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CR Bard, Inc. (NYSE:BCR)

Q2 2009 Earnings Call

July 22, 2009 05:00 PM ET

Executives

Timothy M. Ring - Chairman and Chief Executive Officer

John H. Weiland - President and Chief Operating Officer

Todd C. Schermerhorn - Senior Vice President and Chief Financial Officer

John A. DeFord, Ph.D. - Senior Vice President of Science, Technology and Clinical Affairs

Matthew O'Brien - William Blair & Company, LLC

Analysts

Frederick Wise - Leerink Swann Llc

Joanne Wuensch - BMO Capital Markets

Thomas Gunderson - Piper Jaffray

Bob Hopkins - Bank of America

Matthew Dodds - Citigroup

Taylor Harris - JP Morgan

Kristen Stewart - Credit Suisse

Brooks West - Craig-Hallum Capital

Christopher Warren - Caris & Company

Operator

Welcome to the C.R. Bard Incorporated Second Quarter 2009 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded and will be available for future on-demand replay through the Bard website.

Today's presentation will be hosted by Timothy M. Ring, Chairman and Chief Executive Officer along with John H. Weiland, President and Chief Operating Officer, Todd C. Schermerhorn, Senior Vice President and Chief Financial Officer, and John A. DeFord, Senior Vice President, Science, Technology and Clinical Affairs. Also in attendance today is Eric J. Shick, Vice President, Investor Relations.

Today, Bard's management will discuss some forward-looking statements, the accuracy of which are necessarily subject to risks and uncertainties. Please refer to the cautionary statement regarding forward-looking information in Bard's March 31, 2009 10-Q and the information under the caption risk factors in the company's 2008 10-K including disclosure of the factors that could cause actual results to differ materially from those expressed or implied.

During the call, 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 and its individual product franchises.

Reconciliations of non-GAAP measures to the most comparable GAAP measures are provided in Bard's earnings press release and on the company's website at www.crbard.com.

All information that is not historical is given only as of July, the 22, 2009 and the company undertakes no responsibility to update any information, unless otherwise noted, all comparisons are to the prior year period.

At this time, I will turn the call over to Mr. Timothy Ring. Please go ahead.

Timothy M. Ring

Thanks, Glory. Good afternoon everybody. I'd like to welcome you to the Bard's second quarter ‘09 earnings conference call and thank all of you for taking the time to join us today.

I expect the formal part of the presentation to last around 35 minutes or so. The format today will go as follows. I'll begin with an overview of the results for the second quarter. John Weiland our President and COO will review second quarter product line revenues, Todd Schermerhorn, our Senior VP and CFO will review the second quarter income statements, balance sheet as well as our expectations for Q3.

John DeFord, our Senior VP of Science, Technology and Clinical Affairs will then provide with you an update of our product development pipeline and then finally we'll close with the Q&A.

Second quarter 09 net sales totaled $624.6 million. This represents an increase over the second quarter of 08 of 1% on and as-reported basis and 6% on a constant currency basis. The currency impact for the quarter versus Q2 of last year was unfavorable by about 500 basis points.

Net income for Q2 of 09 was a $112.2 million. Diluted EPS were $1.11. Excluding items that affected the comparability results between the period which Todd will get into later, second quarter 09 net income and diluted EPS were 124.2 million and $1.23, up 10% and 12% respectively over the prior year period.

Taking a look at the revenue growth geographically compared to the second quarter of 08 on a constant currency basis, second quarter net sales in the U.S. increased 7%, Europe grew at 2%, Japan increased 6% and the rest of our international businesses grew at 13%.

After completing another quarter with 6% constant currency sales growth, I am sure you are all asking the question out there regarding our expectations for the full year. Last quarter, if you recall we noted one to three percentage points of risk to our double-digit growth guidance.

We now think we'll grow revenue in the range of 6 to 7% in constant currency for the full year. We do expect both Q3 and Q4 revenue growth to improve on a constant currency basis, as a result of our business development activities, new product launches and a more direct correlation between our sales to distributors and customer demand in the second half of the year.

From an earnings point of view, we continue to see nothing in our path to keep us from achieving 14% EPS growth for the year.

Our restructuring activities have progressed smoothly and we expect these savings in combinations with foreign exchange headwind to present us with greater financial flexibility in the second half of this year.

As it relates to the restructuring, let me reiterate something we communicated last quarter. Although, they'll clearly stay with 20 this year, these decisions were strategic and focused on a long term. These risks developed naturally from changes in our long term product growth trends, they frankly were things we were looking at, are quite in advance of the announcement.

While we're currently tight from an expense standpoint, we continue to manage the business for the long term. Product leadership is the core of our strategy and it is the filter that guides all of our decisions, we will not compromise our strategy to achieve a short term earnings number.

If push comes to shove, we'll always choose the long term over the short term. Right now, we don't have to make that choice.

Obviously, it's not likely that we'll outperform our 14% EPS growth objective as we have in years past. But we still think we can get the 14 and do it intelligently, and in a way that protects our strategy.

On the business development front, we closed three deals since our last call. The first is for a small vessel PTA balloon technology that we would expect to bring in the market in the first half of next year.

The other two deals are for biologic products for our soft tissue repair franchise which should both be generating sales by the end of this quarter. We'll cover the details of all three of these products later in the call.

So, let me turn it over to John for review of our product line revenue.

John H. Weiland

Good afternoon everyone. Please note that I'll be giving all percentage growth data in comparison to the prior year period on a constant currency basis unless it happens to be noted otherwise.

We start with Vascular. Total net sales for the second quarter in this category were $169.1 million, increasing 11% over last year. The growth was 3% on an as reported basis.

Our United States business which represented 56% of global vascular revenue was up 14% for the quarter. Internationally, we grew at nine.

Our electrophysiology sales which represented 18% of the vascular category declined 1% for the quarter.

EP Lab System sales were down 24% in the United States and down 26% in Europe. The slowdown or the ferruled orders for Lab Systems continued this quarter as we see ongoing pull back in capital equipment purchases in the hospital market.

Our disposable EP products generally grew in low-single digit range. Surgical graft product sales were down 4% in Q2 which is the typical range for this product line. Our endovascular business grew 19% in the second quarter.

Within endovascular, our biopsy products were up 9% led by growth in our breast biopsy marker line of 22%.

We look forward to increase growth in biopsy with the anticipated fourth quarter launch of our next-generation vacuum assisted device which includes single insertion multiple sample technology.

Sales in our peripheral PTA line increased 21%, driven by share gains in each of our balloon segments.

On the new product front, we introduced some differentiating enhancements through our PTA line last quarter including a new balloon manufacturing process we call checkering which results in better trackability of the catheter in the vascular term. We have additional new products we expect to launch in the second half of this year that John DeFord will discuss

Sales in our vena cava filter line were up 7% in the second quarter versus the prior year period. Our stent business grew 32 % in the second quarter. Typically, we don't give specific products details here for competitive reasons. That said the LifeStent purchase was a big transaction for us and we think our performance here is a bell weather for our strategy of achieving specific discrete clinical indications for our stents.

So I'm happy to report that LifeStent sales were up 68 % in the United States in our first quarter with a full prior year comp and our first full quarter with the SFA indication.

Globally, LifeStent sales were up 49% as a result of the strong United States performance. Growth in the United States came primarily from the expansion of existing LifeStent accounts.

With the only SFA stent on the United States market and clinical data that clearly differentiates its performance and this challenging part of the anatomy, we're beginning to convert competitive accounts.

Also contributing to growth in our stent line, our flair AB access device drove 42% growth in stent graph products.

Urology; net sales were $174.7 million, up 3% versus the second quarter of last year and down 1% on an as reported basis. The United States business was up 1% and internationally we grew at 9%.

It appears that our distributors reduced their inventory again this quarter although at a lower rate than they did in the first quarter.

With substantially all of our basic drainage and StatLock products and a portion of our urological specialty sold through distributors, we estimate the impact of this inventory reduction on the total urology category to be about 3% of sales growth.

Our basic drainage business grew 4% in second quarter with the United States being up 2% and outside of the United States, up 8%.

Our IC Foleys business was up 1% in the United States. The distributor sales tracing data we received suggests that in United States actual customer demand increased 4% for our total basic drainage line and 5% for IC Catheters.

