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CR Bard, Inc. (NYSE:BCR)

Q3 2009 Earnings Call

October 21, 2009 5:00 pm ET

Executives

Timothy M. Ring – Chairman & Chief Executive Officer

John H. Weiland – President & Chief Operating Officer

Todd C. Schermerhorn – Senior Vice President & Chief Financial Officer

John A. DeFord, Ph.D. – Senior Vice President of Science, Technology & Clinical Affairs

Matthew O'Brien – William Blair & Company, LLC

Analysts

Seth Banerjee – Deutsche Bank

Frederick Wise – Leerink Swann Llc

Matthew Dodds – Citigroup

Taylor Harris – JP Morgan

Matthew O'Brien – William Blair & Company, LLC

Michael Matson – Wells Fargo Securities

Joanne Wuensch – BMO Capital Markets

Christopher Warren – Caris & Company

Kristen Stewart – Credit Suisse

Bonnie Cybulko – Longbow Research

Operator

Ladies and gentlemen, thank you for standing by and welcome to the C.R. Bard Third Quarter 2009 Earnings Results Conference Call. At this time, all participants are in a listen-only mode, and 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 June 30, 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 an 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 October 21st, 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 now turn the call over to Mr. Timothy Ring. Please go ahead.

Timothy M. Ring

Thanks [Bev]. Good afternoon everybody and I’d like to welcome you to the Bard's third quarter 2009 earnings conference call. We expect the presentation portion of this call to last around 30 minutes. The agenda today will be as follows. I'll begin with an overview of the results for the third quarter.

John Weiland, our President and COO will review the third quarter product line revenue, Todd Schermerhorn, our Senior VP and CFO will review the third quarter income statement, balance sheet as well as our expectations for Q4. And John DeFord, our Senior VP of Science, Technology and Clinical Affairs will give you an update on our product development pipeline.

Third quarter 2009 net sales totaled $637 million this is an increase over the third quarter of 2008 up 3% on an as reported basis and 6% on a constant currency basis. Currency impact for the quarter versus the same quarter in '08 was unfavorable by about 270 basis points. Net income for the third quarter of ‘09 was a $129.5 million and diluted EPS were $1.31. Excluding items in the prior year quarter that affected the comparability of results between the periods. Third quarter '09 net income and diluted EPS were up 15% and 20% respectively over the prior year period.

Looking at revenue growth, geographically compared to the same quarter of ‘08 on a constant currency basis, third quarter net sales in the United States increased 6%, Europe grew at 5, Japan increased 2% and our other international businesses grew at 17%. On the business development front last quarter we told you that we were expected the recently acquired XenMatrix hernia patch in the rights to market our AlloMax patch for breast reconstruction both to be generating sales by the end of the third quarter, not only did we accomplish this, I am pleased to report that they are both off to a great start. We'll provide more color on both products later on in the call.

During the third quarter, we entered into agreements to acquire two new technologies, one that will be used in a second generation 3CG PICC tip conformation device, and another to acquire IP encoding technology for dialysis catheters. Looking ahead, we have several additional deals in the works that we hope to close in the fourth quarter. On the quality front the FDA recently conducted a re-inspection of our Puerto Rico facility where we had an outstanding Warning Letter.

At the conclusion of the inspection, the FDA issued a five items Form 43 that included observations that focused on complaint handling systems. None of the items cited the outstanding Warning Letter we’re repeated in this new 483 notice. We are in the process of responding to the notice and implementing corrective actions to address the observations.

With that, let me now turn you over to John Weiland for a review of our product line revenue.

John H. Weiland

Good afternoon ladies and gentlemen. Before I start, let me note that I'll be giving all percentage growth data in comparison to the prior year period on a constant currency basis unless noted otherwise.

Let's start with vascular. Total net sales for the third quarter in this category were $173.6 million, increasing 13% over last year and 8% on an as reported basis. Our U.S. business was up 13% for the quarter internationally we grew 12. Our electrophysiology sales grew 8% for the quarter. EP Lab System sales were up 37% globally including 27% in the United States. While we are not ready to call the U.S. results at trend in September we had several hospitals close multi system purchases.

While on a global basis Q4 has historically been our strongest systems quarter, this year, which has been anything but typical we face a tough comp in next quarter. We do believe there is a fair amount of pent-up demand that the market by forecasting how to play out remains difficult. Our disposable EP products grew 4% in the quarter led by our steerable diagnostic catheters, which were up 9%.

