Capital Markets. You talked about a 10 person peripheral vascular sales force and then expanding that as we get throughout the year. Could you talk about the game plan for building that out?

R. Scott Huennekens

Back to me. Yes. So we sell peripheral products both with our existing group in the United States, which has roughly 140 plus people. Those reps, those clinical sales specialists sell it, then we have the targeted group. So we're going from 10 to 12 regions, and we're going from 10 people, don't hold me to it, but I believe it's 3 to 4 to 5 people more, but definitely 1 per region for the 12. Part of it is going to be based upon the success that we have. We're not going to constrain ourselves if we're having success. We'll go to the higher end of that range.

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

And then as a follow-up, for Sync-Rx, you talked about submitting in the third quarter '13. If I would anticipate, that would be a 2014 launch. How do you get that into the market? Is that on your current platform? Or is it a software -- hardware -- software upgrade? I'm trying to visualize how this revenue is going to ramp and layer it into your current profile.

R. Scott Huennekens

Yes, so the question was if you didn't hear it was how do we launch -- what's the timing on the Sync-Rx launch, and how do we launch it? So #1 is, we expect approvals before year end. If we get them before year end, we'll launch before year end. Effectively the technology is going to be ready to do that, and it would have the functionality of angio plus, plus intravascular Imaging Co-Registration with our phased array product and then expand from there. It would be a stand-alone box that plugs into our existing systems to begin with. As we move forward on later generations, it will be integrated into the current technologies, but it's basically a booster system that plugs into the existing system today. And so it will be sold as an add-on to our installed base.

Okay, why don't -- we're going to have a further Q&A after the additional presenters. So if you want to get up maybe grab a quick water or coffee or whatever while Jonathan comes up, we'll get started here in 2 minutes.


R. Scott Huennekens

Okay, guys, if you could take your seats. We're going to get into our pipeline a little bit more with Jonathan Hartmann, who's running all of our efforts in chronic total occlusions with our forward-looking IVUS products and then also our Structural Heart indications with our Forward-Looking Intra-Cardiac Echo technologies. Then Michel will go into more detail on clinical. Dale, who runs our Axsun business, will talk about our Axsun Medical opportunities. John will do financials, and we'll wrap up with lunch. So with that, Jonathan?

Jonathan T. Hartmann

All right. Thank you, Scott. Good morning, everybody, and thank you for the opportunity to present to you today. As Scott said, my name is Jonathan Hartmann. I'm the Vice President and General Manager of our Forward-Looking Imaging, Structural Heart and impact medical business unit. This morning, I'd like to take about 15 minutes to discuss 2 different exciting new technologies that we're developing right now. The first is Forward Looking IVUS, which is designed to image within a vessel. And the second is Forward-Looking ICE, which is designed to image in open space for structural heart procedures.

These are new technologies that will drive new growth in new markets and enable new emerging procedures. As I mentioned, FLIVUS is designed to enable the treatment of chronic total occlusions, which represents about a $750 million addressable market opportunity for Volcano. And FL.ICE is designed to treat structural heart disease by providing unique image guidance for procedures such as TVR, transseptal crossing procedures, left atrial appendage closure, and these opportunities create an addressable market that exceeds about $350 million for Volcano.

I'll start with our FLIVUS technology and our vision for treating CTOs. As you know, in the past, if a patient suffered from CTO, they'd have to either live with their symptoms, take medication or undergo invasive surgery. But today, Volcano's developing technologies that will enable successful minimally invasive procedures for CTOs in both the heart and in the leg.

In addition to developing the Forward Looking IVUS technology, we're also coordinating across Volcano to develop and launch a portfolio of products that will enable and improve CTO therapy in peripheral and coronary procedures. That portfolio includes FLIVUS, Short Tip, the Eagle Eye Platinum, and the Valet Microcatheter line.

So allow me to just take a little step back and provide you some background on CTOs and the CTO market. I know it could be a bit of an alphabet soup with all the acronyms flying around, but CTO is defined as the complete -- chronic total occlusion is defined as a complete blockage of an artery that's been present for greater than 3 months. As I mentioned, it could occur in the heart or in the leg. And these are common, they're complex, and they're very important to revascularize, and they're very difficult cases. New tools are needed that will enable physicians to reduce case time, reduce radiation exposure, and improve outcomes.

The total market for CTOs, for coronary and peripheral procedures, is approximately 430,000 procedures worldwide, and we've broken that down here by geography and by anatomy. And as you can see, there are about 150,000 CTOs on the peripheral side, about 280,000 on the coronary side, and then you can see the breakdown between the U.S., Europe and Japan.

Now our vision for the FLIVUS business is to first address the key unmet clinical needs by developing devices that can see, that can steer and that can tunnel. And secondly, we want to be able to empower physicians with these new tools that make CTO therapy easier, make it safer and make it faster. We're developing the only forward-looking imaging portfolio available, which includes software, hardware, a disposable catheter and will be integrated on the Volcano system.

A little bit more on the technology. The technology provides realtime image guidance during a CTO case. It's an over-the-wire catheter that enables the doctor to direct guide wire placement and stay in the true lumen. And again, the goal is to make these cases easier, safer and faster. And we have a number of generations of the device in development.

We've started in the periphery with our gen 1 device. We're currently improving clinical utility by adding some features to that like -- such as steering in our gen 2 device. And we're also developing a smaller version that's specifically designed for coronary applications in our gen 3 device.

