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C. R. Bard, Inc. (NYSE:BCR)

Annual Analyst Meeting

June 03, 2013 4:30 pm ET

Executives

Todd W. Garner - Vice President of Investor Relations

Timothy M. Ring - Chairman, Chief Executive Officer and Chairman of Executive Committee

John H. Weiland - President, Chief Operating Officer and Director

Kevin Hong

Sharon M. Alterio - Group Vice President

Peter Curry

Jim C. Beasley - Group Vice President

Steve Williamson

Abtihal Raji-Kubba

David Hemink

John Groetelaars

Daniel L. Miller

Timothy P. Collins - Group Vice President

John A. DeFord - Senior Vice President of Science Technology & Clinical Affairs

Sean Lyden

Analysts

Robert A. Hopkins - BofA Merrill Lynch, Research Division

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

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

Konstantin Tcherepachenets

Robert M. Goldman - CL King & Associates, Inc., Research Division

Matthew J. Dodds - Citigroup Inc, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Matthew Taylor - Barclays Capital, Research Division

Jonathan Demchick - Morgan Stanley, Research Division

Operator

Ladies and gentlemen, welcome to the CR Bard Analyst Meeting. [Operator Instructions].

Todd W. Garner

If everybody could take your seats, we're going to get started here.

Good afternoon, everybody. I'm Todd Garner, Vice President of Investor Relations at CR Bard. Before we get started, I'm going to take a minute just to cover couple of housekeeping items. First, during the presentation, we'll be discussing some forward-looking statements. The accuracy of which is subject to risks and uncertainties. Please refer to the cautionary statement regarding forward-looking information in our most recent 10-Q and the information under the caption Risk Factors in our 10-K from December 31, 2012, including disclosure of the factors that could cause actual results to differ materially from those expressed or implied. Please also note that information that is not historical is given only as of today, June 3, 2013, and the company undertakes no responsibility to update. Additionally, references will be made to certain non-GAAP measures which management believes provide additional and meaningful assessment of the core operating performance of the company. These non-GAAP measures are reconciled to reported results in the Investor Relations section of our website. As we go through the presentation, all comments and the revenue growth and market sizes will be global and constant currency unless noted otherwise. And the markets only include the specific product segments of the given markets that we participate in or plan to. And a recording of this meeting will be available on our website for replay.

Also, during today's presentation, you will hear from 3 physicians who will discuss certain disease states. Dr. Maher and Doctor Miller are paid consultants for the company. Each of the 3 physician presentations are the doctors' own and do not necessarily represent the views of the company. The physicians may discuss treatments or indications not covered by Bard products, today or in the future. You should not infer that we are pursuing potential indications discussed by our physicians. Our product labels and inserts identify the indications, contraindications, hazards, warning, cautions and instructions for use for our products.

And with that, I'll introduce Tim Ring, our Chairman and CEO.

Timothy M. Ring

Thanks, Todd. Good afternoon, everybody. I'd like to welcome you all to our Annual Analyst Meeting. Obviously, we're having it at this time of the year. Traditionally, we've done it more in December, and I think going forward you'll see us doing it more along this time of the year in the calendar. Because we are in the early stages of our multiple year investment plan, we're going to take a little bit different approach to this meeting than you've seen in the past.

We're very excited to share with you the strategic plan and we plan to share with you today, as much as we can, without tipping the hand too much to the competition, relative to where we're headed. While you'll see a product pipeline update today, including some teasers that you can look forward to hearing about more in the future, we're going to spend more time today laying out the longer-term market opportunities as we see them in front of us. These opportunities will include geographic expansion of our current product portfolio and the expansion of recently acquired platforms, leveraging our internal core competencies in R&D, operations and our sales reach, to realize the potential for these technologies.

We're also going to give you a deeper look into the organization today. You're used to hearing from me and John Weiland and John DeFord, and we haven't let them off the hook, as you can see. In fact, after my initial comments today, both John DeFord and John Weiland will act as the bookends for the presentation today. In between, you'll hear from our group presidents, group vice presidents and a few of our division and geographic leaders. And as Todd Garner mentioned, you'll also hear from 3 highly respected physicians talking about some of our key technology platforms that are in the very early stages of market development and penetration in their technologies.

Obviously, notable here, Chris Holland, our senior VP and CFO is not with us today as he is with his young son who, on Friday, had a planned significant surgical procedure, remains in a hospital. We're happy to report that everything went well with the surgery, but the recovery is extensive and Chris is where he needs to be right now. So we wish his son and family the best there.

We would expect the formal part of the presentation to last about 90 minutes. We're going to try to keep the Q&A to about 30 minutes, after which we'll move over to the other side of the lobby for our product fair.

In January, we presented you with 3-year financial guidance in conjunction with our strategic investment plan. The objective of this plan is to return to our historic model of above market revenue growth and above market earnings growth. We believe that the plan you're going to see more -- or hear more about today puts us in a position to deliver 200 to 300 basis points of sustained revenue growth above the markets we're in, beginning in about 2015. We said this before. The formula for faster growth is frankly not that complicated. It starts with investing more in faster growing areas, and that's what we're doing. Today, you'll see that the long-term opportunity in front of us, in emerging markets, is substantial. You'll also see that we have significant runway in our newly acquired technology platforms and we are aggressively pursuing additional ones. We have execution plans in these spaces to leverage our internal R&D, our regulatory and operations core competencies to accelerate the penetration of these technologies and to expand their use in the new markets and various new indications in other parts of the anatomy. If you look at just be selected opportunities alone, just these markets, we believe that through expanding our product portfolio and gaining access into new areas, the incremental market value accessible to us will increase by over $6 billion by the year 2020. While these highlighted categories represent our most significant targets today, we have many more initiatives in the works to drive faster growth that aren't on the Slide. You'll see that the runway for revenue growth here is sizable and it's real. We think that any reasonable share assumption within these opportunities would result in an attractive long-term revenue growth rate for the company. That's why we're confident in the growth rates that we've communicated. You'll also see that, with our balanced portfolio, we have multiple opportunities with a spectrum of launches from iterative extensions to disruptive technologies. Over the last decade or so, we've increased our gross and operating margins by about 10 percentage points, and have established a market-leading operating margin percentage. Today, you'll see real opportunity to improve these margins further. As we grow our revenue through margin-accretive products and increase our global units through international growth, we see an edge and that reduces costs, increases our P&L leverage and improves our overall margins. We're known in the industry for our quality and our clinical effectiveness. You'll see that we remain committed to that market-leading position while producing more evidence of the economic value of our products for the global healthcare system. In addition to our clinical sales forces, we've also have -- we also have an institutional sales force that's been in place for many years, focused on C-level administrators in the top 200 health care systems and hospitals in the United States. So we're very well-positioned to deliver the solutions our customers need at a value that they'll embrace. We believe and we do think this is really that straightforward. We know how to do this and we have a long track record of successfully executing on these principles. The U.S. healthcare environment has changed permanently. At least, that our perspective. We needed to make some adjustments and dramatically increase investments in some of key strategic areas, and we believe that we're in a position to execute this strategy and control our own destiny to drive faster growth and improve profitability for years to come.

Before I hand it over to the team to provide you further detail in some of the different parts of the plan. I wanted to give you an update on the Gore litigation. As we told you in January, at this point our investment plan has been decoupled from the timing of the litigation. So we're moving forward aggressively with our strategic plan. We continue to expect the infringement and royalty funds to be released to us this year although we can't say what month that will happen. The next step is oral arguments in front of the District Court of Arizona. One update. We did learn Friday that, for personal reasons, the judge wants to move the hearing by about a week. We currently expect the hearing, therefore, to occur on June 12. After the hearing, we'll then wait the rulings from the judge and update you on our expectations after that. So, with that, let me now turn you over the John Weiland, our President and COO. John?

John H. Weiland

Thank you, Tim. Good afternoon, everyone. I'm happy to report that we're off to a very strong start on our investment plan, and our decentralized teams are really focused on execution. And I'd say that, from my perspective, we're hitting on all cylinders out of the gates here. The incremental investment plan includes over 40 projects and over $70 million just in the first year. We're early in the process. So today, we'll give you varying levels of specificity on 29 of these projects. On some, you'll get as much detail as we normally give. On others, for competitive reasons, it may just be a hint at this point. What you don't see today, you'll hear more about in coming quarters as we get closer to product launches. In SG&A, we'll talk about 12 of the incremental projects that represent the majority of the first year investment. In research and development, we'll talk about 17 projects across the various categories of investment which represent about half of the R&D projects in incremental plan. We estimate that the total SG&A and R&D projects start contributing revenues slightly in 2014 and add an incremental 2% to 3% to our annual revenue growth, longer-term, starting in 2015.

Throughout the presentation, we'll use this same identifier that you see here, the bright green star, to identify those projects that are part of our incremental investment plan. To be clear, these incremental growth contributions are above and beyond our baseline initiatives that were already processed improve our revenue growth. As a reminder, each incremental project went through a rigorous filter that considered commercial, legal, regulatory, clinical and operational factors. We use these process to down-select from well over 100 opportunities, the most impact-ful projects that we were confident your organization could execute simultaneously. While the financial projections that we share with you were adjusted based on the level of risk, internally, our teams are measured by a much higher revenue-driving level and commitment from their end.

This is a live strategic plan. We expect to make adjustments along the way as market intelligence and facts on the grounds evolve. And we'll also continue to rationalize our overall portfolio with our resources aligned towards our strongest growth opportunities.

Emerging markets is at the top of the list in terms of opportunities. As you all know, we have moved very methodically in emerging markets in the past number of years. Our objective has been to build a strong foundation which would allow sustained revenue growth over the long run. Employee selection and retention are key aspects of a long-term success in these markets. We built strong teams and our investment plan leverages them to expand our presence.

From a product perspective, we have built our business on a focused set of key product lines where we have strong differentiating capability, clinically. We have invested significantly in training commissions and establishing a strong commercial marketing and regulatory relationships in-country. We still have a lot of room to run with our current strategy and think we're in a position to broaden our reach at a faster pace. We have also established our clinical teams, systems and controls, and supply chain operations that we can leverage going forward.

As we built that foundation, our sales results have exceeded our targets in a period when developed markets were underperforming. We have taken the mix of emerging market revenue from 2% of our total sales in 2008 to 7% currently. Still less, however, than most of our peers. We told you in January that we would add approximately 300 physicians in emerging markets in 2013. That's on a base of about 600. So an increase of approximately 50%, and the vast majority of those individuals are customer-facing. We expect to see the impact of this investment over the long-term, beginning next year.