Surgical graft product sales, which represented 12% of the vascular category, were down 3% in Q3 in the typical range for this product line. Our endovascular business grew 17% in the third quarter. Within endovascular, our biopsy products were up 10% led by growth and our breast biopsy market line of 14%. We anticipate adding to the momentum of our biopsy line with the plant Q4 launch of our new tissue marker line, we call this a clip.

Sales in our peripheral PTA line increased 17%. During the quarter, we launched our new rival family of high performance workhorse balloons. These PTA catheters feature our new checkering balloon technology for enhanced tractability. A low profile system and coming balloon lengths up to a 150 millimeters. We’ve further new products in our PTA pipeline that John DeFord will discuss.

Sales in our vena cava filter line were flat in Q3 versus the prior year period. We believe we’ve seen about a three percentage point drop in the growth rate of the U.S. filter market this year. Additionally, the launch of our G2 Express Filter in the third quarter of 2008 generated accelerated growth in both Q3 and Q4 of last year creating challenging comps this quarter and next.

Our stent business grew 33% in Q3 with strong performance by our LifeStent and Flair Stent Graft Devices. LifeStent growth in the United States came even better than the strong results we detailed last quarter. This was complemented by continued double-digit growth in Europe. We are very pleased with the response of physicians the LifeStent. With its compelling clinical story and we are quickly and efficiently taking share in this market segment.

Now turn to the Urology, total net sales were $177.5 million up 4% versus Q3.of last year and up 2% on an as-reported basis. The United States business, which represented 72% of global urology revenue was up 2% and internationally we grew 9%. This quarter we saw no additional destocking to speak off in our primary distributor base business, which includes basic drainage StatLock and a portion of urological specialties.

Our basic drainage business grew 3% in Q3 with the United States up 2% and outside of the United States up 5%. Our IC Foley business was down 1% in the United States. We've done a detailed review across our United States Foley customer base and determined that we're not losing the overall unit share in the market. From this perspective, we believe the slowdown in our sales growth is primarily link to the slowdown in procedure growths in the market.

We've also seen a decline in the rate of conversions from standard to infection control Foleys within our customer base as up selling has become more challenging in the current environment. Further as with many of our other product lines, we're getting reports from the field that some hospitals are reducing their in-house inventories of Foleys.

Our continence business was down 3% in the third quarter. Continued healthy sequential growth of our new Dignicare fecal incontinence line was more than offset by a double-digit decline in surgical continence products. Within our surgical continence lines, sling sales were down due to the previously discussed delay in 510(k) concurrence for our new adjust sling, which puts us at a competitive disadvantage in the United States.

That said, this device continues to grow nicely in Europe. We think this is a good indicator for change in trajectory in the United States once we get approval. Sales in the urological specialties, which represented 15% of the urology category, were flat in Q3 versus the prior year quarter. Brachytherapy sales declined 4% globally and in the United States, Brachy was down 16% while our business outside of the United States continues to grow nicely at 27%.

Standalone sales of our StatLock catheter stabilization line increased 23% in Q3 as the device continues to do well in a challenging market. Closing out the urology category Agento continues to grow against the very small base. Let's now turn to oncology. Total net sales in this category were $171.6 million, an increase of 3% over the Q3 of last year, or 1% on an as reported basis.

Geographically, net sales in the United Stated were up 3%, outside the United States, sales were also up 3%. Our port business was up 7% versus Q3 of last year, year-over-year the comps got tougher this quarter following the anniversary of the [Shipe] acquisition, which closed in late Q2 of 2008. In the current economic environment is become more challenging to up sell premium technology in the port market.

However, the penetration of ports into the eligible U.S. chemotherapy market, there is still only about 45% in our estimation. So while price leverage maybe less available to us in the current market this remains a market with good potential for expansion. We believe the best way to capitalize in this potential is to advances in port technology and resulting clinical and ease of use benefits they yield

Looking at new products for the quarter on the heels of our PowerPort duo launch last quarter we launched our new low profile PowerPort slim in the third quarter. John DeFord will talk more about this and our pipeline here shortly. Our PICC & Midline product grew 8% again this quarter. We've seen growth in the PICC market slowdown significantly versus prior years and part due to the hospital economic pressures and impart due to the timing of our own gain changing product introductions. On a unit basis, we estimate the United States market has slowed from about 10% growth early in 2008 to around 4% currently.