On the clinical side, we've had great success so far. We started in the peripherals in U.S. and Europe. We've successfully completed 58 cases. And just to give you an example of what one of those cases might look like, here are some images from a case that was done in Leipzig, Germany. This was a 68-year-old woman with a 30-centimeter CTO in her superficial femoral artery. It's a peripheral case with a highly calcified lesion. And the Preview device, the Forward Looking IVUS device was used to -- utilized to confirm that the position was in the true lumen, which was very difficult to determine on the angiogram. And then the lesion was crossed in the true lumen and successfully revascularized. So just a little example of what a typical case looks like.

We're also making great strides on our path to commercialization. As I mentioned, we've started in peripherals. Our first generation device called Preview has earned CE Mark, and we're now in the process of completing our clinical studies in the U.S. and Europe. We're going to complete our integration on the Volcano system by the second half of this year. And as I alluded to earlier we're the process of developing additional features and capabilities for the gen 2 and gen 3 devices.

Now shift gears for a second to the other technology, which is the forward-looking ICE technology for structural heart procedures. The forward-looking ICE or FL.ICE, the market for this technology is developing and evolving very quickly. The FL.ICE technology provides unique imaging capabilities like the ability to operate and visualize or see in the same direction, the same plane. It's being developed to facilitate image guidance for several structural heart procedures such as transseptal crossing, left atrial appendage closure, TVR, amongst others.

As you all know, the structural heart market is a large and rapidly growing market opportunity. It includes trans-catheter aortic valve replacement, closure of left atrial appendage, percutaneous mitral valve repair and other procedures that will require safe and effective crossing of the septum.

The vision for FL.ICE is to develop a novel and easy-to-use imaging modality that's going to enable precision guidance in these emerging structural heart and great vessel procedures. And additionally, we're going to lever the technology to drive growth in other applications outside of the heart. For example, in orthopedic procedures in the hip and in the back.

A little background on the technology. The first-generation FL.ICE device is a 10.5 French catheter with an 0.35 guidewire compatible working lumen that goes in the same direction as visualization. So the imaging tip provides realtime visualization ahead of the catheter and sets it to the side, and it's aligned with this working lumen. So this combination of imaging, working lumen, flexibility and steerability gives physicians unique imaging capabilities in a wide range of clinical indications.

And finally, our development team is making great strides as we move towards commercialization. We're planning our first term human use in early 2014 and have multiple generations of the dice in development currently.

So in summary, I just like to thank you again for your time and the opportunity to present to you. But I'd like to leave you with a few thoughts on why this technology is going to win, why this forward-looking imaging technology is going to be able to take share in these new markets.

First of all, as I mentioned, we're developing these technologies for emerging procedures and they solve unmet clinical needs, some real challenges out there in CTO then in structural heart in terms of visualization in successfully completing these procedures. There are large addressable markets that exceed more than $1 billion total addressable market for Volcano.

Third, we have an unbelievable pipeline of innovation with multiple generations on path to commercialization, both for structural heart and for Forward Looking IVUS.

And finally, we have just an unbelievable team. Our people, our teams, our customers are helping us move forward and capitalize in all of these opportunities very quickly, and we're look forward to bringing these to market.

So thank you for your time.

Michel E. Lussier

So good morning, ladies and gentlemen, Michel Lussier, President in-charge of Global Clinical and Scientific Affairs.

So as you heard throughout the day, we are engaging in a major clinical program over the next 4 years with more than 15 studies in FM, coronary and peripheral applications, as well as forward-looking imaging.

Teaming up with our business unit leaders, our team, as well as physicians around the world, we're going to accomplish 3 goals. First, we will demonstrate the clinical and economic evidence of FFR, iFR, as well as intravascular imaging, both in current indications as well as broader indications such as coronary, acute coronary syndrome, multiple vessel disease patients, as well as selected peripheral indications that Neil presented earlier. Second, with this pipeline of new products, we will also develop the regulatory approval. And third, we will drive the product launches and market adoption.

So with those 3 goals, we believe that we are building a solid foundation to have precision guided therapy used in over 50% of coronary interventions as well as in targeted peripheral indications.

A few words about the environment that was covered, but just to make sure we start from the right place, we believe that PCIs will remain under high scrutiny versus optimal medical therapy patients in stable patient population. The IVUS growth has been challenged because to a certain extent of a perceived lack of clinical evidence and also rapid adoption of FFR.

In parallel, multiple vessels that these patients had as shown by the syntax 5-year results is becoming increasingly challenged for the medium syntax core patients versus coronary artery bypass graft which is today the standard of care for medium- and high-risk MBD patients.

On the other side, ACS sensing is not challenged. The unmet medical need is important, the value of PCI is not challenged, and we'll continue to grow probably around 60% of all PCIs, and we expect it to grow to over 65% by 2015. We have a number of targeted peripheral indications such as May-Thurner syndrome, IVUS-guided IVC placement, EVAR, a number of growth area for us to develop both the clinical evidence but as well as the economic justification for using our therapies and our technology.

So we believe that for all of these, it's in optimizing not only the gesture but the overall clinical path from a patient coming in at the beginning up to its outcomes within 1 year that we will see the value of Volcano's technology.

So our challenge and our mission is to use the right clinical study, from clinical research all the way to regulatory study to multiple multicenter trials to outcome studies as well as scientific communication and education for the right application, is it FFR, iFR, IVI or others in the right geography where we believe there is the most potential benefit for accomplishing the program.