From a product perspective, we're actively expanding the portfolio internationally and we expect this trend to accelerate in the future. Our emerging market growth rate, to date, has come from less than 10% of our total portfolio of products. As we arm more personnel with more products over the next several years, including our most innovative technologies, we are confident in our ability to improve the contribution coming from international markets. China has been a primary focus over the last few years and represents approximately 1/2 of our emerging market revenue today. The model we followed in China is representative of our approach, which we are duplicating in our geographies.

So to give you a closer view into that model, let me introduce Kevin Hung, the General Manager of Bard China.

Kevin Hong

Thank you, and good afternoon. As John said, we have spent the last few years building our infrastructure while successfully growing commercially. Our focus has really been to, first and foremost, [indiscernible] professional sales force with capacity for significant growth. The talent selection process and ongoing organization environment are probably the most important aspects of our success today. We have also made significant investment in training and education for our employees, and for the customers and conditions we serve. We have built 2 training facilities to date that operate around-the-clock, 7 days a week. We have educated thousands of clinicians and we intend to expand this capacity going forward. We trained clinicians and nurses on products and procedures, from PowerPAKs to LifeStent, HD Mesh [ph] to biopsy products. We're still in the early-stage and have a lot of room to grow with the new products and a growing reputation.

As one tenet of our model, we seek to influence good clinical practice through standardization of proven protocols. For example, we entered into a partnership with the Minister of Health, of China, to establish practice guidelines and training protocols for proper placement and maintenance of PICC's for major cancer procedures. Today, we cover approximately 75% of Class 3 hospitals in China and approximately 25% of Class 2 hospitals. This coverage represents about 50% of what we see as our addressable market today. In some cases, we may have only 1 person covering the entire hospital. When in the U.S. you would probably see up to 10 Bard reps covering a similar size hospital. So while we see -- we have many opportunities to help develop in a growth market. We also have significant runway ahead just by gaining a broader and a deeper reach into these hospitals.

This animated map shows the growth of our organization over time. The red stars represent the locations of our sales personnel and the large yellow stars are our 2 training centers. By the end of this year, we'll have approximately 300 sales personnel across China. Approximately 25% of the incremental SG&A investment plan is focused in China. In addition to the sales force expansion, we are improving our regulatory capabilities and processes in order to gain new product and the renewal approvals faster. In the long-term, we are positioned our organization to expand beyond the premium segment of the market.

Based on our current assessment, we estimate that the market we're operating in today represent approximately $600 million. And you can see the breakdown here by business. We believe that our current investment will further develop these markets and also give us access to new areas that we are not in today. Bringing the total value of the markets we participate into approximately $2 billion by 2020.

So, now, I would like introduce you to Morlock [ph] our General Manager for Latin America.

Unknown Executive

Thank you, Kevin. As John said, in Latin America, you see that we are applying a similar process that Kevin described for China. Obviously, each country has its unique characteristics, but the process of building a secure foundation and the proper order in walking-before-we-run works, and we're applying that model across Latin America. We estimate that we are probably where China was in 2009. To date, we have focused on establishing our legal presence, hiring the leadership team and building a sales presence, registering and launching a focused set of key products and beginning to train clinicians.

Just as they show in China, these graphic shows how we have build our organization by year. The red stars represent the locations where we have sales personnel, and you can see that we are making significant increases in investment in 2013. Approximately 25% of the incremental SG&A investment plan is focused on Latin America. We are almost doubling our sales force with significant expansions in Brazil and Mexico, and establishing our sales presence in Colombia, Argentina and Chile. And we are also using the incremental investment to accelerate our clinician training capabilities through the establishment of training centers in key geographies. We currently estimate that the markets in which we participate, in these 5 countries alone, represent approximately $210 million today. And you can see the breakdown, here, by businesses. We believe that the investment we are making today, and our plans for future development in these countries, will give us access to markets, totalizing approximately $750 million by 2020. We are putting our resources where we see most value, and as we penetrate these markets and gain more visibility into the region, we believe that the total opportunity in Latin America is likely north of this number. We are very excited about the current investment plan and we are confident in our ability to provide significant returns to our shareholders for years to come.

Now, I'd like to introduce Sharon Alterio, Group Vice President.

Sharon M. Alterio

Thank you, Mark. The examples in China and Latin America give you a flavor for our approach in emerging markets. The other geographies that we're investing in today are Saudi Arabia, Russia, Turkey, Korea and India. We are in the early stages in most of these countries and we have identified significant market opportunities over the next several years. We're moving more quickly while still being wise about picking battles we're confident we can win and get paid for. We expect, down the road, we'll be investing in many more countries, but the opportunities that we've quantified for you today only include the countries we mentioned. We're now going to transition away from geographies and discuss products and platforms. We'll start by hearing from Peter Curry, President of Bard Medical.

Peter Curry

Thank you, Sharon. Tonight, I'm going to spend my limited time focused on our targeted temperature management portfolio. It has been well known for centuries that cooling critically ill patients improves outcomes. The parameters and methods of cooling, and identifying optimal protocol for in-clinical settings, has been a struggle for clinical science over the years. The last decade could be characterized as a period of building the scientific foundation for therapeutic hypothermia. We believe the next decade will be the period of expanded applications for targeted temperature management. The key catalyst for the market was in October of 2010 when the American Heart Association upgraded therapeutic hypothermia to a Class 1 recommendation for out-of-hospital sudden-cardiac-arrest patients. Other organizations also added similar recommendations to their guidelines, included the American Stroke Association, the Canadian Heart and Stroke Foundation, the European Resuscitation Society and the Japanese Stroke Society, as well as others. Several of these include specific time and temperature and duration of cooling, as well as parameters around controlled rewarming as critical to the desired treatment. Those customers initially attempt to meet these recommendations by using ice bags and cooling blankets because of cost, but they soon realize that the accuracy, precision, control of inpatient access are not what they need to realize the improved outcome they desire. The ARCTIC SUN Temperature Management System combines ease-of-use and control to shorten the time from door to target temperature, and manages temperatures through all phases of therapy. Arctic gel pads create contact that promotes efficient conductive energy transfer mimicking water immersion. This proprietary contact technology is key to our ability to manage temperature faster and more efficiently than all other surface technologies. Arctic gel pads are easy to use and can be placed by nurses within minutes of arrival in the hospital. Therapy is initiated by pressing only 2 buttons on the device. Delaying cooling to wait for a physician to insert an intravascular catheter could be mean the difference between life and death.

Education and awareness of targeted temperature management is paramount to reach patients around the world it need of this critical therapy. Bard has recently created a medical liaison group whose mission is pure education and product agnostic. This team is responsible for driving awareness of therapy and clinical activity in current and future disease states. This program will also be an important vehicle to drive disease state guidelines and protocol development. For emerging technologies, clinical and economic evidence are primary drivers for adoption. Today, the benefit in sudden cardiac arrest is clearly established, and we see the opportunity to grow the field by making necessary investments in targeted trials for other users. Obviously, with this acquisition, we saw the expansion of this technology platform. We are using incremental investment to accelerate the plan and access these large patient populations sooner.

Sudden cardiac arrest; neurogenic fever, including traumatic brain injury, and stroke and acute myocardial infraction continue to be the primary markets where we see significant long-term growth opportunity. In the U.S. alone, well over 3 million patients are afflicted with one of these potentially fatal events each year. Today, we believe that only about 15% of these patients receive some sort of cooling therapy. The serve market, internationally, is far less well-established than in the U.S. and we expect to see a higher growth curve there. This brings the estimated global opportunity from an approximate $100 million, currently, to what we estimate to be about $700 million by 2020, and well on its way to the $1 billion market opportunity we've spoken of before.

We are the market leader today and we believe we are in a perfect position to maintain leadership with continued investment in market expansion, market development, evidence and portfolio expansion. Now, I'm pleased to introduce Dr. Stephan Mayer from Columbia University Medical Center.

Stephan Mayer

Thank you very much. I'd like to thank the Bard folks for inviting me to speak to you today for the next 10 minutes. I'm going to try and drill down a little more and take you to front lines of what we're doing in ICUs and emergency rooms as we try to confront terrible problems that can affect us as human beings. Basically talking about dying or dropping dead, which is sudden cardiac arrest, heart attack, stroke and a variety of other critical illnesses. Now, you heard that we've all known for hundreds of years that critically ill patients could benefit from being hypothermic. And that's true. The problem was that these folks a hundred years ago weren't in ICUs. They were maybe floating in a frozen pond or up on a mountain somewhere. But we've been able, now, to harness the kind of power that we get with hypothermia. In neurocritical care, and this is a specialty where we work in intensive care units and we focus on the treatment of stroke, traumatic brain injury and cardiac arrest. We're now in an age of, what I call, biotherapies. Lot of neuroprotective agents have been tested for cardiac arrest and stroke, nothing's ever worked. So we're back to the drawing board and we're testing hypothermia and other types of biotherapies like hormonal therapy for TBI, magnesium infusion in stroke. And what we're trying to do is take the stories, the little kid that falls to the ice and they're pulseless and lifeless for 40 minutes. They're fished out, resuscitated and that's not the amazing part, the amazing part is the brain still works. So we now know that hypothermia can, have very powerful neuroprotective effects by calming down a storm of harmful biochemicals' secondary injury that primarily plays out in the brain, but in other organ system as well. As an intensivist, we're all control freaks. And we know that if we get a patient who's a lost patient, who's been resuscitated. We know that their optimal body temperature is 33 degrees centigrade for 24 hours with very careful rewarming. And we've made a huge impact. We've taken survival rates, overall, for instance, citywide, that were 15, 20 years ago down to 1% of cardiac arrest patients delivered to New York City hospitals, leaving alive and we've got that number up to 10% or 15% now with hypothermia.

Also, there are a lot of other opportunities that we have in other disease states. As a neurointensivist, there must be some kind of optimal temperature management scheme or protocol for traumatic brain injury, for the various forms of stroke that we treat and that really, for us, is the challenge that we confront in the next decade. Hypothermia has been around in medicine for a while. It's use was being explored in the '40s and '50s and it underwent kind of a dead age starting the '70s and '80s. And when I was growing up, even the '90s, no doctors and no nurses were really cooling anybody except in operating rooms. Because of all the technical challenge, challenges that existed, you could make somebody hypothermic for a complex surgery for a 4-hour surgery or 6-hour surgery. But what the new technology allows us to do, like with the ARCTIC SUN, we've been able to move this technology now and work simply and efficiently in the intensive care units. We're moving ARCTIC SUN now into the emergency rooms, where, in this hectic environment, we're now initiating cooling within minutes of when the patients get to the door. And one of the things that I believe is that as we continue to move to feel forward, we're going need to be able to figure out how to cool patients in the ambulance, in prehospital settings of trauma of cardiac arrest and stroke. We're doing that now in New York City with cold intravenous fluids, a relatively simple approach. But there must be a better ways to do this, more precisely and more effectively.