Standalone sales of our StatLock catheter stabilization line increased 18%, with growth being 17% in the United States and 26% outside of United States. On the demand basis, we continue to see sales growth in the mid 20s globally.

Our overall continence business which represented 15% of urology category grew 6% in the second quarter driven by our new DigniCare line of fecal incontinence products, which continues to gain momentum posting very good sequential growth for the quarter. And only two quarters since its launch, DigniCare is already being purchased by a significant number of hospitals in the United States.

Our surgical swing line was up 7%. In Europe, it grew 54% driven by the success of our new adjust single incision sling. In the United States, the delay we discussed in our Q1 call in the 510-K concurrence of the adjust, continues to put us at a competitive disadvantage., is possible will get approval later this year but it's obviously not a process we control.

Our pelvic floor repair line continues to weigh down our surgical continence category. Two issues are impacting this year. We believe the market has slowed significantly as a result of the FDA's public health notice. And we are not currently at the forefront with the new product offering.

Our next major new product launch in this line is planned for mid-2010 and John DeFord will give you more details here.

Sales in urological specialties were down 10% again in the second quarter.

Brachytherapy sales continue to decline with the decrease of 16% in the quarter, in the United States, brachy was down 24%.

Closing out urology category, Argento was up over 300% against a very small base not enough revenue to impact the category but we're making progress.

Oncology, our next business segment. Total net sales in this category were $167.2 million, an increase of 6% over the second quarter last year, or an increase of 2% on an as reported basis.

Geographically, net sales in the United Stated which represented 78 % of our global oncology revenue were up 8%. Outside the United States, sales were flat

The primary issue outside of United States was in Japan, where we experienced some volatility and ordering patterns from time-to-time in our joint venture partner.

Our core business grew 7% in Q2 with much of the weakness in Japan impacting this line. In the United States, we grew 13%.

During the quarter, we rolled out PowerPort duo, our first Dual-Lumen port with a power injection indication. Right out of the blocks, demand was strong and we're receiving positive clinical feedback on the device.

Our pick and midline products grew 8% in the second quarter. You may recall, we launched our PowerPICC SOLO at the end of 2007. And that drove a step up in sequential growth both in Q1 and Q2 last year, creating tough comps with inline in the first half of this year.

Later this quarter, we expect to roll out the next-generation of the Solo catheter. Looking further down the road, our next major advance and picks will be our Sherlock 3CG tip conformation technology, which we plan to launch in the second half of 2010.

Our vascular access ultrasound product line was down 6% this quarter. Historically, about 30 to 35% of revenue in this line comes from capital equipment sales and in Q2, we continue to see the impact here from reduced capital spending.

Let's complete our discussion with our surgical specialties business. Global net sales increased 8% in the second quarter to $91.9 million, up 3% on an as reported basis. United States sales increased 10%, while internationally sales increased 3%.

Our soft tissue repair business which represented 77% of the surgical category, this quarter, grew 11%. In the United States, sales increased 15% and outside of United States they were up 3%.

Our natural tissue hernia products were up 45% as our AlloMax human tissue patch continues to gain share. During the quarter, we added a couple of larger size patches to expand the AlloMax line.

I'm pleased to note that we're continuing to build on our success in natural tissue products. As Tim discussed earlier, we recently closed two transactions that broaden our technology base in this phase, and almost immediately add new product offerings.

First, we acquired the Zen Matrix, non-crosslinked porcine dermis derived collagen patch from branded medical. This extra cellular matrix will be provided sterile and pre-hydrated in size configurations that support treatment of even very large complex hernias.

We anticipate launching the Zen Matrix family in the next few days.

In addition to Zen Matrix, we also recently expanded our license and distribution agreement with RTI for our AlloMax product. This provides us greater access to human tissue derived extra cellular matrix for hernia and soft tissue repair including and this is a major new edition, breast reconstruction, which obviously is a new market for us.

We anticipate launching these new AlloMax products during this quarter. So by the end of Q3, we expect to have the broadest biologically derived product family on the market for complex hernia repair, including crosslinked and non-crosslinked xenographs and allographic materials.

Moving to our synthetic hernia products, sales were flat versus Q2 of '08. Within this category, our new Ventrio resorbable ring ventral patch grew sequentially and it continues to receive positive clinical feedback.

We anticipate expanding our Ventrio line in Q4 giving us a whole range of sizes for behind the muscle ventral hernia repairs.

John DeFord will take you through some additional synthetic hernia new product launches scheduled for the second half of this year.

Our fixation line was up 151% this quarter. In the United States, we launched our new Sorbafix resorbable anchor device in late April and saying that it's off to a good start would be a bit of an understatement.

Despite having only about nine weeks of sales, the second quarter was our second highest fixation revenue quarter in the United States since we first got into this business.

In summary, while investors have waited a bit for things to pick up in our soft tissue franchise, we're starting to make some real progress here. We're bolstering our natural tissue business which has grown three successive quarters above 40% with two new great product opportunities.

Next Sorbafix is off to a very strong start. And then our pipeline has a lot more innovative technologies to come.

And finally, we have an experienced motivated sales force to capitalize on these opportunities.

Closing on our surgical category, our performance irrigation business was down 2%, following the return to market of one of our irrigation competitors and our homeostasis business was down 2%.

This concludes our product line revenue discussion. I'll now turn you over to Todd Schermerhorn.

Todd C. Schermerhorn

Thanks John. Let me -- cover the items that affect the comparability of our results between periods as Tim mentioned.

In total, they reduced earnings and EPS by 12 million and $0.12 respectively. The first was acquisition related adjustments which include the requirement to expense acquisition related transaction cost under FAS-141R and purchased R&D relating to acquisitions we close in Q2. These resulted in pretax charges of a 100K to cost of goods sold, 800K to SG&A and 2.3 million in R&D.

In addition, as a result of the branded medical Zen Matrix purchase, we decided to discontinue the sale of certain of our existing biologics products. This discontinuation will necessitate the write-off of 5.7 million in assets, 1.2 million in COGS and 4.5 million in other income.

Finally last quarter, we noted a portion of the costs associated with Q1 restructuring related to non-policy benefits FAS-146 and those will need to be recognized in Q2. This resulted in a pretax charge of 5.6 million to other income expenses this quarter.

That brings the total cost for the restructuring to 15.4 million which is right in the middle of our previously communicated range. For further reference, these items are detailed in the notes to the financial statements and an accompanying reconciliation in our Q2 earnings press release.

Now let's go to the statement of income for the quarter. Gross profit was 61.8% of sales for Q2. On an adjusted basis, it was 62.0, up 80 basis points from the prior year quarter. New amortization of intangibles relating to transactions closed in the last 12 months cost us about 20 basis points year-over-year.

Considering the lower sales volumes, the manufacturing efficiencies are holding up well and we'd expect sequential improvement into Q3.

SG&A expenses were 169.9 million for the quarter -- 7.2% of sales. On an adjusted basis, they were 169.1 or 27.1% of sales. 220 basis point improvement over the prior year quarter.

R&D totaled 41.7 million for the second quarter, 6.7% of sales, adjusting after purchased R&D they were 39.4 million or 6.3 % of sales.

So, naturally with 1% reported revenue growth, we are attempting to leverage our SG&A, particularly the administrative component, while continuing to expand our R&D investment.

This quarter's organic R&D investment is the second highest in our existence growing 3% on a reported basis and 5% on constant currency. And we're currently planning new investment for the second half of the year. Our strategy hinges on R&D and business development and these areas will continue to be the priority for our investment dollars.

Interest expense was 3 million for the second quarter which is even with the Q1 in the prior year. Other income expense was 7.6 million of expense for the second quarter on an adjusted basis. It was two five of income for the quarter versus 4.2 million of income in the prior year, which includes a $3.4 million drop in interest income.

Tax rate recorded for the quarter was 31.4 % on an adjusted basis that was 30.2, getting us to a year-to-date rate of 29.7 which is consistent with our full year guidance.

We repurchased about 1.9 million shares of the company's stock this past quarter getting us to 2.3 million shares year-to-date.