On a dollar basis, we estimate the market grew 16% in 2008 fueled in large part by the continued penetration of our Sherlock tip locator technology and the success of our PowerPICC SOLO product. For now we see the dollar market growing at about 8%. This quarter we were pleased to launch 3 new PICC products including our next generation of the SOLO.

Our next major advance in this product line will be our Sherlock 3CG tip conformation technology, which we plan to launch in the second half of 2010. The differentiator and our new 3CG device will be its ability to eliminate the need for costly and time consuming confirmatory X-rays following PICC placement. In order to make this claim we are conducting at clinical trial, which is the first for our PICC line and governs the launch timing.

Our vascular access ultrasound product line was down 6% again this quarter. As noted on the last call historically, about a third of our revenue in this line comes from capital equipment sales and we have not seen any noticeable signs of improvement and the reduce capital spending patterns that we saw here in Q1 and Q2. And finally, our enteral feeding line was down 42% this quarter we usually don’t highlight this smaller line, but its performance brought the growth in our oncology business down by 2 percentage points this quarter, due to the discontinuation of our number of product lines within this category. Now let’s finish up with surgical specialties.

Global net sales increased 5% in the third quarter to $93.1 million up 3% on an as reported basis. United States sales, which represented 76% of our global surgical specialties revenue, increased 7% while international sales declined 2%. Excluding our performance irrigation business, which declined 24% this quarter, globally we grew 13% and outside of the United States we grew 6%. We are in the midst of a very nice turnaround in our soft tissue repair business, which grew 14% this quarter.

In the United States, sales increased 17% and outside of United States they were up 6%. Within soft tissue our natural tissue hernia products were up 62% and what is now becoming a significant base of business. Our AlloMax human tissue line was up 86% this quarter benefiting from sales of the product for breast reconstruction. Our salesforce began selling into this call point for the first time in mid July allowing us to build on the great momentum we already had with AlloMax. The addition to our back of the XenMatrix, forcing tissue patch in mid August brought our xenograft line to better than 20% growth for the quarter and only about six weeks of sales.

We are receiving positive physician feedback on both Allomax and XenMatrix, and we're very pleased to have a product lineup like this for the fastest growing segment of the hernia repair market. Moving to our synthetic hernia products, sales were down 2% versus the third quarter of '08. We expect to add some momentum in this category over the next few quarters with the anticipated Q4 launch of our new lightweight PerFix plug and 3DMax products for inguinal hernia repairs. Then in 2010, we expect to launch additional size and configurations of our Ventrio family of ventral hernia repair products, including a version with a resorbable seprafilm barrier coating.

Our fixation line was up over 200% this quarter and our new Sorbafix resorbable anchor device continues to meet with great success in the marketplace. Following upon this launch, later this quarter we look forward to enhancing our fixation line with the launch of a permanent anchor version, we call Permafix. Overall, our soft tissue business we are very pleased with the initial results of our entry into the breast reconstruction market and with the momentum we are developing in biologics and fixation. The number one and number two fastest growing areas of the hernia repair market.

We also look forward to what our new product pipeline has to offer to get our synthetic hernia line growing again. Closing out the surgical category, our performance irrigation business which represented 17% of the surgical category this quarter, the 24% decline I noted that was primarily attributable to the return to market, of one of our irrigation competitors and the resulting tough comp in Q3 of ’08. And finally our hemostasis business was up a percent.

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

Todd C. Schermerhorn

Okay. Let’s run through the statement of income for the quarter. Gross profit was 62.2% of sales up 90 basis points from the prior year quarter. New amortization of intangibles relating to transactions closed in the last 12 months cost us about 10 basis points year-over-year. Our core manufacturing efficiency continues to improve nicely, however, our outlook for GP has suffered marginally as the lower sales volumes have impacted our inventory days, which is causing us to take our production volumes down in the second half of this year.

SG&A expenses were $164.3 million for the quarter 25.8% of sales reflecting a 350 basis point improvement over the prior year quarter. The change in timing of our long-term incentive grants accounts for about 120 basis points of this improvement. And then the remainder reflects the benefit of the restructuring we announced in our Q1 call and otherwise just tight spending controls.

R&D expenditures totaled $43 million for the third quarter, easily a record for us on an organic basis and an increase of 23% over the prior year quarter. We continue to see R&D investment, as we talked about last call as critical to our product leadership strategy.