So we heard a little bit about the different types of applications that we can think about and I want to just kind of touch base in each of these disease entities, starting with cardiac arrest, because cardiac arrest really is the first home run for hypothermia and that home run went over the fence in 2002. These were the 2 landmark studies published in the New England Journal of Medicine. I've been working in the field in terms of pilot studies in trauma and stroke, including studies that I was involved with [indiscernible] Columbia. But these were 2 positive trials showing that if you were a selected V-fib or patient, and you were taken in, that the hypothermia for every 6 patients that were treated, 1 person, who would've died or have been left in a coma or vegetative state for the rest of their life, was experiencing remarkable recovery. So that's a number needed to treat of 6 and in the world of therapies that we live and work in, 6 patients to get a life back is a very, very profound, very powerful treatment effect.

Cardiac arrest then has hypothermia as its established standard of care. We've been told that it takes, on average, when you get evidence like that in a randomized controlled trial, believe it or not, it's been said, and I do believe it, it takes 14 years, on average, for physician and hospital practices to fully change and for these best practices to penetrate into the real world. In cardiac arrest, we're making great progress, including the fact that, now, in New York City, and I'll mention this later on, we went from a situation in 2002 or '03 where if you had a cardiac arrest right out the street in Times Square, you're almost certainly not going to get cold and now, today, you almost certainly are, through organization with the Fire Department of New York and the Greater Hospital Association, we've now made -- worked hard to get this therapy to people who need it into the right hands. But I will remark, there still are challenges and there are -- it's pretty much mainstream in the academic medical centers and the big cities, but we still have a lot of work to do to get this treatment out to all the reaches of the healthcare system.

Traumatic brain injury is a scourge in our society and if you're familiar with the literature at all, there have been some trials that have been negative, looking at early neuroprotection. So severe TBI, we're going to cool you down right away and see if you have a better outcome, half a year later. And these trials have been inconsistent and not positive to date. So it is true that we need to know more about the optimal ways to cool trauma patients at the get go for neuroprotection. But in the meantime, what you may not know is that in the background, cooling patients has become mainstream as a essential component of therapy to treat the delayed brain swelling or the increased intracranial pressure. And at centers like Columbia and other major American medical centers now, hypothermia has actually replaced this conventional treatment. You'd hear about medically-induced comas for treating severe TBI. And at my center, for a number of years now, we've completely abandoned that approach. We get much better results, much safer with hypothermia.

This is truly leading-edge stuff and we're going to see more along the lines of integrating hypothermia for fever control and as a component for treatment for increased ICP. And even bigger, a potential for a benefit here to be as true game changer is the story with acute ischemic stroke. So everyone knows that heart -- MI, occlusion of the coronary, is the #1 killer and #1 disease in the U.S. But right up there behind it is stroke. Stroke is a massive public health problem, 750,000 strokes a year in the United States. We have no treatment, so far, that's proven other than reopening the vessel of tPA. Well, we've been looking for decades for neuroprotection, and after many pharmacologic failures, the field is perfectly poised now to take hypothermia out with very early treatment in the pre-hospital setting. And I and the others are actively engaged in trying to set up and organize these trials, giving us the promise that maybe we're going to be able to do for stroke, what we've been able to do for cardiac arrest.

There other conditions as well, such as MI, sepsis [indiscernible], yes, which are huge killers as well, where we haven't really even begin to explore the potential applications of therapeutic hypothermia or temperature modulation. We don't know how effective it's going to be, but these are also very promising areas where there's a lot of buzz, a lot of interest as we move forward.

Just a little bit about the story. And then I'll wrap up. I was -- we set up a Columbia Presbyterian, a therapeutic hypothermia protocol, in our neurological intensive care unit. So if you're having arrest, we're ready to cool patients. We were frustrated that we weren't getting a lot of referrals but we did notice a steady stream up from the mid to late 2000s. People -- we'd get a frantic calling, we got to transfer this guy, he got a cardiac arrest. We heard you're the only hospital in New York City that's cooling as a protocol. We've got to send him. And what was interesting was these patients that were coming is something very, very much in common. They're very often doctors who had cardiac arrest or husbands of nurses who knew about hypothermia and that type of thing. And the trend became kind of alarming and I realized, we've really got to do something for the guy on the street. And that's what lead to New York City Project Hypothermia and this collaboration with the Fire Department of New York starting in 2009. If you had an arrest in New York City, you are only going to be taken to a hospital that have a hypothermia protocol. So like an action potential, very quickly, everyone went from saying, well, we're not doing it because no one else is, and then everybody jumped in the bandwagon. And we're able to show that we've had a 5% increase in survival in just 1 year in the first-year of implementing hypothermia citywide New York City, and remember that only 40% of these patients were getting the cooling treatment anyway. So a lot of buzz around hypothermia and, obviously, I'm a great believer in this technology and I look very much forward to continue in advance the field in the future.

Jim C. Beasley

Thank you Dr. Maher. Good evening, Jim Beasley, Group President and before I hand this over to the leaders of our vascular and oncology teams, I'd like to highlight our leveraging technologies and expertise across our businesses. A couple of really good examples come from our imaging technology that we developed in the oncology team, that we believe can serve as a platform across other businesses. Specifically, we developed our preview, vision and phaser technologies, which grew out of our Site-Rite platforms for PICC placement. We're using some of the incremental investment that we're making to advance these technologies for use in peripheral vascular and biopsy applications. We think we can bring a significant benefit to our customers and patients in these spaces with easy-to-use, application-specific imaging products. We also believe there's upside in international markets for imaging products, so we're also using some of the incremental investment dollars to expand our imaging platform internationally as well. We believe this investment should enable and accelerate the use of our core product portfolio more broadly outside the United States. For example, if you look at our PICC experience in the U.S. We've improved visualization, tip navigation and, now, tip confirmation and we've seen significant clinical benefits related to placement accuracy. These benefits can lead to savings from the hospital through reduced complications, reduce product cost and procedural efficiencies. We benefit through increased PICC sales as customers get more and more comfortable with these advanced technologies. I think this is a prime example of how economic value is much more about -- the economic value is much more important than price. We're actively applying this model across more geographies and into new therapeutic areas. So these are just a few examples of an increased focus we have to leverage our current technology into new areas.

Now, I'd like to introduce Steve Williamson, the President of Bard Peripheral Vascular, who will walk you through our pipeline in PV.

Steve Williamson

Thank you, Jim. We have a lot of activity going on in the vascular space and, today, what I'll do is give you a look at some of our upcoming launches and then a glimpse of some projects we're working on a little bit longer term.

To get started, we're very excited to report that we recently received FDA concurrence for the Denali next-generation optional Vena Cava Filter. We received this concurrence about 6 months faster than we had originally projected. We believe that the advanced design, the long-term retrievability and the clinical data associated with this filter could make Denali a game changer in the filter marketplace. The easy-to-use delivery system provides accurate deployment while the new laser-cut design and penetration limiters enhance the filter's performance. Finally, in accordance with FDA's recommendation, the Bard reach program will continue to allow physicians to maintain close contact with their patients to follow-up retrieval consultations.

Over the past several years, there's been a high level of excitement related to minimally invasive treatment of heart valves. The PTA balloon is the primary minimally invasive tool to treat valve disease and to facilitate accurate percutaneous valve placement -- replacement. We're leveraging our expertise in ultra-noncompliant, fiber-based balloons to facilitate consistent and accurate outcomes for both transcatheter aortic valve replacement and standalone procedures. Our VIDA valvuloplasty submission is currently with the FDA and when it's cleared, we look forward to facilitating better patient outcomes in this high-growth segment.

In the next several weeks, we also anticipate FDA concurrence for our ULTRAVERSE RX small-vessel rapid exchange platform. The RX platform is designed to reduce the need for a second operator and we believe that the long catheter length on our product, it will be the first balloon catheter on the market long enough to treat lesions below the knee, via radial-brachial access. The small vessel PTA segment is the fastest-growing PTA segment in peripheral arterial disease and we expect this rapid exchange offering to bolster our product leadership position. The FLUENCY In-stent Restenosis clinical trial continues to progress as planned and expect to compete in the large double-digit growth covered stent market in mid-2014. The bottom picture on this slide shows a FLUENCY stent within a restenosed stent. We expect the data from this clinical trial to show that FLUENCY is more effective at treating in-stent restenosis than PTA, and that's the current standard of care for patients receiving dialysis. Furthermore, the broad range of sizes will offer a better option for physicians when treating central veins.

Turning to our biopsy business, where ultrasound is the fastest-growing modality for performing breast biopsies. We launched the SenoMark Ultra in late Q1 and we've been receiving excellent feedback from our customers. It's migration resistance and immediate and long-term visibility under ultrasound make this product a key addition to our breast tissue marker portfolio. And sticking with breast biopsy, we plan a Q3 launch from Encore Ultra which is designed to improve our offering in the vacuum-assisted segment. This sleek and highly portable product combines the ease of use of handheld vacuum-assisted biopsy system with the clinical performance of traditional console-based systems.

And to Jim's point, we're also making nice progress with the development of our imaging platforms. Our phaser technology provides realtime confirmation of needle targeting and location throughout the ultrasound-guided biopsy procedure. We think this will eliminate some of the guesswork involved and improve the overall experience, particularly for nontraditional ultrasound users. Furthermore, in order to reduce peripheral access related complications and limit radiation exposure, we're preparing for the loss of ultrasound device designed for lower limb arterial access.

And finally, moving onto stents, we're making considerable process in 3 new platforms here. For competitive reasons, we can't give a lot of details today, but I will say that 2 are covered stent platforms and other is a self-expanding bare-metal stent platform. We're targeting new clinical indications beyond our current offering for each of these products. We're also working on a LifeStent offering, specifically tailored to broaden our reach internationally.

So that's just a few of the highlights in our vascular pipeline. Now, I'd like to introduce Abtihal Raji-Kubba, the Vice President of our Lutonix Design Center, who will provide an update on our drug-coated balloon program.

Abtihal Raji-Kubba

Thank you, Steve. As most of you are well aware, restenosis remains the Achilles here in peripheral interventions. The occurrence of restenosis is so pervasive throughout the anatomy and can result in multiple follow-on procedures, limb loss and possibly even death. We see significant growth opportunities for our Lutonix drug-coated balloon technology platform. As you know, we have just recently started selling internationally and there is yet a product to be approved in the U.S. at this point.

In the U.S., in 2015 -- alone in 2015, we estimate there will be anywhere between 300,000 and 400,000 relevant SFA and popliteal procedures performed annually where the use of DCB could improve outcomes. Looking down the road, at the year 2020, we think the global market value of the SFA popliteal and below-the-knee indications alone could be very well north of $1 billion. We also expect to be actively competing, at that point, an AV access and coronary procedures, which would put the global markets opportunity available to us as nearly $1.5 billion and, frankly, we might be conservative here.