The balance sheet at June 30, 2009 reflects cash and short-term investments of 607.9 million versus 667.2 at March 31.

For the quarter, accounts receivable days were up 2.8 days and inventory days were up 7.5 days. CapEx totaled 14.9 for the quarter. On the liability side, total debt was 149.8 million as of June 30, unchanged from the prior quarter.

Debt-to-total cap at the end of the second quarter was about 7% and total shareholder investment was 2.1 billion at June 30, 2009.

Moving on to financial guidance, for Q3, we are expecting constant currency sales growth between 6 and 8%. Our models indicate about 300 basis point currency drag at the current rates.

From EPS standpoint, we estimate earnings in the range between 125 and 129, excluding any items that affect comparability. You should note for those of you who have followed us for few years, we have moved our long-term incentive grants from Q3 to Q4 for 2009 and going-forward.

This will allow us to match the heavy expense related to retirement eligibility with what is typically a very strong sales and earnings quarter for us and will create a more gradual sequential pattern of earnings for us within the year.

That's all from the financial side. I'll now turn you over to John DeFord.

John A. DeFord, Ph.D.

Good evening. Jumping right into the products, I'll start with the HD Mesh Ablation System and our atrial fibrillation activities.

There is really not much new to share, as we are in the enrollment phase of our U.S. pivotal clinical study we've named MAGELLAN.

As I presented last quarter, we're making some minor changes to MAGELLAN protocol primarily focused on patient's inclusion and exclusion criteria, along with adding some investigative sites outside the U.S.

These sites should begin to come online around the end of the year. And on the topic of sites, our site initiation activities for the study continue with new sites added each month and patient's screening and enrollment activities, slowly building momentum.

As we discussed in December, with the challenges in patient enrollment under the required study criteria, our timeline indicates a late 2011 PMA submission and estimated U.S. launch in late 2012.

Now moving to stents. We're on schedule with our LifeStent product enhancements including longer links and a new delivery system.

These additions to the product line are anticipated to begin launching in Europe in the first half of next year, concurrent with the start of a small clinical study, which we expect will lead us to a U.S. launch late in 2010 or more likely in early 2011.

On the Stent graft front, we continue to work with the start of the US. clinical study of our fluency self-expanding stent graft product to support some expanded indications.

We've had some initial discussions with FDA this quarter and anticipate submitting our IDE later this year or early in 2010 with commencement of the study in the first half of next year.

Simultaneously, we're working towards the completion of development of our next- generation of stent graft technology. This platform will combine a new flexible and fracture resistant self expanding skeleton and an enhanced EPTS recovering technology that is designed to yield a lower profile product that will be well suited for both AV access treatment and use in the arterial system, specifically the SFA.

We continue to track toward the first half 2010 launch in Europe with initiation of an AV access clinical study in the first half of next year. And an SFA focused clinical study in the second half of the year.

Moving to PTA, we're also planning to launch three new product families in the coming months.

This quarter, we anticipate the launch of our new rival family of high performance 035 workhorse balloons. Rivals are non-compliant, low profile systems with our pattern to checker technology for enhanced trackability and will offer links of up to 150 millimeters.

Rival will be followed in the first half of next year by our new alt reverse 018 and 014 ultra low profile balloons designed specifically for SFA and balloonomy applications.

The alt reverse 018 and 014 balloons will be our first -- PTA offering and will include some recently acquired technologies that Tim referred to earlier. These new balloons will feature in ultra low profile with very long wings and hence trackability to our checkering technology and a new capital shaft design.

The addition of rival and alt reversal position at with a very broad PTA offering including true sizing to our highly non-compliant offering. We also have high pressure, large vessel, small vessel, high performance, semi-compliant and workhorse product families.

The launch of these three new products will position us to become the market leader in the overall U.S. PTA market during 2010.

Now turning to urology and continence products, in the pelvic floor repair area, we're preparing for the launch of our new mesh based vaginal support product, trade name Alight (ph). This product is designed for sacocopapaxi and is scheduled to launch later this quarter. Then our new procedural kits for treatment of both anterior and posterior pelvic floor repair floor prolapse are on schedule for launch in mid-2010.

In our sling line, we focused our efforts on our new adjust single incision sling. This system was introduced in Europe last December and continues to receive very positive feedback both in physician comments and sales growth.

In U.S we had anticipated 5-10(k) concurrence for our first half 2009 launch. However, as we discussed on the last call, the FDA's request for clinical data has led us to collect some European clinical experience for submission to FDA, and pushed out our anticipated launch. Since this is a regulatory process it's not completely within our control but we feel launch is possible later this year.

Now moving to oncology. We had several products progressing toward market release or clinical evaluation. First in picks, we have a number of launches slated for this year.

Now as we discussed in December, we've been pretty tight lipped about our pipeline due to competitive environment. So, I said we'll talk about the products as they launch.

One of those products is our new PowerPICC SOLO 2, proximal valve catheter family scheduled for launch August 1st. The Solo 2 incorporates a number improvements to our popular PowerPICC SOLO product that was launched in late 2007 while continuing to support sailing and re-flushing every seven days.

On the Solo 2 introduction in mid august we finally introduced our new multi million PowerPICC in five brands followed by a new internal caroline product around the end of the month.

Then in September, we anticipate launching our popular Groshong valve PICC's in a maximum barrier configuration. These maximum bearer kits will provide all the components required to perform the procedure at bed side including sterile draping, access site preparation products, vascular access devices, of course the pick in the sterile dressing.

The next potential gain changer in our big franchise will be our new Sherlock 3CG pick placement tracking and tip confirmation system. This project remains on schedule for completion of development and commencement of a pivotal clinical trial near the end of this year.

The pivotal study is designed to evaluate the system's ability to confirm tip location during placement without the use of ionizing radiation. This randomized study with short term follow-up is designed to enroll several hundred patients.

We believe that reducing the need through our confirmation X-ray would not only decrease radiation exposure but also decrease nursing and radiology time while most importantly allowing patients to begin needed care immediately following pick placements.

Moving to ports. Early in Q2, we launched our MRI PowerPort duo, Bard's first duo lumen MRI PowerPort and having gained very positive early feedback, we anticipate launching our new low profile PowerPort early next month.

This new port is designed to support placement in pediatric patients, smaller adults and patients who require a lower profile device for placement in the upper arm.

As in PICC’s, we have a few other port offerings in the pipeline that we expect to launch before the end of this quarter. But due to the highly competitive nature of this space, I' am going to wait to give you the details on our next call.

In imaging, we anticipate launching our high performance ultrasound platform to Site-Rite Vision in September. The Site-Rite Vision will incorporate a number of new features such as color flow doppler, on-screen vessel measurement and DICOM compatibility, all significant enhancements to our ultrasound platform and will support use beyond vascular access.

Now I'll close out our oncology pipeline with discussion of dialysis. In Q1, we launched our Ecostream over the wire slit tip chronic catheter and are Power Trialysis Acute Triple Lumen Dialysis Catheter.

Then on June 25th, we launched our duet long-term hemodialysis catheter ahead of the timing we anticipated at our Analyst Meeting. The duet provides two single lumen high flow catheters to support physicians and their patients to benefit from completely independent inflow and outflow lumens or for further use of retrograde placement technique.

Now moving to our surgical business, John discussed the early Q2 launch of our new Sorbafix resorbable fixation device. This new product is available in either a 15 or 13 tack configuration with a highly visible PLA fastener that's designed to provide strong, consistent and reliable fixation.

Following Sorbafix, we anticipate the launch of the permanent tack version called Permafix later this year.

As we move through the remainder of the year, we anticipate the launch of additional sizes of our new vitriol self expanding ventral repair mash with its resolvable ring technology to support both open and laparoscopic repairs of the largest types of ventral defects.

We also anticipate launching next generations of our market leading PerFix plug and 3DMax products to support both open and laparoscopic repair of inguinal hernias.

And in our biologics product family, Tim and John discussed, we recently closed two transactions that broaden our technology base and add new products to our franchise. Including the Zen Matrix, non-crosslinked porcine dermis derived collagen products branded medical. An additional size is an indication for our AlloMax allogenic collagen material from RDI.