So now let's step back and look at the treatment of a coronary artery disease patient today. Well, this patient will start basically on the left side with either stable angina patient not feeling well, having some chest pain but not in an emergency situation. Will more than half of the time undergo a noninvasive procedure, if it's a nuclear stress test, CT scan, MRI or CT [ph]. Then will go -- will undergo an invasive procedure, angiography and of course growing FFR, will have then a therapeutic option depending on the angiogram mostly today, patients will be sent either to CABG, optimal medical therapy or a PCI, and then with a wide variety of patient presentation from chronic total occlusions to multiple vessel disease, et cetera.

So if we look at that overall clinical path today, it is vastly inefficient, suboptimal. In manufacturing terms, I would say this process is not lean, and we believe that we have the technology not only to improve each step but to streamline the overall clinical path of that patient. And let me share you why. Noninvasive stress tests are very poorly specific. They are sensitive, but poorly specific. They will not tell you which lesion to treat. Angiography, as Scott was mentioning earlier today, we have data demonstrating that close to half of the time the patients will be misclassified as patients being shown as being normal going through medical treatments, should have had an intervention. And all those classification amounts to 45% of the time, and let alone the fact that as we know from saying, leading to some over sensing.

So in terms of the therapeutic procedure per se, well, we know that in a number of stent population, the stents are poorly placed, under expansion, will lead to increased risk of MI or late stent thrombosis. We know that positioning at the right type will also improve outcomes. So throughout all of these tasks of the path of a patient, we believe that FFR, iFR and intravascular imaging have the possibility to really reduce cost and improve outcomes.

What you see in the little boxes are the different studies from the mid-next [ph] study, DEFINE, as well as ADAPT, Excel, those are all studies that I will go a little bit more in detail with you over the coming slides.

Now our FM strategy. Well, our studies are aiming basically with 3 types of objectives. Either we want to either validate with the regulatory approval, either we want to demonstrate the value on outcomes, clinical and economic outcomes, or we want to promote the adoption of our technologies with post-market registries, as well as other studies aiming at demonstrating the proper classification of phasing. In the case of our FM business units, we have engaged already for 2 years now in a series of validation studies of iFR. Our company is very data-driven. It is still today a technology under development. We expect the market release of iFR during the course of the year outside the United States. And we're developing with ADVISE II a very solid program.

I would say also to addressing your earlier point that a number of the study that you see published today are not with Volcano technologies, not with wires nor with our software. It's under the leadership of Professor Serrault [ph] in cardiology. And our PI, we are engaging a very serious validation study. That data should be available later this year and will be the foundation for the release of the iFR technology.

We will also, on a global basis, engage in a study on defining -- I'm sorry, describing the potential of FFR in the ACS station population.

Point 1, because in all of our studies, we will have a portion of ACS patients for which we believe that FFR and iFR are equally useful. Point 2, as Joe was mentioning, in a number of patients, FFR is really not appropriate when the patients are really acute. You don't want to inject adenosine. But you have iFR immediately with your guidewire, so you're able, and even in case of a myocardial infarction, to assess if the none culprit lesions, meaning the lesions that have not created the MI, should those lesions be stented or not. Because what happens today is that those patients go back home, come back to assess the other lesions, oh no, you came back for nothing because these lesions should not have been stented, et cetera, et cetera. So we will develop this program to assess the value of iFR for non-comfort lesions, starting with a pilot study and following up with an outcome-based multicentric study.

We will also engage in defining flow to better assess the relative value of flow-driven technologies such as CFR together with iFR and FFR. And finally, we will engage in this defined diagnostic program throughout the world with different programs adapted to the geographies to demonstrate what is the value of moving FFR and iFR upstream in the clinical path, not only when the PCI is taking place, but also during the diagnostic angiography procedure right there to make sure that the right lesion will be stented and that also the right patient will be sent to PCI. So this program will also integrate in certain geography iFR. So this is a jaded [indiscernible] program and the defined diagnostic program which will start later this year.

On the intravascular imaging strategy. From a regulatory standpoint, we will engage later today in our IDE submission and approval for the -- I'm sorry, not later today but later this year, in the OCT regulatory process for our system. In terms of outcome-based studies, we're already engaged in a number of randomized controlled trials to demonstrate the value of IVI. After RCP [ph] in partnership with Abbott to demonstrate the value of the Bio Vascular's cavel [ph] versus the XIENCE stent; the Excel study, which is also a partnership with Abbott on the value of IVUS in less main stenting. Those are undergo -- underway and have enrolled a significant number of patients already.

We will also -- we are also engaged in CAIN, which is a Canadian and global multi-centric study in demonstrating the value of IVUS. And we will also further document the value of both iFR, FFR, as well as IVUS guidance in the multiple vessel disease patients. This patient population that I was sharing with you, the medium- to high-risk patients in terms of syntax core, we believe that IVUS-guided and iFR-guided PCI will provide equivalent outcomes to CABG.

And then lastly, in terms of market adoption, we will engage when the FACT technology will be market released in a post-market registry because this technology just reinvents intravascular imaging because it has potentially the best of both worlds, the penetration of IVUS and the resolution of OCT. So that really opens new grounds for a number of expanded indications which we will collect in parallel with the release of the product.