We're using incremental investment funds to accelerate our access into new emerging markets and exploring further coating technologies in this space. Our Lutonix SFA popliteal program, we anticipate completion of the Lutonix LEVANT II 12 months follow-up data collection in just a few weeks and complete data analysis this fall. We also anticipate wrapping up enrollment for our LEVANT II Continued Access Registry late this summer. And we are on track to file our final clinical module late this year. Our global post-market SFA registry is well underway in Europe. Enrollment started late last year and is progressing very well. This registry collects real world use data of the device, of the DCB, and follows patients for up to 5 years post treatment. We have also initiated and started enrollment in a Japan SFA studies, which will supplement the LEVANT II data for the SFA and it's designed to satisfy PMDA requirements for a product approval in Japan.

In addition to these studies, preparation is underway to start clinical trials that will support additional indications in the SFA that could enable more PAD patients to benefit from this technology. The product continues to be very well-received by clinicians in Europe and especially with the recently launched -- introduction of the recently launched longer-length balloons. Finally, we are pleased that the product has already been released in select new markets outside of Europe and additional registrations worldwide are underway.

Our progress on below-the-knee is very exciting as we -- actually, I am delighted to report that we have started enrollment, just -- our first patient was just enrolled 4 hours ago in our Lutonix BTK IDE trails. This is a prospective, randomized, multicenter global study. Clinicians continue to be strongly interested in this product as the need for a reliable BTK drug-coated balloon is more pressing for millions of critical limb ischemia patients who are at-risk of limb loss and where treatment options today are limited. The product launched in Europe in early May and has been very well received and just launched in Canada last week.

The coronary drug-coated balloon product development is on track to be complete this fall. We anticipate launching the products in Europe in 2014. This launch will introduce a coronary offering that complements our Clearstream coronary PTA in Europe and simultaneously, we'll be introducing the product in certain emerging markets.

I would like, at this time, to introduce Dr. Sean Lyden from the Cleveland Clinic.

Sean Lyden

Thank you. I'm going to talk a little bit today about critical limb ischemia in both its prevalence and its treatments. Here are my potential conflict of interest. If you look at critical limb ischemia, it really encompasses ischemic rest pain, so the picture on the left with dependent rubor, ischemic ulceration and gangrene. If we look at the natural history of critical limb ischemia from the task, the intra-societal consensus document, 50% of those patients will be alive with both legs after a diagnosis at the end of the first year. Although 25% would have undergone a major amputation defined as either the below knee or above knee level. And 1 in 4 will die. Similarly, if we look at this large perspective observational cohort of over 1,500 patient with critical limb ischemia, they had a 6-month amputation rate of 12% and a one-year mortality of 1 in 5 patients.

So why do we care about amputations? This is a recent study, just put out this year from the American Heart Journal, from CMS data, over a 6-year period with 186,000 patients with peripheral arterial disease and undergoing major amputation. There's 30-day mortality, 13%; the 1-year mortality, 48%; and the 3-year mortality of 70%. If you had an above knee amputation as opposed to below knee, you are at a higher hazard ratio of 1.3 of undergoing death as compared to this amputation.

We all clearly know this represents breast cancer but many people don't understand the reality of amputation and the fact that it has a much higher mortality than just about any cancer out there. It clearly is underrepresented.

So the surgery we boast about, we boast about the excellent availability of a target saphenous vein bypass with an 80% 5-year patency for fem-pops, 60% for fem-tibs and we can use other conduit, both arm vein and lesser saphenous vein from behind the leg. If you look at how well we do in the real world though, the PREVENT III study, which is the transcription factor decoy study, the control arm had a 2.7% 30-day perioperative mortality. Unfortunately, 5% of our grafts occluded within 1 month and we had a 16% 1-year mortality and only an 80% secondary patency rates. So probably not as good as we always say, and not every bypass looks as good as this one I did a couple of years ago.

One of the things we clearly gloss over is that renal insufficiency and diabetes are clearly predictors of less durable outcomes for bypasses. If you look at the series that's reported 10% to 35% of our patients have problems with saphenous vein harvest sites and who are those people? The obese, the diabetics, the renal failure. They clearly have significant functional recovery time and up to about 1/3 of our bypasses will develop a vein graft stenosis that will under -- that will require subsequent revision. Fortunately though, patients do want less invasive treatments and we have, as a surgeon began to realize, the quality-of-life is important. We've seen this with the exponential growth of endovascular treatment of lower extremity disease for Medicare trends over the last decade.

For critical limb ischemia which, predominately, is manifested by tibial disease, tibial angioplasty has been the preferred treatment. Similarly, if you look at 2011, the places with the lowest amputation rate in the United States simply have the highest endovascular treatment rates. If you look at how well we're doing for endovascular treatment of the lower extremity, this is from [indiscernible] deep venous group in Boston looking in for popliteal or below the knee interventions over a 6-year period and they had technical assessed of 91%, pretty darn good. However, the limb salvage rates, which is really -- which is a matter of keeping the limb attached, was 85% at 6 months, 81% at 12 months and 69% at 1.5 years. The patency rates clearly were much inferior to that but the goal is really to keep the leg attached. An interesting subset the study realized the more vessels we treated, the better the secondary patency. Here's a study from just this year, looking at a 6-year period with 30% for rest pain, 70% for tissue loss and those patients some had ulcerations and some and had gangrene. Clearly, with the worst disease states in most every study we look at both for bypass and interventions, the more severe disease, the worse the outcomes. Interventions were isolated tibial on 45% and because of the diffused nature of the disease, there's multilevel in over half. They had a not-so-impressive 59% 1-year patency and of those patients, 44% underwent repeat endovascular intervention, 1/4 underwent major amputation, 1 in 5 underwent open bypass and about 10% were observed. Those patients that underwent limb loss had a higher restenosis rates than those that did not.

So what do I think the impact of drug-coated balloons? Clearly, outside of the United States, we've seen 3 trials: The Thunder trial, the FEMPAC trial and LEVANT I trial. All showed improved 6-month patency as compared to standard angioplasty in the superficial femoral artery.

In the United States, we're fortunate, we've actually completed 2 trials for patients with claudication through ischemic rest pain or Rutherford II to IV classification in the SFA, both the LEVANT trial and the impact SFA trial, both treating similar patients with short SFA lesions. Both of those, we wait the eventual results as we just heard from [indiscernible] just recently.

For tibials, there is some data out there from the [indiscernible] group in Germany, they've treated over 100 patients. Fortunately, doing something in Germany we'd never get away in the United States, performing angiographic followup on these patients at 3 months with 75% of their patients having sustained clinical improvement with 19% unchanged and only 4% clinically worse and 70% -- just under 70% of the patients having no restenosis.

So to conclude, if we look at critical limb ischemia, I think it's clearly, we have a growing elderly population in the United States. Both PAD and CLI continue to expand. We need to work to keep our patients amputation-free with the 70% 3-year mortality for those patients in Medicare database. It's worse than most of the cancers we have a lot more press about. Surgery works well but it does have significant risks. Tibial angioplasty, I think, is a preferred treatment both here and abroad, but it's short lasting. Drug-coated balloons clearly have improved those outcomes for the SFA, and I think it has a potentially much larger impact for tibials for those patients with critical limb ischemia, and I think the drug-coated balloons may have some benefit in other areas both in dialysis access and in the coronaries. Thank you.

David Hemink

Thank you, Dr. Lyden. My name Dave Hemink and I'm President of Bard Access Systems. In our Oncology business, we have a number of exciting new advancements that we see changing the landscape in the areas where we compete. As is often the case though, the more disruptive they are, the less you're probably going to be hearing about them today. As you know, we have been very successful with our Sherlock 3CG platform having converted over 35% of our customer base to this technology. To put this into perspective for you, that's about 600,000 PICCs that have been placed with 3CG technology in nearly 800 of our accounts, and over 70% of the converted accounts have already eliminated confirmatory chest x-rays. For hospitals, the annual direct cost savings is estimated at over $30 million. 3CG was originally only available with our Site-Rite Vision Ultrasound platform. This quarter, we are rolling out an upgrade solution for the Site-Rite* 6 platform that will allow our customer base of over 3000 installations to immediately upgrade to 3CG technology and expand the functionality of the Site-Rite* 6.

In a further expansion of this platform, we're in the late stages of development of a 3CG port placement system to support Tip Location confirmation in implanted port catheters. We're also enhancing the system usability and signal interpretation through other platform enhancements that, for competitive reasons, we will not discuss in detail today. Also in imaging, as we've discussed previously, we are nearing the launch of our Site-Rite Vision 2 platform in the back half of this year. This new system will support 3CG Tip Confirmation, Sherlock Tip Location, color flow Doppler and enhanced scalability for future applications we have in the pipeline. We have been very pleased with the introduction of the power glide midline catheter. We fill the need in the market by providing a device that is easy to place and has in-dwell time of up to 29 days. We initially launched with 8 and 10-centimeter lengths on a 20-gauge needle platform and will expand up to 18 and 22-gauge needle sizes later this year. This is a platform product for us, and we anticipate a number of new launches over the next couple of years. Within our PICC franchise, we have a number of key initiatives underway aimed at helping hospitals manage central line-associated bloodstream infections. We are currently developing an antimicrobial PICC and a thromboresistant PICC that we expect to launch in 2014. This will give those customers that what antimicrobial and thromboresistant features on the leading PICC in the market. PICCs are currently the largest global product line in Bard, and we believe we are just getting started outside of the United States. We estimate that the international PICC markets we compete in today total approximately $70 million, and we expect those markets to be approximately $330 million by 2020. Approximately half of that opportunity was included in the numbers in China and Latin America that you saw earlier. A large part of this market development will be driven by us, and we take the model we have followed in the U.S. and China and bring it to other geographies. This is a model that we developed, and we are highly confident in our ability to execute here. Now let me introduce John Groetelaars, our Group Vice President.