Closing out our hernia lines, the longer-term projects we discussed in our Analyst Meeting in December all remain on schedule. And finally, moving to obesity therapy project, we continue to follow our trim study patients and have most patients at the six months follow-up time point with very encouraging results that were presented at DDW in May.

This small feasibility study enrolled 18 patients in the primary treatment of obesity using our RS2 endoscopic suturing device.

We're currently completing data collection and analysis and anticipate using these results to support the start our trim pivotal study around the beginning of the next year. We are optimistic about the prospects for the RS2 devices used in natural orifice procedures for the treatment of obesity.

Though a couple of years out, we continue to work toward the launch with the primarily weight loss indication in early 2012, following the completion and follow-up of our trim pivotal study.

That concludes our pipeline review. Thanks very much for your attention. I'll now turn you back to Tim Ring.

Timothy M. Ring

Thanks, John. So let me conclude the formal part of the presentation with the summary statement.

With two consecutive quarters of 6% revenue growth versus our double-digit goal, one has to be forward-looking relative to our strategy in their execution of our plan.

We believe that innovative new technology and product leadership will continue to drive revenue growth in our markets and these objectives are the focus of our R&D and business development decisions and activities.

While we're working hard to tweak a few areas of our execution, we will continue to increase our investments in double-digit growth opportunities as Todd mentioned in his presentation, we just turn down some additional R&D spending for the second half of this year.

We like our new product pipeline and although we like more volume from both sources we're particularly pleased with the business development momentum we've built in Q2 including the deal flow we see in front of us.

The key takeaway again here today is that we absolutely will not sacrifice our long-term strategy for short-term results. So that concludes the presentation. Let me now turn it back to the moderator to facilitate the Q&A.

Question-and-Answer Session

Operator

And ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions). And our first question from the line of Rick Weiss with Leerink Swann. Please go ahead.

Frederick Wise - Leerink Swann Llc

Good afternoon, Tim.

Timothy Ring

Hey, Rick.

Frederick Wise - Leerink Swann Llc

Starting I guess with urology just -- you said that distributors reduced inventories again but at a slower rate. Can you give us any more color or do you have anymore thoughts about how much longer the longer the full process is going to take and do we start to -- should we expect a sort of a sharper rebound maybe in the third or fourth quarter, is that's what's ahead?

Timothy Ring

Rick, the effect of that was about $5 million in the second quarter. That's down from about $9 million in Q1 of this year. Now while we don't have perfect insight into the dealer inventory levels, we do know that they are approaching a very-very low point from historical standpoint. We can't guarantee that they won't be moving them even lower, but we don't think that there is a lot of opportunity to be very substantially lowered at this point in time.

Frederick Wise - Leerink Swann Llc

Yeah. Thanks, Tim. And Tim you -- maybe two part question about deals. You said there are more deals ahead, should we assume more this year and maybe just you could reflect on that and maybe taking, this question for you or for John, taking these two small transactions, the AlloMax and the Zen Matrix. Maybe can you give us again a little more color about the opportunity or the contribution that they could make over the next six, 12 months, just how do we think about the impact on sales? Thank you so much.

Timothy Ring

I'll be able to deal for the question and then the two Johns can respond to the product question. We're very bullish on the deal flow that we see in front of us. As you know deals are opportunistic to an extent and we're extremely disciplined in the process and everyone including us has said while there's some inexpensive deals because the values have gone down.

The one that we've seen, a matter of quality that we were looking at. So we're not going to just buy something because it's inexpensive. But we're extremely active on the front and multiple divisions, looking at multiple things literally as we speak.

So we're pretty bullish there.

Frederick Wise - Leerink Swann Llc

Some more to come in this year.

John Weiland

We've talked about the product issues. If I deal with AlloMax first, we think there is a very nice opportunity for us. First of all it really helps us drive incremental AlloMax sales into that Hernia repair segment by really giving us access to the larger size of products for eventual Hernia repair in that segment that we've lacked thus far.

And I'd also say the equally exciting area associated with that is it gives us a product line access into the breast reconstruction segment, which is a $130 million market that we have not played in historically.

So that in our mind's is very attractive. Let me then talk to you about the Bard transaction and the zen matrix product. And if John, could chime in here that'd be great as well.

We think that then matrix product from Bard medical really gives us a very, very nice offering into the hernia repair space.

First of all, we had very positive clinical and preclinical data that we investigated very thoroughly independently before we did this transaction.

We think that the pre-hydrated nature of this biologic material has some nice opportunities for customers. And then if we look at the product itself the open scalpel nature of this product in our minds leads -- has the potential to lead to great tissue integration.

Our internal testing also tells us that this product has superior birth strenght to other products in the market and as superior care strength versus other products in the market.

So, we think, what we've done here is with these two transactions, we've broadened our portfolio substantially. And we think we've also have had some products that have unique clinical capabilities that will really allow our sales force to sell leading products clinically in this segment.

Frederick Wise - Leerink Swann Llc

Thank you.

Operator

And our next question is from the line of Seth Banerjee with Deutsche Bank. Please go ahead.

Seth Banerjee - Deutsche Bank

Hi, guys, thanks for taking my question. Just a follow up on what Rich said in one other. First on the inventory, within the distributor channel, can you provide a just a number of how many days on hand the distributors were starting with and where you think they are about now?

John Weiland

Well, they differ by distributor. I think we've talked about this a little bit on the last call. We think it's somewhere, started somewhere around 30 days. It's considerably less than that. It's an average maybe a drop of in the five day range or maybe more.

Seth Banerjee - Deutsche Bank

Okay. And then in the oncology business, can you gives us any more color on the Japanese oncology ordering issue and just how much that may have impacted growth in division?

John Weiland

Give us a second here, we're pulling the info. Do you have a follow-up question whether

Seth Banerjee - Deutsche Bank

Yeah, yeah and one last one to with Nestectomy, moving into the breast space, is that a different call point and will that require the hiring of additional reps?

John Weiland

Let me take that one. It won't require, it's not a different call point it's still the OR, might be a different surgeon but its still in general surgeon area where most of the procedures are done.

Given the contracts that we have and distribution agreements that we've had in the past, we did not have access to that space. So this is brand new for us, being able to sell into that space with that product.

Timothy Ring

I'd also add that some of the largest hospital groups that we see around the country when looking at making purchasing decisions want to buy from a source that can handle with -- from biologics that handle both the hernia repair and the breast tissue side of it. So this really allows us to be significantly more competitive in those accounts.

Todd Schermerhorn

Seth, the evenness in the oncology ordering out of Japan cost us $3 million in sales for the quarter so, that would be about 1 -- 1.5% of overall oncology sales.

Seth Banerjee - Deutsche Bank

Great, thank you very much.

Operator

Thank you. We'll go on to our question from line of Joanne Wuensch with BMO Capital Markets, your line is open.

Joanne Wuensch - BMO Capital Markets

Thank you very much for taking the question. There is a theme that's happening in these earnings calls, so let me hit me them right up-front, what you are seeing in pricing? What are you seeing coming potentially out of healthcare reform and how it may affect your businesses?

John Weiland

Let me take pricing Joanne, it's a pricing hasn't been a big number around here historically and it continues to be very, very neutral, not even 10 basis points for the quarter.

Timothy Ring

Relative to healthcare reform, I think there is more we don't know at this point than what we know. Price as you know -- you've been following this industry for a while, pricing always been a challenge on free market basis between the hospitals and the companies.

Clearly the hospital association committed a fair amount of savings towards this plan, I think was a 155 billion. I'm sure they are going to be coming after in the multiple sources including parts which they've historically done.

I don't see anything draconian based on what on that nearly relative to anything that's been talked about at the moment.

Joanne Wuensch - BMO Capital Markets

Okay, you talked about not cutting, we'll not talk of first long term strategy for short term results, what kinds of things other than travel and some administrative are you cutting today?

John Weiland

Joanne, other than the directed cuts we did in the restructuring, I don't think we can really call it cutting. I'd say we're at sort of just holding the line on the level of increase relative to SG&A. And again back it's not anything draconian, I think it's just puts my cost controls. It's not something you want to do forever but in the short run asking people to find ways to get more placeis a healthy process.