On the peripheral strategy, again, more of a regulatory approval on the IVC filter to be combined with IVUS guidance. And for all of the other opportunities that we have shared with you, we will go on a two-step approach. The first step approach will be more easy, relatively well-defined, small pilot study to be able to look at the potential value and document the classification value of those technologies, is it in May-Thurner, is it in AV fistula because for those we have a number of enthusiastic physicians that come to us, that have used this on a daily basis but we want to structure the data in a well-controlled study. Once we will have that later this year, then we will have the appropriate hypothesis to structure an outcome-based study which will both demonstrate the medical evidence but as well as the cost benefits for the system and for the payers of those technologies. We will also engage in a similar program for EVAR with a lead detection system.

On the forward-looking imaging study, basically supporting Jonathan and his team in the different generations of forward-looking IVUS, as well as Forward-Looking Intra-Cardiac Echo program. Those are validation studies with first in human studies to be conducted and following up with a CTO registry, which is basically a global study aiming to see -- well, the CTO world is a world where a number of Volcano technologies can play. Is it Valet, is the short-tip Eagle Eye, and is it the FLIVUS solution that we will -- that registry basically document what is the value of our technology in helping physicians perform CTO in less time and better success.

So in short, Volcano position-guided therapies will improve outcome and provide economic benefits by streamlining the patients' clinical path. We are engaging in a program of 15 more studies with 3 goals in mind, demonstrate the clinical and economic benefits of technologies we have today. They are used today, but the limitation is not the technology. The limitation is demonstrating the evidence. 2, supporting our pipeline and regulatory approvals. And three, drive product launches and market adoption. And by doing that, we believe that we have the potential of bringing all of our technologies present in over 50% of this year [ph].

Thank you.

Dale C. Flanders

I am Dale Flanders, President of Axsun Technology, which is a wholly owned subsidiary of Volcano Corporation. And today I'm going to talk about our medical imaging business.

Medical imaging at Axsun means providing optical engines for optical coherence tomography, and that's OCT. And OCT is basically a very high-resolution 3-dimensional technology that provides microscopic resolution. It's effectively an in-vivo optical biopsy. It's nondestructive, can be completely noninvasive. It's a type of procedure that can be performed in our office environment. And in effect, you're getting instantaneous information that's as good as histology which would be typically invasive and require 4 or 5 days to get results. The imaging is done with optical radiation and there are several different wavelengths that are used. Today, most of it is done at 840 nanometers, which is in the very far red of the visible regions at 1 micrometer and 1.3 micrometer, which are invisible to the human eye and near infrared.

There are a lot of different applications and potential applications of OCT. Ones that are emerging, some of these are approved and some are in the process of being developed. There's upper and lower G.I.; there's dermatology; there's surgery, which is typically for margin detection during tumor removal; dentistry, dentistry is very interesting, you can get the same type of imaging information as you do with X-rays plus you can get better resolution, you could see things like cracks, you can see soft tissue and the contact between hard and soft tissue. And then there are applications in the lung which are -- use catheters and allow you to do once again in-situ biopsies essentially.

The biggest application, though, today of OCT is in ophthalmology for diagnostic and for therapy guidance. And today, ophthalmology is done mainly at the 840-nanometer wavelength range. But as I will discuss, this is going to be transitioning to the 1 micron region.

The size of the market is about $500 million and growing in terms of system sales. That's about 7,000 systems per year, mostly used in the diagnostic area. And as I said, today, they use 840 nanometers, which is provided by a LED light source and detected by things called diode arrays. Over the next 3 to 5 years, we expect that all of those systems will be transitioning to what I call swept source systems. And it's the swept source systems that Axsun provides.

The part that we provide is the engine. So we're an OEM supplier to the end-user equipment manufacturers. And we're projecting that, that market for swept source engines will be over $100 million by 2017.

So what do we provide? We provide optical parts which, if you look at the one on the lower left here, that's something about the size of your thumb. And we provide them at 1,310 and 1,060 nanometers. But we also provide a more complete solution which includes additional optics, electronics for driving the source, electronics for processing the image, detecting and processing the image. In fact, one of those engines combined with a catheter and a display is a complete OCT imaging system. Our system leads the industry in terms of speed, imaging depth and resolution. And the reason that people are transitioning from existing technology to the swept source is higher speed, better resolution and better clarity of the image.

We have very special technology. We have a lot of patents. We have over 110 patents which cover various aspects of the technology and a lot more in the pipeline. We're very vertically integrated. We have special semiconductor devices. We have special ways of assembling those devices, and we have unique configurations of those systems.

We have a manufacturing plant in Billerica, Massachusetts where we execute all of this technology. We have our own fab where we make these light source chips. We have a robotic assembly capability which is used to assemble those unique micro devices. We take those systems and we combine them with other optics. We design our own electronics and engine systems and typically most of our sales are sold as the type of product that you see on the lower right there.

We have very unique what are called microrobot technology which allows us to assemble these devices in a way that allows us to place things to within nanometer precision. The part that you see on the lower right is actually something which total size is about the size of a period at the end of a sentence in printed material, so very, very small, very precise technology. So what does this all produce in terms of an advantage over our competitors? We have very fast, and very fast as today, we're selling 100 kilohertz systems, which are 2x to 5x faster than what is deployed out there in other ways today. We can image deep. That means that we have a longer, what's called coherence length, that allows us to see deeper into tissue. And this is very compact. It's very low cost for us to execute, and it's a very scalable design. The -- on the lower right here, you can see we have demonstrated a 200-kilohertz system. This is not for sale yet, but we've published it. And that will be coming out in future years.