John Groetelaars

Thank you, David. I'd like to start by addressing some macro factors and tell you where we're investing. Surgical procedure volumes in the U.S. and Europe have been flat to slightly negative over the past, while emerging markets, including China, Latin America and India, continue to expand nicely. Advances in surgical technique and technologies have been moving all markets towards minimally invasive procedures. In the U.S. and Europe, the trend toward lighter weight synthetic mesh, observable barrier synthetic mesh, biologic materials, and most recently, completely absorbable mesh is playing right into the strength of our product portfolio. Bard is the only supplier of such a broad portfolio spanning all of these technology categories. As an example, our recently launched VENTRALIGHT ST and VENTRALIGHT ST with ECHO have captured the #1 share position in laparoscopic ventral hernia repair in the United States. We've also recently expanded our line of VENTRALIGHT ST with new sizes and plan to expand our ECHO PS offering in the next quarter. We're also in the early development phases of a new ECHO platform funded by our incremental investment plan. Outside the U.S., we are enhancing our product offering and expanding our direct presence. For example, we recently launched our first fixation device from China, where the market for laparoscopic repair is expected to grow significantly, and we launched our first resorbable fixation device in Japan to compete in this same segment. Brazil is off to a great start with our line of resorbable barrier meshes and fixation products, and Russia is expanding rapidly with an emphasis on our VENTRALIGHT ST and VENTRALEX ST products. In Europe, we're actively driving penetration of our new self-adhering mesh technology, the first hernia platform with a pre-applied hydrogel coating to assist with ease placement. Results to date have been positive, and we're expanding throughout the European region. In biologics, which is currently primarily a U.S. market, clinicians continue to debate the proper use and surgical techniques to optimize patient outcomes. This remains a very large market opportunity for us with significant upside potential. We're well positioned in this space today within matrix and a proven clinical performance demonstrated in several peer review publications. In the near future, we expect to have a highly differentiated new platform in the biologics category. However, due to the highly competitive nature of this business, we will need to refrain from disclosing further details today. In addition, we will be expanding our launch of the Phasix mesh for ventral hernia repair in Q3 of this year. This mesh has all the handling properties of a monofilament synthetic material and has the strength of a synthetic material for several months after surgery. Then, the mesh is naturally resorbed by the body after about 18 months, allowing time for natural tissue healing and remodeling to occur. With our incremental investment, we have funded studies designed to enhance the clinical and economic evidence related to our Phasix technology and to develop the next generation device. In Q4 of last year, we acquired the Progel technology that we see as a key platform in surgical sealants with broad reach into multiple new indications. We're off to a strong start with our execution on our commercial plan, the integration and further development of the R&D pipeline. Today, the surgical sealant market, where we have indications, represents approximately $70 million globally with the U.S. being a dominant part of that. We anticipate that as we expand the indications for use, the global sealant markets that we could address and access will exceed $1.2 billion by 2020. And separately, in adhesion prevention indication for Progel, we could add another $700 million of long-term market opportunity. Progel is the only FDA-approved sealant for lung tissue and has been shown to be effective in stopping air leaks 77% of the time in a PMA study.

The surgeon will typically test for an air leak and spray the Progel formulation directly on the repair site where a leak is evident. As the patient heals, the Progel is resorbed by the body within 30 days. Progel's biocompatible formula combines a unique blend that provides strength, flexibility and adherence to lung tissue. Progel has been shown to reduce the overall hospital stay by an average 1.9 days, and total hospital cost due to complications have been reduced by up to $15,000. Our investments in the Progel technology are centered on, one, a deeper penetration into the lung ceiling market, and, two, expansion of our clinical indications for Progel. We expect to begin enrollment in a PMA trial to expand into lung surgery using video assisted, or VATS, and robotic-assisted procedures this quarter and to begin enrollment in a separate PMA trial for vascular indication in Q4 of this year. Other potential indications are also being assessed. I'm now pleased to introduce Dr. Dan Miller, Chief of Thoracic Surgery from Emory University.

Daniel L. Miller

I'd like to thank the Bard family for inviting me today to allow me to present our clinical work. As you know, lung cancer was the most deadly diseases in the United States, and at the same time, it's one of the most preventable. There's approximately over 100 million current or former smokers in the U.S. who are at risk for developing lung cancer. Lung cancer have been around for a very long time. It's probably one of the main reasons that helped the dinosaurs became extinct some 65 million years ago. Estimated about 225,000 cases of lung cancer in the U.S. in 2013. Unfortunately, only 16% of those people will be alive 5 years from now. Approximately 435 people die everyday in the U.S. from lung cancer. Only about 25% to 30% of lung cancers are resectable at the time of diagnosis, and this is your best chance for cure. Lung cancer has been the #1 cause of cancer in the U.S. for both men and women since 1986. When patients undergo resection for lung cancer surgery, approximately 70% of the patients will have a leak from their emphysematous lung. In the past, the way to fix these leaks were to suture them, we'd fire a stapler or the majority of the time, just to observe and hopefully that the air leak will stop on its own. If an air leak is greater than 5 days, that requires hospitalization. That's considered prolonged and increases significant mortality and morbidity. The significant pain to the patient, the hospital stay is increased, the hospital cost is increased, patient anxiety goes up, and the surgeon becomes very impatient. Where does the air leak come from? It can come from the bronchus or the lung parenchyma? The bronchus may be related to a staple line or a suture line or from a fractured cartilage or [indiscernible] tear. These are easily taken care of surgically. However, the leak from the lung can occur from a staple line, can occur from the fissure or the hilum or the root of the lung or can occur from a ruptured bleb or bullae causing them the postoperative period. If a prolonged air leak occurs greater than 5 days and there's only an expiratory leak, we usually just watch and we send the patient home with a chest tube. If it's inspiration, then it can occur doing -- it could be assisted from [ph] or if it requires both the expiration and inspiration, then patient has to go back to the OR. When patient develops significant air leaks, they can develop subcutaneous emphysema, which is shown here on the chest x-ray and CT scan. And this other pictures are patients who developed subcutaneous emphysema. This does not cause airway obstruction but it can take 2 or 3 weeks for this air to reduce over time.

The way that Progel sealant is applied is that there's 2 -- there's a unique technology to the applicator. It can be either placed as a strain to get down into the deep areas of the lung that has a leak, or it can be applied over a large surface area when there's lot of lung. Also, too, an extended temp has been developed that's at 6 and 11 inches in length, which has really helped during VATS procedure and robotic procedures. What's very unique about the Progel lung sealant? It's very quick to use. It's a very quick setup by the nurses. It's very user friendly. The product does not have to be thawed, doesn't have to be kept in a refrigerator. And it takes less than 2 minutes to prep on the back table, and it takes a very short time to spray into the chest. And it only takes anywhere from 30 to 2 minutes to set up. So it does not take a long period of time for this product be used.

In the operating room at Emory, our average operating time -- I mean, average cost of 1 minute in the OR is $20.50. So just 2 minutes is not a long time to wait. I was very lucky when I was an attending at the Mayo Clinic that I was involved in the original trial that showed the safety and efficacy of Progel to an air lung sealant. There's 5 academic institutions that were involved at that time in Mayo Clinic, Indiana's and Duke, University of Washington and Cedars-Sinai. And what the study showed is that 77% of patients who received the Progel lung sealant during the operation, they had a 70% closure of the air leak at the time they left the OR. Also, it showed almost a 2-day decrease in hospital stay, and that correlated into almost $15,000 increase in total hospital cost. More recently, we've looked at some other data from our institution and another academic institution university of Alabama, and also 3 private institutions. And what we found, we found similar results. Of the 262 patients, 73% of the patients received the sealant, 71% did not receive the sealant but just had standard repair techniques. And what it showed there is significant reduction in the air leaks from 54 hours for the sealant group and 97 hours for the controlled group. Chest tube duration was decreased significantly about 34 hours, and also the chest tube time greater than 3 days went from 81% to 48%. It's very interesting that when we look at air leaks in a hospital, you do not have a mandatory check-out time. It's not 11:00 or 12:00. So your checkout time actually goes up to midnight. So the patients has air leak that stops anytime during the day, the chest tube can be removed and the patient can be removed even in the evening. So by decreasing that air leak time, the patients can leave a day earlier, and the average cost of a hospital stay in the U.S. for either day is anywhere from $1,000 and $2,000. Hospital stay was significantly decreased in the patients who underwent the sealant from 3.4 days to 5.7. Also there's significant decrease in the patients who had air leaks greater than 2 days and also 2 for 3 days. It was also cut by almost 70%. The complication rate was also simply reduced in the sealant group. When we look at the literature in regards to complications, which is very important, if you look at patient's who've undergone a lobectomy, which is the #1 standard for treatment for lung cancer. If patients have an uncomplicated course, this was for open technique. The hospital stay was approximately 6 days. However, if they had any type of complication, that was doubled. And you can see the cost was significantly increased from around $18,000 to almost $40,000. If you look at air leak alone when patients have air leak greater than 5 days, if you look at the hospital stay went from 7.4 days to 10.9 and again, a significant increase in costs. As you know in the future, for healthcare, if we have any complication that is outside the normal time period, there's a significant chance of that hospitalization will not be paid for by Medicare or Medicaid. So when we look, Progel has been a very exciting product for us. It's the only FDA-approved plural air leak sealant. Clinical studies to date, not only from the first trial, but also in retrospective, that air leaks are decreased, chest tube duration decreased and also hospital stay, as a significant benefit regards reducing morbidity, mortality and also the overall healthcare costs. Also, too, Progel may have some other avenues of improvement for us, especially in regards to softgel anastomosis to help buttress for potential leaks. Also, for other application for cardiac colleagues regards to adhesion formations. Thank you very much.

Timothy P. Collins

Thank you, Dr. Miller. I'm Tim Collins, Group President. You've heard a lot today about significant opportunities and faster revenue growth, which is the central focus of our strategic plan. I'm going to spend a few minutes on the cost side of the P&L and why we're optimistic about further improvements in our gross margins, operating margins and our tax rate. We've approved our gross margins by about 10 percentage points in a little over a decade by consolidated manufacturing to a lower-cost locations. We got a methodical process focused on reducing overhead and improving our labor efficiencies. We're going to continue this process. And while each year we push hard to achieve new initiatives, each subsequent year brings new list of opportunities for margin improvement. One of the reasons the world never seems to run dry is that we continue to expand our capabilities in these low-cost, low-tax locations. 10 years ago, you would've seen these locations principally assembling and packaging products for us. Today, many of them has the technical capacity equal to our U.S. and our European locations. And currently, 70% of our production is in these low-tax or low-cost locations. In addition, our M&A activity has provided a steady stream of integration projects that provide opportunities for significant synergies as we integrate those products into our world-class operations. It's not uncommon for us to add 10 percentage points of GP to acquire products after bringing them into our factories. So we fully expect to continue to take costs out of labor and overhead on an ongoing basis. And we have a new focus and an approach related our material costs, which you'll see represent about 58% of our total cost of sales. Historically for us, each plant has managed their sourcing activities autonomously. And frankly, we haven't been taking advantage of the breadth and depth of the total Bard portfolio in sourcing negotiations.