Joanne Wuensch - BMO Capital Markets

And helpful and finally the question is that with a large organization, with multiple products there is some products you are loosing share in and some products you are gaining share in, could you give us some idea when you look across your portfolio of the larger gainers and the larger losers if you will? Thank you.

John Weiland

I'd say it's I guess on the good list, let's start with our vascular business, and there is a host of product lock lines within vascular that we certainly think we're gaining share.

Stent grafts, stents, PTA, vena cava and biopsy, almost every product line in that segments we believe we're taking share in.

On oncology we don't think we're gaining share, we don't think we're loosing share right now, shares seems to be about stagnant right now in the marketplace that with a little bit of head wind in terms of the number of units that are been in place right now. Our product offerings, the new product launchers that we have coming up will back on the offense to begin in our minds in terms of the dialysis with 3 new launches we just had and with ports and with pics.

In neurology in our minds we certainly loosing some share in the pelvic floor repair area and also in the surgical sling area and it's just that we don't have a new product that's ready. One is hung up with the FDA for our single incision sling and our next new product in the area of pelvic floor repair won't be until next year.

So we are loosing some share in that category. Brachytherapy in the surgical specialty area's loosing little share to other modalities although we don't believe we're loosing share within that segment itself.

And in surgery, we're definitely gaining share in fixation as noticed by our product offerings. We believe we're doing extremely well in biologics as a result of the results that we just talked about earlier here today.

And with our new products that we have coming out in both (inaudible) and eventual hernia we'll think we'll be on the offence there again soon.

Joanne Wuensch - BMO Capital Markets

Thanks so much.

Operator

And our next question is from the line of Tom Gunderson with Piper Jaffray. Please go ahead.

Thomas Gunderson - Piper Jaffray

Hi good evening. I just want to clarify on a couple of things. On the urology the de-stocking the distributors etcetera, I'm getting the sense and I just want to make sure that I'm hearing that right that you think this is more inventory cash management on a distributor side as opposed to changes in their demand on the hospital side, is that a correct interpretation?

John Weiland

I would say the majority of it is cash management, but I would also say that we think there is a natural slowing down in that urology market this year versus last year and here is the evidence that I give you on that. If you look at our top 100 infection control customers and there is not been a single competitive loss in our top 100 customers last year in units we grew that business at about 3%, this year in units its growing about 1%.

So I think that from the admission weakness that we talked about and other people have talked about. Its probably costing us couple of points a year of unit growth within that business.

Thomas Gunderson - Piper Jaffray

Thanks. And then you described I think I got this right on the Japan ports and ordering pattern issue, I'm interpreting that to mean Q2 but not Q3 or Q4 is that also a correct interpretation?

Timothy Ring

Yes. Our Japan business at the door in the market in Japan is very strong. So, we think it's just a short term issue.

Thomas Gunderson - Piper Jaffray

Okay. Thanks. And then I'm pretty sure you're not going to give us numbers but was less than up sequentially in Europe. I'm trying to get a sense of durability.

Todd Schermerhorn

It's that real quick. Or maybe not that quick. Why don't we move on and we'll throw that back in a couple of minutes.

Thomas Gunderson - Piper Jaffray

Okay. And then Todd on the restructuring, you said in Q1 that, that would not have an impact to Q3. Did we -- was that true did we see no impact to the numbers on bottom-line?

Todd Schermerhorn

Minimal.

Thomas Gunderson - Piper Jaffray

Minimal?

Todd Schermerhorn

Yeah, not really negligible. I Guess.

Thomas Gunderson - Piper Jaffray

And the same on 10 to 15 million in contingency spending?

Todd Schermerhorn

Yeah.

Thomas Gunderson - Piper Jaffray

And an sort of an overview for Tim or John. Can you give us your sense of where you think we are in this slower hospital economy? Do you think -- have you seen any indication as you look at your daily, weekly, monthly numbers that it's bottomed and climbing back up?

Timothy Ring

I don't know if we've seen any tangible indications that admissions are back on the rise in U.S. hospitals. None of the data that we've seen would suggest that for us at this point in time, Tom.

Thomas Gunderson - Piper Jaffray

What about capital equipment, stent farming was that better or worse sequentially Q2 to Q1?

Timothy Ring

It was about the same trend as we saw earlier and I would say in the second quarter, yes we saw, we did see a strong growth in Europe on LifeStent as well.

Todd Schermerhorn

Best quarter since we've added in Europe.

Thomas Gunderson - Piper Jaffray

Great, thanks for that. I am done.

Operator

Our next question is from the line of Bob Hopkins with Bank of America. Please go ahead.

Bob Hopkins - Bank of America

Thanks, and can you hear me okay.

Timothy Ring

Yes.

Bob Hopkins - Bank of America

Great, good afternoon. A couple of things. First on the guidance side for the back half of the year or for the new guidance for the full year of 67%, constant currency growth. Does that include M&A that's not yet announced or is just include the things you talked about today?

Todd Schermerhorn

Just the things we talked about today.

Bob Hopkins - Bank of America

Okay. Great and then for Tim just a big picture question for you. Do you still consider Bard as a 10% growth company with maybe going through little biff here down in the 6 to 7% area? Or do you think of the company now in light of all the moving parts of more of a 6 to 8% growth company that, if things go well you hope to get back up to the 10%. Could you frame that for us a little bit?

Timothy Ring

Yeah. No, we have not moved out of the strategy at all. I think the market slowed down a little bit on us. But all the investments and you can see by some of the growth rates John went through by individual product lines where we've been investing and launching new products.

Virtually all those products have come out of the box; continue with the same kind of high growth rates that we've had historically.

So the key is for us to execute, and you'll get more of those out there and get more of the deal flow going in but clearly we think it has the capability to continue to have very strong revenue growth.

Bob Hopkins - Bank of America

So you continue to think of the company as a 10% grower in a more normalized environment?

Timothy Ring

Well. We haven't given guidance for next year. We just went through the guidance that we adjusted to for this year. But strategically and in terms of the way we invest and the things we invest in, we haven't changed how we do that.

Bob Hopkins - Bank of America

Okay and then Tim could you also talk a little about Europe that's been little bit of disappointment over the last two quarters. Just give us a sense as to what's going on there and most importantly when you think the growth outlook in Europe can improve?

Timothy Ring

I want you to take that.

John Weiland

Let me. Last quarter we couldn't talk about that restructuring in Europe because of the -- that we had not really communicated it to people. So let me just deal with that first and I'll tell you that affected longer-term.

We firmly -- we had an organizational structure that we had let's just say about 30 people in Europe who had combined responsibilities both sales and marketing.

Our involvement in this industry long-term, let's say, when you give somebody the title of both sales and marketing it, they'll have a tendency to spend more time in the office then on the selling side of the business. And we wanted the clarity of our roles and responsibilities set to a degree that our strategic intent in Europe is to do one thing and that's build high performance selling organizations.

So we changed the structure. We regionalized marketing, eliminated a number of those positions and beefed our field management, sales management positions up to a group of approximately 70 people in Europe.

Now we think that will have a long-term impact on our execution. We also took the opportunity to take out a significant number of people that we think were below our threshold in terms of performance over the last few years. And take the opportunity to upgrade that talent.

Now that having been said, where we stand here today, we have 37 sales positions open in Europe, that's about 10% of our sales positions we have to fill yet.

We have approximately 20% of our sales management positions or 14 positions to fill in Europe.

We'll be doing that over the next quarter or two. Add to a little bit of training and it takes people a while to get the wheels underneath of them. We think that we'll going through this in Europe for the next number -- next three quarters or so before we should see our performance improve substantially from there.

Bob Hopkins - Bank of America

So things get a little worse before they get better or can we sort of stagnant at this level?

John Weiland

I would hope they wouldn't get any worse than 2% growth in Europe.

Bob Hopkins - Bank of America

Alright. Thanks guys.

Operator

Our next question from the line of Matthew Dodds with Citigroup. Please go ahead.

Matthew Dodds - Citigroup

Hello. Couple of question for you. First on the biologics. When you look at the supply, now that it sounds like you have more supply. Is there a limiting factor to what you can get RTI, meaning if you continue to grow at these kind of rates, do you hit a wall or do you now have more than enough going forward several quarters out?

John Weiland

We expect it will have enough supply, Matt, moving out.