If you look at the upper right, it's a demonstration there of what is the advantage of our 1060 Swept Source over an 840-nanometer diode array type of system. It's the 840-nanometer which is used today for ophthalmology diagnosis. And the red outline shows the area that one can see in an eye. With the 1060, you can see that we can see a wider area, and we can see deeper into the issue. We can also get effectively higher resolution, because the eye will follow the visible red light and move during the exam. Whereas the 1060, being invisible to your eye, is more stationary and that effectively gives you better resolution.

So we are engaged with this whole host of people who are listed here. These are the major suppliers of diagnostic and therapeutic equipment. So once again, these are all OEM relationships, all in various stages. The one that's most public is the relationship with Topcon. And Topcon is selling systems based upon our engines in Europe and in Japan and, hopefully, soon in the United States.

So in summary, we have a medical OEM business. Our sales are growing very rapidly. This is driven by the transition to the Swept Source. We're engaged with all major companies who are in end-user applications. We're very strongly differentiated today, and we believe that we have the ability to continue that differentiation. We're working in a lot of these emerging health care markets that I mentioned, as well as additional ones, building a strong pipeline of opportunities there. And we just announced at the recent Photonics West conference that we are selling full OCT imaging systems, which can be used for development for people who don't develop their complete systems. And we're always interested in looking at what we call disruptive vertical opportunities.

R. Scott Huennekens

All right. Thank you, Dale. And now, John Dahldorf will finish up with the financial portion. John is our CFO.

John T. Dahldorf

Thanks, Scott. For those of you engineers in the group, there'll be a test on Axsun Medical at the end of this. No, but anyway, a couple of things, before I get into our long-range -- before I get into our long-range financial overview, I need to share with everybody that as a public company CFO, I've had 2 uh-oh moments in my career. The first one was June 14, 2006, when I realized that we actually did sell some Volcano stock to the public and had a public responsibility as kind of financial investor relations person.

My second uh-oh moment was February 21, 2013, when I talked to Chris Pasquale after we had our earnings call and Q&A session. He said, "John, I think that you might have confused a few of your investors." And I kind of thought about it, and we kind of had our 15-minute one on one. I think my next stop was with Raj, and Raj started out saying the same thing. That was when I had my second uh-oh moment. And so one of the first things I want to do is make sure that everybody's crystal clear on our guidance, okay? So the guidance that I gave during the earnings call regards [ph] with our constant currency growth, okay, or our constant currency guidance. And then what we gave is we gave the as-reported in the press release that followed up.

So just to kind of remind everybody, the $422 million to $428 million revenue is constant currency, that's 11% to 12% growth. The gross margin increase is 65% to 66%, includes about a 200- or 300-basis-point reduction in gross margin and probably starting at the end of the second quarter going into the third quarter. And that's really as we start to deal with the excessive -- excess capacity that we have in Rancho Cordova. Operating expenses, 61% to 62%. Included in that operating expense is SG&A growth of 8%, which includes $3 million of the medical device tax. It also includes R&D expense growth of about 29%, most of that being driven by the addition of Sync-Rx and Crux R&D, which we didn't have in the prior year. It also includes an additional $6 million or so of clinical development expenses that we didn't have in the prior year, that kind of supports the programs that Michel pointed out to us. It also includes about $4.6 million of acquisition-related items, related to just the fair market value of accounting that you have to go through nowadays to -- when you do make acquisitions and about $3.3 million of amortization of intangibles. So all that leads us to is operating margins this year per -- as a percentage of revenues of about 4% to 5%. Under the operating margin line, we're going to have interest expense, as I know I talked to a lot of you about, it's going to be about $28 million this year. Of that $28 million, about $19 million of that is going to be non-cash expense. So again, that non-cash expense is related to the bifurcation accounting and the amortization of the issuance cost. So what that leads us to is EPS of $0.10 to $0.14 loss, non-EPS -- in another words, if you subtract out the non-acquisition-related items, you subtract out the amortization of intangibles and the non-cash interest expense, that fluctuation is about $0.30. So you get about 16% to 20% earnings for the year.

Now as I've tried to remind everybody, 32% of our revenue is made up of yen, about 14% of our revenue is made up of euro. So every dollar at the FX line that changes, about 90% of that drops down to the gross margin line and about 65% of that drops down to the operating margin line. So if you do the math, that will get you from the constant currency to the as-reported numbers that we released in our press release, okay? So I just want to make sure everybody's clear on that. If you're not, please call me and we'll walk through it in a lot more detail.

So getting to the long-range plan objectives that we've kind of talked about. So from a sales growth perspective, and I think it started with Scott and I think it was reinforced throughout the entire presentations that our base business is going to grow 11% to 13%. And when you augment that base business with our new product pipelines, we'll have about a 13% to 15% growth over the entire time of the strat plan period.

Now in the beginning of the strat plan period, the growth will be a little bit slower. At the end, it will be a little bit greater, as products get introduced, clinical programs get adopted and the like. Also by 2017, we estimate that of the new products that we talked about today, that they'll probably make up about 15% of our total revenue, again, by the end of 2017.

Gross margins today, as you just saw, 65% to 66%, we believe that they'll grow to over 71% by 2017. And again, that's primarily going to be driven by us transferring the bulk of manufacturing from Rancho Cordova to Costa Rica. Gross margins over this time frame -- because you'll have gross margin expansion, gross margin will expand or grow on a compounded annual growth rate of about 15% to 17% over this time period.