Further, about 85% of our key components that we purchase externally are single sourced, which means we've been at a disadvantage in pricing negotiations there, too. So recently, we've assembled a professional strategic sourcing team at the corporate office that is focused on reducing material costs across the organization. This team is taking simple steps but impactful, such as combining volumes in introducing secondary suppliers, where appropriate, to improve our leverage in negotiations. We're in the early stages of this transformation, and we see significant savings opportunities that we can pursue for many years to come. Part of that confidence also comes from the fact that roughly 75% of our suppliers still manufacture their product in the United States which should in turn, reduce our costs if they can move that production outside the United States. If they can't do that, we've been very successful at vertically integrating what we buy from them into our own low-cost production facilities outside of the U.S. We have a well-established and well-managed cost savings process that continues to provide between 50 and 100 basis points of organic cost improvements annually. That being said, fluctuations in pricing pressure on the revenue side, foreign exchange in amortization of new deal sometimes get into those savings on a reported gross profit basis. Frankly, we've been pretty good at hitting these numbers for a long time, and we don't see any reason for that engine to slow down anytime soon.

Our process of reducing cost, however, incorporates a focus on improving quality at the same time. We experienced 10 FDA audits last year, with 3 total observations in those 10 audits. That's total. On a per-site basis, that's 0.3 observation per inspection, and all of them were minor and quickly resolved. If you compare that metric to our industry, I'm not sure you can find anyone that could beat us at that. You can see by this graph that this has been an improving trend as we focus on producing effective and reliable products at a value that our customers embrace. From an operating margin perspective, we expect to increase our already market-leading margins in the years to come. In 2013, we took a step backwards with the entire industry due to the newly enacted medical device excise tax, and we now started significant investment plan on top of that. But with the pending Gore royalty and the contribution from our Lutonix DCB launch, we expect to be back to 2012 operating margin levels or better in 2015. And going forward, the emerging markets, which have been dilutive to operating margins during the early investment phase, should start to approach the corporate average as they develop further. This, along with our expectations from our R&D investments, makes us confident that we still have plenty of room to run with operating margins. And, as we prove our o U.S. mix of revenues and profitability, our effective tax rate should move from our one of the higher rates in the sector to closer to the group. This won't happen overnight, but we see significant opportunities to improve the profitability in the P&L from top to bottom and we're executing on that strategic plan to make that happen. At the same time, we strive to improve the long-term growth rate of the business. And with that, I'll turn you over to Dr. John DeFord.

John A. DeFord

Thanks, Tim. And I can tell by the look on everyone's faces that it's good that we're getting close to the end. You guys have made it almost all the way through. Normally, this is the time when I tell a joke and lighten the crowd a little bit. I've been banned from doing that. Thankfully though, Dr. Miller had a much better joke than I would've come up with anyway. Also, this is a momentous occasion because this is clearly the first time I'm going to have to put on reading glasses to be a able to read my notes. We've mentioned 43 projects today, 29 of which come from our incremental investment plan. We wanted to give you a little bit more color on these incremental investments, but I'll remind you that we have a broad and diverse portfolio, and we're moving on multiple fronts.

Many of the more exciting and impactful initiatives are either too early development or too competitively sensitive to discuss today. Going forward, we'll spend less energy distinguishing between incremental projects and baseline investments. We have one strategic plan, and we're committed to it, and we look forward to updating you on our progress and announcing new initiatives in the coming quarters. I'm going to take just a couple of minutes to talk about our increasing focus on generating clinical and economic evidence for our products. A few years ago, we made the decision to invest significantly in our clinical organization with the belief that developing clinical and, more recently, economic data would provide the evidence that was important and critical for our critical success factor of product leadership. Simply put, we believe that truly differentiated products must demonstrate clinical benefit and reduce cost to the system. We've recently had data from some of these studies released, and it's making a difference in the market. For example, our 3CG data is a key driver to eliminate confirmatory x-rays. Our ALLOMAX data is a key driver of reimbursement. Our time studies with ECHO PS and our demonstrated lower recurrence rate with XENMATRIX are both driving conversions, and you've heard a lot today about the studies we're conducting in targeted temperature management. And the rigor of our data in the Denali study, as you heard earlier, was instrumental in us getting to market 6 months earlier than we had planned.

If you look back just over the last 5 years, we've increased our clinical studies from 27 in 2009 to over 90 today, roughly threefold increase for those math majors. Over that time period, we've increased our in-house team by over 60 people and approximately doubled our dollar investment in clinical studies. Breaking down those investments a little bit further, about 40% of our studies are classified as pre-market. These studies are focused on developing safety and efficacy data to gain market entry in at least one target market or geography. The remaining are economic analyses and post-market trials that are being conducted to collect data to support either additional marketing claims or provide economic data to support reimbursement and highlight cost savings. As we execute our plan, I look forward to providing you more details on our new product pipeline and our clinical and economic studies. Thanks very much for your attention. Now I'll turn you over to Tim for closing.

Timothy M. Ring

Thanks, John. Before we move over to your questions, let me take a few minutes to talk about our capital allocation. We do see this as a very important value driver. And with the potential billion dollars coming to us in the Gore issue, it's certainly relevant to talk about our approach here. We've always said that our first priority is strategic. Our measurement of success is long-term sector-leading revenue performance. We're not looking to get as big as we can as fast we can. We're focused on investments that we believe will provide a sustainable growth trajectory over the long term and improve our growth and margin profile at the same time. Through the P&L, we will prioritize these investments in R&D and SG&A, as you've just heard, that we expect to provide a attractive sustainable returns on a global basis.

With our cash and our balance sheet, we look [indiscernible] to new product categories and markets, where we have confidence in the long-term growth profile, while these may be new categories for us, atypical target which share a call point, a technology or a market where we have expertise. If you look at our history of transactions, I think you'll see that we've been consistent in that approach over the years, and you shouldn't expect that to change. And to be clear, our financial projections that we laid out in January do not assume any future acquisitions. We have only included elements of a strategic plan and that we felt was within our control. So any impact from any new M&A activity would be incremental to the plan you've just heard about. As you know, acquisitions are opportunistic and the timing can be a bit unpredictable. Our historical pattern's been to use whatever U.S. cash is not used strategically to pay a modest dividend and to buy back shares with the remainder. As you can see on the slide, we've been fairly consistent at returning cash to shareholders with the average over the past 7 years at about 52% of operating cash. So our communicated intention of returning half of the potential Gore proceeds to investors is consistent with our historical approach. We think this provides us with the necessary flexibility to manage the business in the dynamic environment that we're in. So to summarize, we're focused on driving above market, long-term revenue growth, and we're confident that this plan gives us that opportunity. We're excited about the size and the nature of the opportunities in front of us. The long-term growth available to us in emerging markets is substantial. We also have significant runway in our newly acquired technology platforms, and we have numerous other initiatives to accelerate our revenue growth. The plan is in place. We are in execution mode. At the end of the day, this will be an execution story. So with that, we're now happy to open it up to any questions you may have.

Question-and-Answer Session

Timothy M. Ring

You've got a mic? Bob?

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Bob Hopkins from Bank of America. Two questions. One for you, Tim, and then one for maybe John on the product side. Tim, can you just talk about the environment for M&A as you see it right now? Should we expect that you'll be doing deals over the course of the rest of this year? And I think I know the answer to this based on the presentation, but historically, I don't think you've done a deal above -- much above $300 million. Is that the way we should be looking about your future plans?

Timothy M. Ring

Sure. Well, first of all, the activities very robust. The pipeline is rich, probably as rich as I've ever seen it, both in the U.S. and internationally. So we're extremely active and, yes, I would expect you to hear some things in that category before the end of the year. In terms of size of deal, we don't look at deals starting with the size. We're sensitive to the dilution issue. You know that a couple of the deals we've done over the last couple of years had some fairly significant dilution. So that doesn't bother us. It doesn't scare us. On the other hand, much of the tenants that you've about today, driving revenue growth rates, the margins being number one, number two, how sustainable that is, we look at all those things first before we really get too concerned about size. I think everybody -- anything that would be significant size would be obviously pretty well known. There's nothing out there right now that I would think falls into that category. So probably more of the same that you've seen in the last couple of years from us.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Great, very helpful. And then on the product side, a question on drug-coated balloons. And maybe I'd love to get Dr. Lyden's opinion as well. You had a table up there that said by 2020, you expect that market to be well over $1 billion. I was wondering how much of that is cannibalization of markets that exist today, like PTA balloons and bare-metal stents versus market expansion through either price increases or just new opportunities? So I just want to get a sense for kind of the net opportunity, if you will.

Timothy M. Ring

Okay. Jim Beasley, why don't you take that?

Jim C. Beasley

We haven't gone out to 2020 and broken down the cannibalization between product lines that far out. But we think there's a lot that's incremental, particularly, early on. We think that there's patients that, for example, are only getting PTA today then they'll get the combination of PTA plus drug-coated balloon. And I think that the number of patients who are going to be eligible and appropriate for treatment is going to expand over time. So I think there's a substantial incremental opportunity there. And certainly, there'll be some cannibalization in stents along the way. But if you look at kind of where I think we said before, the sweet spot in the SFA for the drug-coated balloons, I think, is going to be for your intermediate to -- you're kind of intermediate-length lesions. I think for longer disease, you're still going to have to use stents. And I think below the knee, I don't think there are really good alternatives today. So there's nothing really to cannibalize there, so I think substantial new opportunities.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Okay. For Dr. Lyden, maybe in SFA, the way I'd phrase the question is, you're using some baseline number of stents today. What -- how much do you think that might decline going forward, especially in the SFA, if drug-coated balloons are successful?

Sean Lyden

So I think that's physician and practice dependent. My own practice, I'm a big angioplasty-alone user. So I think it would have a big effect on my practice. I think, though, you have to realize there's a huge number of claudicants out there that are conservatively managed and have not been intervened upon, and there's huge number of patients either with critical limb ischemia that may get primary amputation or never intervened upon. So I think there's a huge market opportunity in both claudicants with minor disease as well as critical limb ische [ph] patients who've never been treated to grow for a technology that actually has better benefit. I think many interventionists and vascular surgeon are waiting for something that has better durability to really embrace this technology.

Timothy M. Ring

Okay. Rick?

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

Rick Wise, Stiffel. A couple of product questions. You talked about the temperature. I think, Peter, you talked about the temperature management trials being key to acceptance there. When do we start to see the data? Or what data is going to be critical? Or what accumulation of data is going to be critical to really accelerate adoption there? Anything we should look at specifically or time frame?

Timothy M. Ring

Peter? Try it, you'll find...

Peter Curry

Yes, yes. So we're really just down now to identifying the trials that were funded in. We kicked off the funding for identifying those lists of trials. We won't see results probably for another year or 2.

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

And so we're not going to see any change in the trajected market until we start to see that data.

Peter Curry

Correct.