Matthew Dodds - Citigroup

Okay and then the addition of the breast reconstruction, is that a similar sales channel to where you are now or do you have to make some adjustments to get into that market in a big way?

John Weiland

No, very similar to what we're today, general surgeon, the breast surgeons that we're dealing with now.

Matthew Dodds - Citigroup

Okay, and then on the picks space, if you look at the recent growth 7, 8% I think we're not that far of the market any more. Have we lost a lot of the mix benefit you don't seem to have lost share.

So is it still possible that some of the new products coming on, you could get a lift in what I will call mix/ASP like you've seen in the last two, three years?

John Weiland

That's exactly the game plan, Matt. We're not happy with where we were on picks. That was on our bad list for the quarter in terms of our growth rate but and a couple of things happened. We did see the market-- IMS just published their data for the fourth quarter and the first quarter of 09.

And the unit growth came down from 5% in the fourth quarter of '08 to 1%. So you're seeing a little bit of slowing in the market according to their data. But also we did a -- I think a terrific job upgrading that entire market to solo over the last year and a half which is a significant premium.

We need the next premium product coming out. That would be Solo 2 and Solo NXT. And I think our other big focus will be to continue to gain share in this new Triple Lumen PowerPICC that we launched in -- we're going to launch in August.

The max barrier kit for the Groshong valve pick that we'll launch in September and then the home run for us is the 3CG pick next year. That's the -- these are our movements that get right back to the point that we're creating a revenue growth rate in this segment that's substantially above the unit growth rate.

Matthew Dodds - Citigroup

And then John in ports, it is 13 in the U.S. It seems like that area you still do have mixed benefits. Is that fair?

John Weiland

Yes I do and we're trying to enhance that quite frankly. This PowerPort duo that we just launched is one of the answers to including -- and continue to move that up.

And then we're really focusing on a number of the differentiating technologies that we have in that space, the Groshong power pick, the new power slim that we've just launched, the new profile titanium power port, the low profile titanium power port. They're all right up our alley, in terms of continuing to ensure that we're growing that thing in the substantial double-digits.

Matthew Dodds - Citigroup

Got it and then Todd, pretty easy one for you. The start comp that switch from Q3 to Q4, is it about $0.03 you kind of look at the bonus you had in the past in Q3 versus Q4. Is that about the amount that moves over?

Todd Schermerhorn

Yeah about $0.04 I think it was historically, yes.

Matthew Dodds - Citigroup

All right. Thanks John, thanks Todd.

Todd Schermerhorn

You bet, Matt.

Operator

And we'll go next to line of Taylor Harris with JP Morgan. Please go ahead.

Taylor Harris - JP Morgan

Thanks. Actually I just want to follow up on some of Matt's questions on the pic market. So unit growth is slowed, what do you guys think the reason for that is?

Todd Schermerhorn

Well I guess the best non-anecdotal information that I can give you is we did a relatively significant survey with large customers recently.

And one of the things that we saw were I guess two things that we saw, that if you looked at the top 200 accounts that we have and there has not been competitive losses in there much like in our IC Foleys business.

We were seeing growth rate in terms of units at the 5% level, lets say last year and now that's pretty flat. So we think the demand itself is down a little bit. Part of the reason to that is part of the survey we tried to understand what was the effect of the downsizing of staffs.

An important this strategy on pic’s is that the way that we drive pic growth from other catheter potentials such as ID catheters is that we really participate in helping hospitals train and develop these high tech pick teams.

Now what we've noticed in back is that 14% of our hospitals noted in this survey that their pick teams were impacted by layoffs during the first half of this year. Now what are we doing to combat that would be the second question I'd ask.

We are really focusing on helping our customers improve the training and the number of training programs we are having. We start the season effective that and we have created 71 new pick teams in first half of this year with our customers. So we see a slowing but we are trying to change that pretty substantially ourselves.

John DeFord, Ph.D.

I think just another point to jump in here is that apart with the impact that a the little bit more than other companies because we really driving that the pick teams and nurse placement at bed side especially with product like our Sherlock device and obviously our 3CG coming in after that.

And so if there is movement to radiology or movement to less expensive devices like ID capitors, we'd see that impacting us a bit more than some of our competitors who are really more radiology focused.

Taylor Harris - JP Morgan

So, looking back at 2008, where pick business grew, constant currency somewhere I think between 20 and 25%. So are you saying that 5% was unit growth and then 15 to 20% growth from mix, is that?

Todd Schermerhorn

No, I think we said unit growth back around then was somewhere around 10%. The unit growth that I was quoting at 5% was only the fourth quarter. So you started to see unit growth slowing at the latter part of 08.

Taylor Harris - JP Morgan

Okay. So you've had unit growth go to zero and mix growth declined some as well.

Todd Schermerhorn

It's a good way to look at.

Taylor Harris - JP Morgan

Okay. And I guess on the unit growth side it sounds like you guys can try to stimulate that some part of it, we may have to wait for just market recovery in general.

On the mix side, do you think these new products that you are going to be launching over the next couple of quarters, can those be meaningful mix drivers or is what I heard that the Sherlock 3CG is really the next truly meaningful step in mix.

Todd Schermerhorn

I think all of these, all of the products that I mentioned the by products that I mentioned incrementally can help us from a mix standpoint. But the big mover will be the 3CG, pic product.

Taylor Harris - JP Morgan

Okay. And then competitively it sounds like you're not loosing any share. There are companies coming to market with infection control picks. Can you just tell us what you think about that product concept and its potential to take share from you in the future?

Timothy Ring

We are very aware of the product in question. What we've seen thus far is some trials of that product and there is only a handful of trials that we have seen out there but we have not seen a positive acceptance because of the base pick product, not necessarily infection control technology.

Taylor Harris - JP Morgan

Okay.

John DeFord, Ph.D.

And I think just to comment on the concept, certainly that's an area that we think is important to continue to take a look at. Obviously, we're all about reducing infection in pick, that's less of an issue on a historic basis on the order of 2% or less kind of infection rates where if you are looking at central venous catheters those tend to be a little bit higher and tend to have a little more impact there.

Nonetheless, it's an important concept and one that we'll be following closely.

Todd Schermerhorn

The market mover in this segment that will be this 3CG, if you could eliminate all clinical trials, work out the way we would hope they would, you can eliminate X-rays for patients that are having fixed place. You can move a lot of share from a lot of areas into that segment.

Taylor Harris - JP Morgan

When we will know on the clinical trials?

John DeFord, Ph.D.

We're starting that clinical trial late this year. We plan to enroll several hundred patients but the follow up is short. So, we anticipate a launch late next year with the indication and that's our current plan.

Taylor Harris - JP Morgan

Okay. And my last question Todd, on the bottom line can you give us impact from FX in the quarter?

Todd Schermerhorn

Yeah, about these are estimates Taylor. I mean, it's not like these are accounting entries but 3 million after-tax in Q2 and it looks like it will be about the same in Q3.

Taylor Harris - JP Morgan

Okay. Thanks a lot.

Todd Schermerhorn

Okay.

Operator

Our next question from the line of Kristen Stewart with Credit Suisse. Please go ahead.

Kristen Stewart - Credit Suisse

Hi, thanks for taking my question. Todd, just kind of looking at SG&A line, I think last quarter you had expected a 200 basis point reduction and if I recall I think 100 of that was due to the restructuring that was initiated. Is that still the expectation?

Todd Schermerhorn

Well, what we said about the restructuring was between 24 and $29 million of savings in the second half and that hasn't changed. Does that answer your question?

Kristen Stewart - Credit Suisse

Yeah, so I guess that that was on top of what was your expectation of down a 100 I think?

Todd Schermerhorn

Yeah, I think that's right.

Kristen Stewart - Credit Suisse

Okay. And can you just remind us exactly where those savings are with restructuring program or they plan or it sounds like it's just more headcount, is that later?

Todd Schermerhorn

It is mostly headcount, yeah. Where is it geographically in the P&L or --?

Kristen Stewart - Credit Suisse

I was just worrying --

Todd Schermerhorn

It's mainly in SG&A and it's mainly headcount.

Kristen Stewart - Credit Suisse

Okay. So there is nothing affecting gross margins or anything like that?