Operating expenses, again as you just saw, 61% to 62% today, they'll go to about 50% to 51% over the strat plan period by 2017. Operating expenses -- you'll get -- most of your leverage is going to come out of SG&A kind of throughout the whole period, much the same as you saw in 2011 and 2012 and as we've kind of guided in 2013.

R&D is going to probably grow a little bit faster than revenue over the next couple of years. But in the latter half of the strat plan period, you'll see significant leverage on the R&D line as well. So again, operating expenses over the strat plan period will grow about 10% on average.

Operating margins -- as you kind of take the gross margins, subtract the operating expenses, operating margins will be about 19% to 21%. Our goal is really to be 20% by 2017. So as our operating margin kind of increases and as that profitability increases, we also expect to kind of -- to generate significant free cash flow. And when we do this, this should really give us the ability to really kind of think about different strategic alternatives as far as our capital resources are concerned.

The last thing I probably should note, just for those of you that are going to be kind of modeling this out, conservatively, we've used about a 38% effective tax rate throughout the entire strategic plan period.

Okay, so I think what we'll do here is have some closing comments from Scott, and then we'll go to Q&A.

R. Scott Huennekens

We'll come back to that. So in wrapping up, I'd encourage all of you on Sunday night, this documentary -- the Sundance Film Festival awarding documentary, Escape Fire, is going to be playing on CNN. And it's absolutely fabulous for those who have seen it in some of the limited showings that have been out there. And it's all about the problems in the U.S. health care system. And a big portion of this is about over-stenting, and Volcano clearly ties in directly as a solution to a number of the problems that are outlined in this featured documentary.

So again, at the beginning, I said keep this slide in mind. It's the -- it's kind of the money slide of the presentation. I think we've reinforced our ability to achieve 13-plus percent 5-year compound annual growth rate. I won't repeat again what's been repeated a number of times how we're going to do that. But physiology is going to be the stronger growth driver with higher growth rate in the near term, slowing over time with the law of numbers.

Intravascular imaging, we're being conservative in our market growth, as well as our assumptions on taking market share in the 11% to 13% base business growth. We think it's going to do better than that. We need to prove that, as we march forward with the growth drivers that Dave and Michel have talked about. And again, we're excited about our pipeline here at Volcano to augment that growth over 13%.

So again, it's why Volcano now, attractive markets, market-leading technologies and increasing market share as we go forward, a track record of success, a very stable management team that's been committed since we've been a public company and committed going forward here at Volcano.

So thank you. And with that, we'll do final Q&A. And we have boxed lunches for those who would like those as well. So maybe if I can have Michel and Dale and Jonathan and John Dahldorf come back up and there's specials for other people [ph] who'll make that happen as well.

R. Scott Huennekens

Adrian [ph] will hand out the mic.

Unknown Analyst

Quick question on -- just getting back to an earlier question, the interplay between FFR and IVUS and just thinking of hospital economics, I'm guessing you have pretty good insight into center-to-center data here. Do you see a strong correlation between an uptick in FFR and a decline in IVUS at individual centers?

R. Scott Huennekens

No, not really. I think what we see more of is that there are centers that are more sensitive to quality and utilization of these technologies. And they have higher IVUS and higher FFR utilization than other centers. And that's changing with the quality metrics being required now, reimbursement requirements that are driving everybody to it. So then in those kinds of newbie centers, we're seeing more FFR initial adoption. Once people start driving FFR adoption, we see IVUS adoption follow behind them. On the other side, for the heavy -- heavier users, we've seen their IVUS stabilize, maybe go down a little bit, and their IVUS growth really increase -- I mean FFR, sorry.

Unknown Analyst

And just a quick follow-up, you mentioned that an elevation in the guidelines and reimbursement would push growth faster obviously. What can you guys do to make that happen?

R. Scott Huennekens

Joe, you want to join us up here? Because Joe is leading our effort. And one of our board members, Leslie Norwalk, is also here who's the former head of CMS. And he -- and Joe's been working with Leslie on this.

Joseph M. Burnett

I think education and awareness is probably the most powerful tool that we have today. The reality is, is that if you look at the evidence for FFR with multiple, randomized clinical trials, it's actually much stronger than other technologies that are listed in the guidelines today with 1A evidence. So we really already have the power and the data that we believe we need. It's really just getting in front of the right people at CMS, as well as the right people that define those ACC guidelines and making sure they understand how the tool is used and how -- really how easy it is to apply in the new lab.

R. Scott Huennekens

Leslie, you want to raise your hand, if anyone wants to bother you afterwards and ask any questions? She's probably very happy with -- I know she should be happy to answer questions as well afterwards.

Go ahead.

Ben Andrew - William Blair & Company L.L.C., Research Division

Ben Andrew with William Blair. Obviously, you've laid out a very thorough plan for the steps over the LRP[ph], the different pieces that fall in place to get to the growth numbers you're looking for. But in your view, what are the most likely things that could happen that you can control or can't control, that would cause you to beat the plan in a material way? And we all understand there's variability around the outcomes. But what do you think are the most likely drivers of upside?