Timothy M. Ring

John DeFord, do you want to add anything?

John A. DeFord

Yes, I think as we had the discussions from the clinician, there are a number of opportunities here within the space. There's very limited data on anything outside of cardiac arrest. And so as we evaluate, we have some early pilot studies ongoing right now, trying to identify the appropriate study parameters in these new and emerging areas where we really don't have a lot of data yet. So as Peter said, we expect it's going to take a little bit of time to flesh out exactly the appropriate study design. But we see a number of interesting indications here for a technology that is easy to apply as the ARCTIC SUN.

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

Got you. And just a second question for John Weiland. John, you were saying that only 10% of the current portfolio is being sold in emerging markets. Maybe talk to us a little bit about -- I mean, is this a key metric and we should sort of imagine a year from now that's going to be 20% or 30% of the portfolio? And is this really just an execution, get your current product portfolio registered? Is that how should we be thinking about it?

John H. Weiland

Well, the strategy was that we were not going to take the 600 -- 16,000 SKUs that we have in C.R. Bard and/or country managers and hope that they could execute. We're very deliberate about how we did that, and they were not -- without a doubt, they weren't our late-stage products because we had started years ago in registering these products in the target markets. I'd say at this point in time, our focus, and it really was started a few years ago when we built the clinical group, is to acquire the clinical information and data that will be able to be necessary to launch these in markets around the world and the next generations of products that are the market leaders. And I'd say in, if you look at China, for example, if you look at the generations of products that we're selling in China, they're 3 generations ago or 2 generations ago versus what we're selling in the United States. So the execution piece is the clinical registration data. And if you look at our metrics on that, which we keep a very close tabs on, the ramp-up and the registration data is substantial. And we invested over $5 million of incremental investment last year, giving us the capabilities to get clinical registrations faster in emerging markets. That's really going to be the key for us, followed on then by using our baseline strength that we built in training clinicians to launch new products and train physicians and clinicians on next generations of products once approved.

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

David Roman from Goldman Sachs. I know you haven't given sort of the baseline for your 2015 where you think your end markets will be growing at that point to sort of size up that 200 to 300 basis points. But maybe is there a framework that you think we could use, if I were to sort of throw out a setup where you say the industry, broadly speaking, is 80% to 85% of revenue. In developed market, that's maybe growing 2% and 15% to 20% of revenue grow -- and emerging markets growing at 10% to 15%. Is that a fair way to sort of think about a starting point? Or is there something that's flawed in that?

Timothy M. Ring

I'm not going to take the bait on that one.

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

I did try.

Timothy M. Ring

I think if you go back -- I mean the -- obviously, the various markets are going to grow at different rates, and the penetration rates we have are different based on some of these investments that we're making over time and phasing those in. I think if you go back historically, we have typically grown about that 200 to 300 basis points above what the markets have grown. That hasn't happened recently. So we're getting back to that, and we feel that with this pipeline, clearly, with the underlying markets grow faster than they are now, it's kind of a rising tide lifts all ships. We will be growing faster than that. That's what we're focused on. So it's tough to project, given the various pieces. But as we get closer, we'll -- and there's a little bit better definition on those market growth rates, we'll tell you what we think they are.

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

And then on the emerging market piece, just to understand a little bit better the strategy, I mean some of your peers who are -- or who have had longer tenure in those markets or more sizable percentage of revenue, one of the things that Dave talked about is selling product in China, for example, where you can command a fairly decent premium and where you're less susceptible to local competition and being very selective in sort of the products that they're selling or going sort of a 2-tier approach. Understanding that "one size fits all" for every company, but maybe you could just sort of elaborate on your approach, how you're thinking about local competition in those markets and if you're sort of segmenting your strategy to the higher end and more clinically differentiated products that would be most [indiscernible] to sort of the Class III hospital or is there sort of a different approach here?

Timothy M. Ring

Sure. I'll start, and then I'll turn it over to Kevin. You pass the mic down, John. I think it's an evolution. and I think we're in the period of time over the next several years with the premium market along with kind of the emerging market economy in China, specifically, looking at the middle class expansion. The demand for the premium of products is high right now. I think as you get into more of the outline areas geographically more dispersed, that's when you get into some of the more basic levels. You saw the penetration rate Kevin showed you. We're not there yet and we probably have several more years of runway in front of us looking at the premium segment that we're in today. Having said that, you can't wait several years from now to start to enter and look at some of those other segments. So we do have plans in place where we are analyzing, getting into that other segment over that period of time. Kevin, you want to add anything?

Kevin Hong

Yes, just to add to that is, number one is we are at the premium market. We believe there's still sufficient growth potential out there for us to pursue. Number two is for the, that we call lower-end value segment, we are starting to assess, conducting a couple of projects to assess the potential over there and with the local competition, what other portfolio of products that can effective compete in that segment. So really, we are also watching the government policy changes very closely, including health care reform, including the channel reform, and to see how of these reforms or policy changes will affect the marketplace and the emergence of the better segment. So we're doing all 3 things at the same time in trying to get us -- ourselves prepared for the emerging better segment opportunities.

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

Another one is for Dr. Myer, if he stayed. I think he made a comment in the presentation that adoption of new therapies or something that's going to be standard of care is like 12 to 14 years. That is really long relative to what you see and hearing [ph]. Is that thing specific do you think to the technology you were speaking about or maybe what causes that? That seems to be if you look at penetration of therapies called hernia mesh or something like, pretty expensive.

Stephan Mayer

Yes, good point. Actually, the numbers that, that come from have more to do with medical therapies. For instance, putting -- making sure that people -- we have data that people in atrial fibrillation need to go on anticoagulants, except they're high risk. And from the time that these trials come out, when you look at health systems research, it takes a long time to penetrate down to the individual practitioners. I have a feeling that in devices, that may not be as long or as glacial in terms of change. Maybe because there's more concentration of the practitioners that you're using when talking about surgical things or critical care interventions. But it still don't take a long time. And it was quoted to me that -- from my vantage point in New York, I've talked to my colleagues at hospitals around the city, yes, everybody was calling cardiac arrest patients. But there is some nationwide data that it's still only 20%. So obviously, there are pockets out there that are -- opportunities, I guess, to help patients and get the therapy out there.

Timothy M. Ring

Let's go behind.

Konstantin Tcherepachenets

Konstantin Tcherepachenets of Raymond James. So thank you for kind of providing the roadmap through 2020 but I guess, Tim, if you can maybe comment on -- given that you're going to have significant increase in the market opportunity, but how do we think about what percent of that market opportunity can actually be translated into real revenues? And just maybe you can help us think through the 4 different buckets, just kind of the risks of getting there.

Timothy M. Ring

Sure. I think as you look at reasonable market penetration to the discussion we just heard, some of that and some of the things you heard about, the data collection, the clinical trial, et cetera, et cetera, all that is the groundwork that leads to that kind of market penetration and expansion. A lot of the opportunities you heard about today really are generating that information, training physicians, making sure the clinical awareness is out there, not only in the U.S., but globally. I personally think that with some of the health care reform issues going on and the heightened sensitivity to quality and cost factors, not that they haven't been in the past, but there's some real scheme in the game now as it relates to complying or not with some of these things. The uptake of some of the data will be a little faster than what we've seen historically. It's just my personal opinion. So our view is, even with reasonable market share assumptions, given the growth rates that the markets that we've laid out here for you today, give us the opportunity to achieve that above-market revenue growth that we talked about in more or less general terms. Hopefully, that answers -- it's hard for me to give you growth rates going out to 2020.

Konstantin Tcherepachenets

I understand. And then I know Chris is not here. But just on the financial side, do you guys have any thoughts -- there's been recent trend in the industry to companies moving towards cash EPS reporting. Can you just maybe walk us through kind of your thoughts on it?

Timothy M. Ring

Sure. Yes, we were talking about it. Frankly, in the past, when we looked at it, given our size, we didn't necessarily think that was something we needed to aggressively pursue. But given the number of acquisitions that we've been doing and the impact that, that has going through the P&L gets a little more complicated. So it's something that we're assessing at the moment. Bob?

Robert M. Goldman - CL King & Associates, Inc., Research Division

Bob Goldman at CL King. A couple of questions on China, you provided enough data that it looks like you got less than a 15% share in China for the markets that you've identified that exist today for your products. I'm curious if that's at all accurate. Who has the other 85%? To what extent are those local competitors? And how do you really take share from folks that are now in the market today? And then the second question is, there was also enough data presented so that it looks like the average revenue per China rep is something in the order of $250,000. I have no idea how China reps are compensated but perhaps you can enlighten us on how you find and maintain the type of talent that you need in China, while the revenues per rep are still in sort of the nascent stages?

Timothy M. Ring

Sure. I'll cover the macro. And Kevin, I'll turn it over to you for details. Relative to the share, we kind of look at it by segment. We don't look at our -- I couldn't tell you what C.R. Bard's market share is. I don't know what that is. We look at it by surgical, vascular, oncology, et cetera. So I have to go through and analyze each of that to give you a total share in China. But maybe Kevin can give you a little more insight there. Relative to local competitors, really, when you're in that premium segment, the competitors you have there are the same you have here, pretty much multinationals for the most part. And so when we deal with the things we deal with here is very similar to what we're doing with in China. The revenue per rep in China is higher than what you quoted. I'm not sure how you get to that math. But I'll also let Kevin deal with that as well. Kevin?

John H. Weiland

I would just say -- Tim, if I can, I would just say even using your math though, Bob, it would be very accretive at $250,000 in revenue per rep in China based on what it costs you for a fully loaded rep.

Timothy M. Ring

Kevin?

Kevin Hong

Actually, that's correct. From the revenue per rep standpoint, right now, our rep cover average is 75% to 80% of total revenue. So if you calculate that, the average rep covers about, if you talk about Chinese RMB, is anywhere between RMB 2 million to RMB 3 million, which is about $300,000. But if you look at the cost, right now, the average Chinese rep, if you look at the salary plus the sales incentive, it's about $30,000 to $40,000 a year. So that's pretty standard for the Chinese medical device industry. So we're right in line with that.

Timothy M. Ring

Matt?

Matthew J. Dodds - Citigroup Inc, Research Division

Matt Dodds of Citigroup. So Rick and I are trying to figure out how many years you've been talking about the HD Mesh Ablation Catheter. And then sure enough, it's missing this year. Is there any update on EP or it's just the speed of the meeting you left it out?

Timothy M. Ring

No, it's -- John DeFord, you may want to give an update in terms of where we are with the trial. That -- the trials have obviously taken longer. I think the development in the marketplace has been a little slower. We are pleased with what we've been doing in Europe, accumulating more data. But we have talked about it a lot in the past, so we want to focus on some of the things that you maybe hadn't heard so much about for today's meeting. John or Jim?