Todd Schermerhorn

No. I mean our gross margin momentum is pretty good. Our manufacturing cost savings programs are moving along. I mean the slower volumes we got out ahead a little bit in inventory but I think we are still going to be pretty strong in the second half.

Kristen Stewart - Credit Suisse

Would you be able to provide just break up between kind of year-to-year gross margins, how much it may have been FX impacted or anything like that?

Todd Schermerhorn

Yeah, sure. Yeah, let's see, foreign exchange about 20 basis points favorable. New amortization was about 20 basis points unfavorable. Mix, neutral year-over-year, price neutral as I said earlier year-over-year and then costs is really the whole thing 80 basis points and as I said that momentum is pretty good there.

Kristen Stewart - Credit Suisse

And Tom just kind of going back to I think Bob question on the 10% growth rate. How do you view that 10% on the context of acquisitions becoming increasingly more important to achieving that, that's all?

Todd Schermerhorn

So I think I would start by saying acquisitions have always been part of the strategy. That's not a new thing. I think just generally as the company gets larger we are going to need more folks, more from R&D internally and more deals certainly on a year-over-year basis.

Kristen Stewart - Credit Suisse

And would you expect to then ramp up R&D substantially above kind of the below six run rate that we're seeing today?

Todd Schermerhorn

Well as you know, we don't manage the R&D function around six we manage each individual business differently and the R&D investments vary dramatically between the businesses if you have got. A heavy PMA environment with clinical you're going to be spending more there obviously than in a 5 - 10-K environment.

So we kind to manage the pieces. But as we both talk I both mentioned we've turned on additional spending that's beyond what we've targeted for R&D for the second half of this year. So yeah we're going to continue to spend more on R&D.

Kristen Stewart - Credit Suisse

And Todd just going back to the restructuring savings, what should we think about in terms of exiting 2009 and at a good kind of annual run rate per savings there?

Todd Schermerhorn

Well we said that the 14 that came from the restructuring would annualize to 25. So I can give you that number. The remaining 10 or 10 plus remains to be seen for 2010.

Kristen Stewart - Credit Suisse

Thank you.

Todd Schermerhorn

Okay.

Operator

Our next question from the line of Mathew O'Brian with William Blair. Please go ahead.

Matthew O'Brien

Good evening. I just wanted to ask about LifeStent, is that product now fully rolled out in the U.S. and if so when exactly what date was it fully rolled out.

John Weiland

We have fully rolled out in the United States Matt. But I think an important note for you is that most of our growth is really come from the existing customers that we had on LifeStent. And interesting point for you to remember is that we believe its and we just had it recently confirmed by some market research that we did is about 50% of stents are going to be placed by interventional cardiologists.

We are just getting to those folks now, and starting to deliver because we didn't have a relationship with them historically. So, where we went first is to the existing customers, we had interventional radiology and vascular surgery, we're just getting into the interventional cardiologist office now. So, I think that's an important distinction.

Matthew O'Brien

Any sense for how long it takes to get that penetration among those 50% of IRs to 25, 50%? Is that a couple of years, twelve months, what's the...

John Weiland

I'd be pulling that when out of my ear, Matt if I gave you that. We're just trying to develop new users every single day with the product.

Matthew O'Brien

Okay. And then, as far as Oncology goes, it sounds like there is no de-stocking in the quarter that impacted that business. Is that accurate? And then do you has visibility on other pieces of your business in terms of de-stocking that may occur, particularly on the vascular side, because there's -- hospital start to move down the chain in terms of ASPs from the higher cost orthopedics or the IPDs or pacemakers that are out there, does it seem like vascular could get them attention at some point.

John Weiland

Most of that business is direct, Matt. And most of oncology is direct as well. So destocking of dealers wouldn't come through that. Now hospitals being smarter about their inventories, over the last six months, we think so. How much that would be, we really could closer.

Timothy Ring

I would though a lot of the vascular products are kind of like two days delivery products. Its not like hospitals who have huge inventories of the ...

Matthew O'Brien

Okay. And then one quick one for you Todd, as far as the share account goes for 2009 with that 14% EPS growth rate you guys are still targeting, can you give us that share account for the full year?

Todd Schermerhorn

I don't have that number, Matt. I would just tell you that we're -- we continue to be buyers of stock and probably will in the second half of the year.

Matthew O'Brien

Do you anticipate sequentially the share count will pickup or remain flat?

Todd Schermerhorn

No, I don't expect it go up.

Matthew O'Brien

Okay, great. Thank you.

Todd Schermerhorn

Alright.

Operator

We have a question from the line of Brooks West with Craig-Hallum Capital. Please go ahead.

Brooks West - Craig-Hallum Capital

Hi, can you hear me?

Todd Schermerhorn

Clear.

Brooks West - Craig-Hallum Capital

Thanks for taking the question. John, I just wanted to follow-up on some of the good detail you gave on the European restructuring. Can you speak a little bit to what has been done in United States? And also I know you recently put the urology division into the medical division and may be some thoughts around that?

John Weiland

Yeah, we did that recently. We had looked at that opportunity for quite a few years to move that business underneath our medical business. Quite frankly, we saw an opportunity in the specialty urology area to really leverage a sales force that we had in the alternate site, urology area in the United States combining those two together and give ourselves some increased coverage as a result of doing that.

So we though it was a pretty positive move, we started looking at about a year and half ago and structuring ourselves then and I think it was the right thing to do.

Brooks West - Craig-Hallum Capital

And then just follow up, are you doing some similar manipulations with sales and marketing in the U.S. as you are with Europe or is that mainly European event?

John Weiland

No, that was a European event only.

Brooks West - Craig-Hallum Capital

Okay. And then one last one on business development if you'll indulge me. I heard kind of two new call points for you guys in breast recon and international cardiology, although I know you've got a robust Afid program over in Europe. Might we see some increased focus in those areas and then without putting your playbook on that table, are you considering a larger deal or you're looking more on kind of product level talkings?

Timothy Ring

Let me take that one, first of all as it relates to the two call points. I mean we're all already there for the most part and the technology that you're driving is not like you need to -- and that's a very technology driven decision maker there.

So we don't expect anything there. We're constantly -- if you talk about the restructuring, we're constantly looking at increasing the sizes of our sales forces around the world and our faster growing businesses in fact have several different studies underway as we speak looking at that as well.

On the deal side, in terms of larger deals, we see more of the same. Its not that we wouldn't one rule one up or we're not planning on one. That kind of depends what's out there. So I'd say it continues to -- the pipeline looks more what you're seeing.

Brooks West - Craig-Hallum Capital

Okay, thanks.

John DeFord, Ph.D.

I think maybe just to add something quickly here too. When you look at the call point issue especially in cardiology, keep in mind that we didn't really have products to talk to the cardiologists beyond PTA balloons and tell the Luminex which is about six months ago and LifeStents just four or five months ago.

So, that -- we didn't really have the opportunity to go talk to them very much, although we certainly were in that call point. Now we're trying to get there with these new products.

John Weiland

The breast side, there's great synergy between our hernia sales force and what we're doing with the general surgeon in breast. There's no -- I don't think there is any conflict there whatsoever.

Brooks West - Craig-Hallum Capital

Okay. Great, thanks guys.

John Weiland

Okay.

Operator

(Operator Instructions). Our next question from the line of Christopher Warren with Caris & Company. Please go ahead.

Christopher Warren - Caris & Company

Thanks so much. I wanted to touch briefly on LifeStent pricing has an anecdote suggesting perhaps the price premium versus the market we're holding market share back a little bit. Any anecdotes that you could give us on the second quarter there?

Todd Schermerhorn

In our minds it's certainly not. Our ASP performance is not holding back our share gains as evidenced by our results.

I mean 68% growth is -- we could do that every period, will be happy event.

Christopher Warren - Caris & Company

Okay. Thanks. Also on Zen Matrix product you mentioned launching soon both crosslinked and non-crosslinked variants. Could you describe the method for cross linking that product?

Todd Schermerhorn

No. When we mentioned the crosslinking, that was in our existing column and FM product line which is crosslinked. The Zen Matrix is a non-crosslinked product.