R. Scott Huennekens

I would say there's 3. We would try to be conservative relative to PCI volumes and economic constraints in our modeling. So the 3 would be, we strongly believe the FFR market's probably going to grow faster than what we're projecting based upon entering these new markets, the technology advances and our market share. So we're feeling good about our ability to continue to grow the market and grow share in the FFR of physiology area. Second then on intravascular imaging, our internal numbers and the value of the data that we see in the peripheral space and the growth of peripheral, I think it's going to drive imaging growth at higher than 3% to 4%. As well as our FACT and OCT being in the market, we're not in a portion of the market today, but according to St. Jude, it's somewhere between a $50 million and $100 million market. It's growing to over $100 million. We're entering that market. We feel like we'll be able to go get a significant portion of it. We don't have that model into our plan on the OCT side. So FACT, OCT and peripheral will drive things above the plan over there. And then putting the pressure on you guys' old friend, Neil here, I think we have a lot of potential overall with Crux and what we're doing with the combo device and what we're going to do in the peripheral space with IVUS as well as FFR.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Chris Pasquale of JPMorgan. A couple of questions for Jonathan on the forward-looking business. You acquired Novellus in 2008. Why is it taking so long to bring the forward-looking IVUS platform to market? What's changed along the way there?

Jonathan T. Hartmann

I think -- I mean, I joined the company about 2 years ago. When I arrived here, it was still in a fairly early stage of development. And since then, we've been working through with multiple generations and following a path with both the clinical pathway, the regulatory pathway. And now, with CE Mark, we're prepared to go. So I think it's just the general challenges you face in medical devices with development over time.

R. Scott Huennekens

I think Jonathan is being nice to his predecessors. I think when we bought the technology, we thought it was further along relative to commercialization when we got in there. We -- again, under our previous leadership, nothing against those people, they worked really hard, the program didn't get to where it needed to get to. Jonathan has run the program for the last 2 years, has set every single one of its timelines and milestones. This is a very, very challenging problem. People have tried to do this since the early 1990s to get to forward-looking imaging. And our vision here is big. It's 10 years from now, we want there to be half the number of bypass surgeries there are today. We want to dramatically impact the amount of bypass surgeries. That's our goal. That's our objective and have a meaningful impact on quality of care that people are getting. So that's the puck that we're skating to. Jonathan is a big hockey player, and we're going to get there. It's taken a little longer. But we're now -- we have clear line of sight. Because DR [ph] is done. We're in clinical trials, done over 50 patients, having great results, clear line of sight for the peripheral indication, clear line of sight to get the catheter smaller over a period of time to get into the coronary as well. The benefit of all that is it's really, really hard. So for a competitor to come out and start from scratch to do all this is a challenge.

Christopher T. Pasquale - JP Morgan Chase & Co, Research Division

Okay. And you talked about a number of different generations of the technology that are in development. One thing I didn't see on there, which has been talked about in the past, is an RF-enabled catheter. Is that still something you feel you need to really have this be a Workhorse platform? And how far down that list of iterations do we need to get before you've got something that can be really a meaningful contributor in terms of sales?

Jonathan T. Hartmann

Yes. We -- so we separated RF from the core technology, really, to expedite the clinical and regulatory pathways. Because when you combine them, it gets pretty complex. Do I see this as necessary for launching? No. And we're investigating multiple tunneling technologies, in Vision's [ph] RF [ph], they can work at friction and the lightphase [ph] technologies. So there are a number of ways we can provide that. But I don't think it's necessary for the first generations.

R. Scott Huennekens

Yes. I would add, we don't see it as a requirement for this to be in a very large and very significant business. We reduced the term railroad before for our system. I think Jonathan would say, "Hey, I want my technology to be the platform with the railroad down the middle." Someone's RF-based wire, someone's laser, someone's cutting device or drill, we don't care. We get across and use the drug-eluting -- believe me, use the drug-eluting stent after you've done that. So if you get across, stay within the lumen, that's going to create the best result. And to be able to do it quickly versus these technologies today that take hours, take a lot of radiation, all the things Jonathan went through.

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

David Roman, Goldman Sachs. One product follow-up, then one question for John. On FFR, it looks like you're progressing closer and closer to getting a Level 1 guideline break. Can you maybe just walk us through the specific process? What has to happen to get the guidelines changed? And then maybe from there, what is sort of the cascade of events that might need to take place to get reimbursed and similar to what you guys experienced in Japan and maybe put any timelines around that, that you could?

John T. Dahldorf

Sure. I'll do my best to walk through that particular process. The ACC guidelines themselves are agreed upon by a group of sort of steering committee members relative to the American College of Cardiology. They review regularly different clinical evidence that's presented. They generally look to obtain 1A evidence. One of the big barriers is that they want a randomized clinical trial to show the benefit of a technology or procedure. And then, 2, they want to see that trial repeated. So they actually look for multiple, randomized clinical trials that point directionally in the same situation. Now once that evidence is available and published, they actually -- they review guideline recommendations. And the first step is to actually make that apparent to the community for I believe was called then a write-in session. So they would make their guidelines or the recommendations public. And then other physicians and clinicians would be able to write in their comments relative to if they agree or how they would impact or support that particular technology. Now once that happens, if the sort of pros outweigh the cons, you can be elevated to the 1A evidence. And importantly, when we talk about reimbursement, that's a very important first step. Whether it's CMS or it's private payers, a lot of times, the first thing they do is they go directly to the guidelines to find out what level of evidence it is and to see if the physician community, in fact, supports any sort of change that they take. Now in our standpoint, we have sort of 2 different shots on goal relative to reimbursement. One is specifically getting an add-on code, so that the FFR, either through the material itself or the physician's time and energy, is adequately reimbursed no matter the setting. So today, FFR is reimbursed if it's done during a PCI procedure. But if the FFR is negative, meaning a stent is not placed, the physician does not get reimbursed for doing the procedure. So one element is to simply get that add-on physician payment code applied to a diagnostic angio and also a PCI. The other end of the spectrum is FFR can sort of be a gatekeeper-type technology, where a hospital or physician may not get reimbursed for the entire PCI procedure unless they've documented and proven ischemia or a necessity of that patient. So in that case, even though FFR wouldn't be directly reimbursed, it would be a requirement to get the PCI reimbursement and would serve the same purpose from our perspective.