John A. DeFord

Yes, I get this. I would say there's a lot of things that may get the cutting room floor. I wouldn't read anything to that for EP. It's a small part of our business at Bard. It's a relatively big opportunity if we get it right. And the men and women of EP is still pursuing commercializing our ENCOMPASS technology. We expect to have a CE mark late this year, early next year and file for an IDE late this year.

Matthew J. Dodds - Citigroup Inc, Research Division

And then one other quick question, on surgical sealant, that's one of the bigger new opportunities listed. Was that -- the $1.9 billion, that was all a U.S. number and the plan is not to have kind of an international presence with Progel? Is that right?

Timothy M. Ring

John?

John A. DeFord

Well, that was the global number, the $1.9 million -- or $1.9 billion, sorry, in 2020. It's currently all in $1.2 billion opportunity globally. Obviously, with the presence that we have through the acquisition of Neomend, the vast majority of that revenue is in the U.S. And we're all looking to expand our footprint internationally. And we have CE mark for most of the indications we're looking for, and launched in Europe just to place a month ago. So we're in the active process of expanding internationally.

Matthew J. Dodds - Citigroup Inc, Research Division

Okay. Can you say how long the PMAs are for that product? Because a lot of the opportunity is in new indications. It sounds like you're about to start a couple. How far out in that 2013 to 2020 time line do we see a lot of those indications?

John A. DeFord

Yes, we haven't given specific guidance to that. But I would say we expect that those 2 trials that we discussed for video-assisted and robotics, as well as the vascular studies, that they'll be relatively rapid patients enrollment period, probably in the order of 6 months for the video-assisted trial and in the order of 9 to 12 months in the vascular trial. We haven't given any guidance beyond that.

Unknown Executive

Yes. Matt, if you look at the study designs, it's a very short follow-up required. So unlike some of our stent and drug-coated balloons technologies that are requiring a year of follow-up or something like that, for the vascular indications, for additional lung indications, these are just a few days of follow-up is all that's required. So as John said, that allows us to enroll those studies much faster and get to the PMA route and into the FDA in a much shorter time period.

Timothy M. Ring

A mic to the front.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Kristen Stewart from Deutsche Bank. Just on the drug-coated balloons, I was wondering if Dr. Lyden could maybe just provide his viewpoints on how Bard's product compares to Medtronics, just pluses and minuses of what you've seen in the data so far. And then maybe if you guys could just remind us on the time line by which we would see the trials, if we'll see anything at TCT and when we might see continued access?

Timothy M. Ring

Sure. Before we go to Dr. Lyden, let me let John DeFord jump in.

John A. DeFord

Okay. So I'll let Dr. Lyden talk about his comparisons. But on the time line, and then we'll let Jim jump in here as well, as far as data at TCT, I'm sure we'll have something to present there. Again, timing, and we've talked about this before, timing of our 1-year cohort of data is going to be questionable just because of -- if the data are what we hope they are, we would expect that this would warrant a significant journal publication and so full presentation of the data would be difficult. Now that doesn't mean we won't be able to present some level of data, so we do anticipate that we'll put something out at that time period. So exactly the details, we'll wait and see. If we're lucky, we'll got a lot more detail out.

Sean Lyden

So if you look at the SFA data, the 6 months published data outside the U.S., they've all shown similar late lumen loss. The Cleveland Clinic has been involved in both SFA trials in U.S., and we anxiously await publication of the data.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay. And then Tim, just on M&A, I know you'd commented earlier that M&A was not included right in the guidance that you provide over the next couple of years. Can you just remind us -- I know you answered a little bit earlier but just, how you guys look at dilution? And should we expect that you would have minimal dilution and still maintain the EPS targets that you have outlined?

Timothy M. Ring

Sure. First of all, we are very active as I mentioned in M&A. I think I pointed out a couple of deals we've done over the last couple of years that we're dilutive, which tells you that we're willing for the right strategic opportunity to do that. Having said that, we're sensitive to it. I think, with the Gore money coming in, it gives us a little more flexibility there. But we don't start looking at dilution when we look at the deals. We look at the strategic use for technology, the growth rates, et cetera. We kind of deal with the dilution aspect after we're convinced it's something we want to do or not. So we're flexible and open to that, but we're sensitive to it.

Matthew Taylor - Barclays Capital, Research Division

Matt Taylor with Barclays. First, I wanted to just ask a question on the Gore litigation. So you mentioned the court date of June 12. Has anything happened since the last update that would change your views on either the probability or the timing there? And you talked in the last call about things needing to go pretty efficiently to get a third quarter payout. Is that still how you feel? Or is this extra week creating additional risk?

Timothy M. Ring

Yes, nothing is new that would make us change anything we've previously stated. I did get confirmation during this meeting. Actually, the 12th is now the date that, that's going to occur. And as we mentioned previously, if it's the later quarter, it's roughly about $0.30 a quarter, and we're not at the point to change anything at this -- for this meeting. And we'll keep you posted based on what happens at the 12th.

Matthew Taylor - Barclays Capital, Research Division

And I just wanted to ask one on the cost of goods comments that were made during the presentation. So you talked about being able to reduce overhead and do some things on the sourcing side to lower that organically by 20 to 50 bps. Is that something that you want to do in a very gaited fashion? Could you accelerate that? And so just how much runway is there left now that you've been doing that for a number of years? Or are there new opportunities that are coming out?

Timothy M. Ring

Jim?

Jim C. Beasley

I'd say there's always new opportunities, and it's a balance of trying to do it faster and then ending up with quality problems. So we try to strike a balance to get both. And I think it was 50 to 100 basis points that we said on the cost side anyway. So we don't see an absence of opportunity going forward. There's plenty of targets out there at that pace.

Timothy M. Ring

Okay. We got time for 2 more questions. Why don't we go in the back? Have we been back there? Much better questions from the back I'm told. I'm not sure.

Jonathan Demchick - Morgan Stanley, Research Division

This Jon Demchick from Morgan Stanley. Just -- you guys gave a lot of great detail about the market expansion that you guys are expecting. And I was wondering if you could talk a little about the timing from it as you kind of gave 2013 number and the 2020. Obviously, Lutonix is more of a 2015 benefit. Emerging market is probably more linear across the group. Are there any other major buckets that you would see either sooner in the earlier '14, '15 stages or later in the '18, '19 stages of where you actually see the timing of the growth?

Timothy M. Ring

Sure. I'll hit that at a macro level, and I'll let John Weiland jump in. I think that you are right in that the SG&A investment typically will hit faster than the R&D investments. And I think that holds true, not only in the next couple of years, but probably throughout. It just takes longer, the nature of R&D. The other thing, and I think you come to know us pretty well, most faces in the room are pretty familiar. Now we're really not about one big thing, that's by design. So it's a lot of little things that hit, and the volume of the whole thing is what moves the needle. And I don't see that really changing. I think that what will be an interesting thing to watch is as we come out with more economic data to go along with the clinical data that we've always come out with as the marketplace in the U.S. changes, how much that moves the needle at a faster pace than we maybe have seen historically. But I wouldn't see any big jump steps in growth rates, the Lutonix thing maybe being the one exception in 2015. John Weiland, do you want to...

John H. Weiland

No. I'd say the only 2 segments that you didn't hit on, specifically, were the surgical sealants market. And as John said, the batch-to-batch component is something that's relatively near term, 1 or 2 years. Other indications are 2-plus years out. And the targeted temperature management, as Peter had talked to earlier, the growth in the market is there today. There certainly will be further opportunities as other market indications happen in the '15, '16, '17 time frame and those indications come to fruition.

Jonathan Demchick - Morgan Stanley, Research Division

Very helpful. Just a quick follow-up, as you talk about the R&D and maybe the breakout of the R&D, just wondering how much of it maybe in buckets is more focused on cost effectiveness, how much is on some of the current big projects that we know about like with Lutonix? And then how much of it's maybe in like newer segments that maybe we don't know about?

Timothy M. Ring

Okay. John DeFord, do you want to take that?

John A. DeFord

Well, so let me try to characterize this for you a little bit. We talked today about 45, 46 projects. To put that into perspective, our overall pipeline is now around 120 active projects. So it gives you a sense that we talked about roughly 1/3 of what's in the pipeline. The timing of some of our investments and the timing of some of these programs limits us to talk about some things that are either more near term or things that are fairly straightforward or obvious that you'd think we'd be doing. Some of the other areas that we think are impactful, it's just frankly too early to talk about. If you try to bucket those in, I think the portfolio that we talked about earlier in the year, where we're sort of in the 40% incremental improvement and then fairly balanced with new platforms and a small percentage sort of in the 15%, 20% of our overall investment going to really breakthrough, game-changing things, we think that's a reasonable balance to the portfolio.

Timothy M. Ring

Okay, one more. Over the front.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Kristen Stewart from Deutsche Bank, again. Tim, I'm just wondering if you see any opportunities for any product line or business divestitures over the next couple of years? I know EPS is one where, seems like you guys have just struggled a little bit to advance mesh ablation catheters Matt talked about. Just -- you see any opportunities there that maybe just change the portfolio overall to kind of skew to faster growth and higher profitability?

Timothy M. Ring

Yes. Sure. We have always kept those always being like 10 years plus. Actually, longer than that, 15 years. Keep a list of things that clearly we know what's kind of slow or even declining growth from a product standpoint. So we keep a list of things that if we ever got a call from somebody, which happens, frankly, it's been happening more frequently in the last couple of years with the growth slowing in the market. Other companies look at different pieces of everybody else's portfolio and maybe say, "Well, look, that doesn't seem to be something you concentrate on." That might fit more closely with our call point. We do that with others. So there may be some more of that across the industry, if you will, over the next few years. Who knows? But there's certainly been more talk about that amongst companies looking at different ways to enhance their revenue growth. So we've always kept a list. It's always been easier to divest full businesses than it is product lines. As we've discussed that historically over time, we wanted the management time spent more on identifying the next [indiscernible] against growth. Because it takes a lot of management time to get out of different businesses as well. And then the aftermath of that, in terms of putting your cost structure back together again, also takes a lot of time. So like anything else in life, it's about balance and trade-offs, but we do have that list and something that we're open to if the right situation occur.

Okay. With that, I'd like to thank everybody for their time and attention today. Also, we'd like to give a big thanks to my team for all their efforts in the presentation and taking the time to come here today and also for the physicians. We still have 2 of them here. One obviously had to jump out to catch a plane. I knew that. So for coming and taking the time and sharing your experience and data with us today as well. So with that, now let me invite you to move across the lobby over to the product fair. You can take a closer look at some of our key products and maybe get some more questions answered. Thanks, everybody.

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