Christopher Warren - Caris & Company

Okay. And could you describe a little bit more the differentiation on that thick skin product versus the KCI product?

Todd Schermerhorn

Well I usually go through that. This is Todd, But I'm going to let John DeFord to handle at this time.

John DeFord, Ph.D.

Alright. So there is a few differences here, and John alluded to a number of them when he discussed it. When you look at the Zen Matrix product we certainly have a stronger product, it's got a lower level of elasticity or stretch than the human material. Also is a strongest material we've have tested as a both in tear strength and burst strength.

We also have tremendous availability of size with this product the largest being 19 by 35 centimeter size in Zen Matrix. So the ability to treat some very large hernias is another distinguishing factor for us.

John already alluded to some of the biologically distinct features of this product like the open structured and the scap hold (ph) that at least from our testing it has some significant advantages in tissue and vascular integration.

So we think that this is going to be a pretty important product for us. We think that on a competitive basis to competitive products, we've got a number of positive features to sell against them, and some of most important issues like strength and tear strength and burst strength, we believe we're superior.

Christopher Warren - Caris & Company

Actually, thanks. And one last question on the tissue repair product. Can you quantify for folks what the cross selling opportunity might be now that you can sale breast reconstruction as well as hernia?

Todd Schermerhorn

That market in breast reconstruction is a $130 million market that we've never played in. So the cross selling opportunity is we now have the chance to complete in that segment.

Christopher Warren - Caris & Company

Understood. But during your comments you suggested that perhaps some accounts were interested in seeing, in buying those two positive products from the same manufacturer.

Todd Schermerhorn

Yes, I mean there is a number of large accounts that had significant practices in breast reconstruction that want to be able to standardize on one biologic product line in the segment.

So, it'll be largest customers in the United States that will be targeted with that effort.

Christopher Warren - Caris & Company

Okay. But, that's essentially within a $130 million footprint?

Timothy Ring

Yeah.

Todd Schermerhorn

Not really within the 130, but its not a big enough number for us to articulate against it.

John Weiland

It will be a segment of that 130 obviously.

Christopher Warren - Caris & Company

Okay. Thank you very much for appreciated.

Operator

And our next question from the line of Bani Prabhakar (ph) with Longbow Research. Please go ahead.

Unidentified Analyst

Good evening. I want to a call up a little bit more on the breast tissue line that you are going to be getting into, can you give us an idea of growth rate of that market and what you think your ability to capture market share is going to be like in the next say 6 to 12 months?

John Weiland

Well that, we're checking for the growth rate on that market Bani.

Unidentified Analyst

Okay.

John Weiland

As we speak.

Todd Schermerhorn

Lead us in a high single digits, is our internal viewpoint on it.

Unidentified Analyst

Okay.

Todd Schermerhorn

And your second question was our ability to gain share?

Unidentified Analyst

Yes.

Todd Schermerhorn

Well the, I guess the best indication will be as we move down stream, while we won't give you exact numbers, we'll give you an idea of how well we are doing in that segment. So I think by the end of the year we'll have a pretty good idea of how well I've leveled the leverage our competencies in that area.

Its not really a crowded market Bani as you know. So we'd expect to have some success there with our distribution house.

Unidentified Analyst

Okay. And then looking at the whole surgical specialty segment, do you expect then that this double-digit growth for the remainder of 2009 will probably continue, now that you got some of these new transaction of products ready to go hit the market, definitely we should be thinking about in terms of your back half growth for the year?

Todd Schermerhorn

No I think, I will think about it in terms of our original guidance and stock from here. I am not sure we are going to get out ahead ourselves and claim double-digit growth at this point and we've had a good quarter, the momentum there is good.

We love the product lines and the pipeline and the business development pipelines, real solid so, probably on the right direction and we are not going to declare victory here yet though.

Unidentified Analyst

Okay. And on the Japanese Oncology, $3 million is this quarter, you said that that was due some volatility with the joint venture and is that something that you got more visibility than on the back half why we won't expect to see perhaps more issues with along those lines?

Todd Schermerhorn

We always have those line I mean because we ship largely in bulks of the guys its it depends in any quarter what the ordering was? Its not a real steady process, its not a daily process either necessarily so we had that volatility for as long as I can remember.

John Weiland

35 years.

Todd Schermerhorn

Yes.

Unidentified Analyst

Okay. Okay and then just want to with general question, given that in some of those business finds you're seeing some flat demand from the hospitals and you mentioned all some of the capital lines as well there are being hurt this year, how long do you think you continue losing the line on your cost? You sit here and by then what point do you have rethink that strategy may be think about really cutting cost in order to maintain that 14% growth?

John Weiland

Well I don't see anything draconian and I mean we have always done our continuous improvement. As Todd mentioned on the cost side -- cost savings programs that we have in manufacturing is doing pretty well right now, certainly against our expectation.

That's not been news on what we've been doing. Our programs obviously change each year and at different locations but its just you know more of the same thing. We don't see anything having to do dramatically different there.

Unidentified Analyst

Okay, so then really no initiatives to rethink your cost cutting going forward if say demand at hospitals that admission rates remain flatter even declining through 2010 that sort of thing?

Timothy Ring

Well, I mean obviously we have to adjust to market conditions as they occur but we don't see anything that changes. In fact I've only mentioned earlier we're looking at investing and adding more sales people. We just turned down additional spending in R&D for the second half of the year, not what we have budgeted.

So you know, we're investing here, obviously the restructuring that John mentioned, that was more of a strategic level and something we've been thinking about, you know, for a while.

Todd Schermerhorn

You know, the other thing Bani is the currency, you know, we're now reporting, what, you know, six and one. The currency's going to reverse itself. In fact, we see currency, these rates would be, maybe up to 100 basis points favorable in the fourth quarter.

So, you know, if we can get ourselves six, seven, eight and currency over a 100 basis points, this thing would feel one heck of a lot different relative to the expense side.

Unidentified Analyst

Okay, thank you very much.

John Weiland

Okay.

Operator

Our next question's from the line of Larry Niber with Baird. Please go ahead.

Unidentified Analyst

Hi, thanks for taking my question. It's actually already been answered.

John Weiland

Okay great.

Operator

Thank you, Larry. And we'll go next to the line of Kristen Stewart with Credit Suisse. Please go ahead.

Kristen Stewart - Credit Suisse

Hi, just a quick one I guess. Agenda of publication is that still coming, later on this year at some point, I think yours is the additional data.

Todd Schermerhorn

Yeah so we're in that process. We do expect publication later this year on some of the mortality data that we talked about before, so that's in process.

Kristen Stewart - Credit Suisse

And then are you seeing if I view addressed this thing any resistance to additional conversion into infection control neurology that's thing I think you mentioned demand -- gross sale was 5%, what's per se I say guess are you tracking now? What is demand growth and how is that compared to last couple of years, it seems that was always more in the double-digit area?

Todd Schermerhorn

It's a little tougher sale today. I mean trying up so it had a hospital move up the chain and technology is a little tougher than it has been historically but having said that we converted nine accounts last month, the month of the June from face Foley and the infection control product line

Timothy Ring

So we said that in the U.S it was probably at demand level. IC was maybe 5% increase but you're right we had been seen 2008 in prior double-digits in that category itself.

Kristen Stewart - Credit Suisse

Okay. You haven't been seeing anybody convert backwards into more base products as a cost saving value, is that a trend of all that you see?

John Weiland

We've heard anecdotally here and there like measured in ones or twos. But we don't see any mass movement at this point.

Kristen Stewart - Credit Suisse

And your pricing with that net businesses is holdings?

Todd Schermerhorn

Yeah. We are operating earlier around with holding actually. Yeah.

Kristen Stewart - Credit Suisse

Okay. All right. Perfect, thank you.

John Weiland

All right.

Operator

This concludes our Q&A session. I would like to turn the call back over to Bard's management for closing remark or any additional comments.

Timothy Ring

Great, thanks very much. Nothing else to add. A lot of good questions. We really appreciate them and appreciate you guys taken the time to spend with us here today. So thanks and we will see you again next quarter.

Operator

Thank you. Ladies and gentlemen, that does conclude your conference call and you may now disconnect.

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Source: CR Bard Q2 2009 Earnings Call Transcript
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