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

So just to understand where you are in that process, you have the 2 randomized, controlled clinical trials, the FAME I and II. Has this been -- where are we sort of in the -- in that write -- the write-in process obviously has not begun yet.

R. Scott Huennekens

So let -- the fact of the matter is that this is political in nature as well. So you have the same rules that apply in Europe, and this has been approved as Level 1 evidence for 1.5 years. So this process is in -- just goes on and the powers that be are battling this out. I mean, for all intents and purposes, the data is Level 1 evidence data. You can look at numerous other technologies that are Level 1 evidence that don't have randomized clinical trials, that don't have the size of data sets that FFR has. But that doesn't matter, we are where we are. We continue to lobby, so does St. Jude, so do physicians, cardiologists. So every year, we go through this process and continue to put pressure on the system.

John T. Dahldorf

And importantly, reimbursement has a number of different audiences as well. So we don't just look at CMS. We also look at the private payers as well, and we've actually created a new function at Volcano that specifically calls on the different reimbursement parties to present the evidence and present our desired workflow as well.

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

Okay, that's helpful. And then for John Dahldorf, on the free cash flow piece of the story, I mean I think you're roughly in the $10 million range in 2012, and you're sort of pointing to $120 million in 2017. But if I look at the margins that you've put out, that gets you only part of the way there. I didn't see a fairly dramatic change. It looks like on the working capital or CapEx line to get there, just what are the levers that support that $120 million number in 2017?

John T. Dahldorf

Yes. So one of the things that you have to take into consideration is the last 2 years, we've invested heavily in our Costa Rica facility, as well as putting in new systems in -- it's to kind of support the growth of our infrastructure. And so, I would say that over the last 2 years, between those 2, we -- and our normal kind of capital requirements, there's probably $70 million to $80 million that we spent, kind of a normal CapEx level for us to kind of support the growth that we've talked about here. It's about $25 million a year.

R. Scott Huennekens

Yes, Ross?

Ross W. Comeaux - JP Morgan Chase & Co, Research Division

Maybe just ask about acquisitions. I know you guys -- obviously, the convert you have almost $500 million, I think, now, if you include securities for sale. You've given some broad guidelines around what you're going to look at. But maybe you could talk a bit about some of the other characteristics you consider in these acquisitions, things like dilution and return characteristics you're going to look for, or whether it's simply to support the broader strategy and you're really going to look for things that support that top line more so than really preserving the bottom line you've laid out.

R. Scott Huennekens

Yes. So our approach is multi-factorial. I think it's revenue, it's strategic, it's operational leverage, which all mean shareholder returns to us. So we talked about the fact we're looking for deals that are ready for commercialization or have sales that are leverageable from a revenue, gross margin and operating expense standpoint, support and generate growth above our rate of growth also that can create above our rate of gross margins and can create operating leverage as well. So what we talked about is things that may be dilutive for 1 year but not 2. Those are the detailed characteristics of what we're looking for.

Ross W. Comeaux - JP Morgan Chase & Co, Research Division

So you would take dilution. I mean that's kind of [indiscernible].

John T. Dahldorf

Well, Ross, one of the things you need to think about when you have a company our size, okay, it is very, very difficult to find an acquisition that's not dilutive, when you're a company our size, where we are from a profitability perspective. So it is kind of -- we just -- that's one of the things that we just have to kind of deal with as a company. But as Scott mentioned, what we want to try to do is we want to try to minimize that dilution as much as we can. Our sensitivity points along with the strategic elements and everything. Again, as what Scott said, is we're very sensitive to diluting our revenue growth. We're very sensitive to diluting our gross margin expansion, okay? So that's kind of where we start. And if we can kind of check those off, these deals will become accretive very quickly. I think you'll see that in the Sync-Rx deal, and you'll also see that in the Crux deal.

Matthew Keeler - Crédit Suisse AG, Research Division

Matt Keeler with Credit Suisse. Just another question for John. Can you quantify the impact -- the ongoing cost at Crux and Sync-Rx in your 2013 margin guidance? And then kind of looking at the R&D investments you've outlined in the base business and the ramp at Crux and Sync-Rx, what kind of margin expansion do you think is possible in 2014?

John T. Dahldorf

Yes. When we get to 2014, we'll talk about that in a little bit more detail, Matt. But yes, obviously, in 2013, we've factored in about $8.5 million of R&D between the 2 as far as the R&D is concerned. And then as the team spoke about, we do plan on introducing both of those products in 2014 and start generating revenue. And as we do that, they will become accretive very quickly.

R. Scott Huennekens

The last question? Anyone?

All right. So wrapping up here. Thank you, guys, all very much. Good luck with your travels. Looks like the snow has held off, so we're all in good shape. But thanks, again.

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