Interest expense was $3 million for the third quarter, consistent with the historical results. Other income expense was 600K for the third quarter and the effective tax rate for the quarter was 29.8, consistent with our guidance. We repurchased roughly $1.3 million shares of our stock, this past quarter getting us to $3.6 million shares on a year-to-date basis. We will continue to be buyers of our stock as cash balances and market conditions permit.

The balance sheet at September 30 reflects cash and short-term investments of $632.1 million versus $607.9 million at June 30. For the quarter, accounts receivable days were down 0.8 days and inventory days were up 1 day.

CapEx totaled the $11.5 million for the quarter. On the liability side total debt was a $149.8 million at September 30 with no change from June 30. Debt-to-total cap at the end of the third quarter was about 7% and total shareholder investment was $2.163 billion at September 30, 2009. Moving on to our financial guidance, for Q4, we are expecting constant currency sales growth of between 4% and 6%. Our models indicate that currency could add as much as 200 basis points to reported Q4 results.

Just to be clear, we are not signaling further deceleration in our markets or our sales, rather we'll plan to move our normal Q4 distributor price increase in to 2010. So that in the future the stocking and destocking that results from those price increases will all occur in the same calendar year. We estimate the dealer stocking favorably impacted Q4 of 2008 by about 2%.

From an EPS standpoint we required $1.33 million in the fourth quarter to achieve our 14% EPS growth objective for the full year, excluding items affecting comparability. And we expect to invest at a rate that will bring us to that value.

I'll now turn you over to John DeFord.

John A. DeFord, Ph.

Good evening. Starting with the HD Mesh Ablation System and our Atrial Fibrillation activities. The FDA has agreed some minor changes to our pivotal study protocol as I discussed last quarter. We feel these changes were primarily enhance enrollment, we are also working to bring a few high-volume sites from outside the U.S. into the study and anticipate them beginning to come online around the end of the year.

Now moving to stents, we're making steady progress on our LifeStent product enhancements including longer lengths radial pink markers on all stents and enhancements to our delivery system.

These additions are anticipated to begin launching in Europe late in the first half of next year, concurrent with the start of a small clinical study, which we expect to lead us to a U.S. launch in the first half of 2011. On the stent graft front, we continue to work towards the start of the U.S. clinical study of our fluency self-expanding stent graft product to support some expanded indications. We've had some additional discussions with FDA this quarter and anticipate submitting our IDE in early 2010 with commencement of the study in the first half of year.

In parallel we’re working to complete the development of our next-generation of stent graft technologies. These platforms will combine a flexible and fracture resistant self expanding stents skeleton covered with our proprietary graft material and coupled with new delivery systems to yield two different product families. One for AV access treatment, and a second designed specifically for use in the SFA.

We currently plan to initiate studies seeking both indications in the U.S. late next year. These plans anticipate launch of the AV access device in the U.S. and about 2012 and the SFA device in the 2013. In PTA John already mentioned that we launched our rival family of high performance 035 workhorse balloons in Q3. Rivals replaces our order XT catheter line and provides us with what we believe we will be a highly competitive product targeting the largest segment of the peripheral PTA market.

Looking forward we'll remain on plan to launch two new products in the first half of next year based upon our Ultraverse technology for SFA and below the knee use. Ultraverse will be available in both 018 and 014 ultra low profile balloons configurations in very long balloon wings and with enhanced tractability through our patented checkering technology.

The addition of rival and Ultraverse will position as with a very broad PTA offering including true sizing to our highly non-compliant catheters, plus high pressure, large vessel, small vessel, enhanced tracking semi-compliant and workhorse product families. The launch of these two products should position us to move up from number two to number one in the overall U.S. PTA market in 2010.

Closing our vascular category we anticipate a late Q4 or Q1 2010 launch of our next generation vacuum-assisted biopsy device named Finesse. This fully self-contained rechargeable handheld system incorporates our new single insertion, multi sample technology. Now turning to urology incontinence products, in the pelvic floor repair area we are preparing for the launch of our new mesh based vaginal support product, trade named [Alight].

We had hoped to launch in the late Q3 but are awaiting 510(NYSE:K) concurrence. We don’t believe there will be a significant delay and anticipate launching the product in the U.S. later this quarter. And in our sling line we continued to await concurrence of our new adjust single incision sling. This system was launched in Europe last December and continues to receive very positive feedback in sales growth.

In the U.S. we anticipated 510(k) concurrence for the first half 2009 launch. However, as we have discussed on the last couple of calls the FDAs request a clinical data led us to collect some European clinical results and we’ve completed those activities and submitted a new 510(k) in Q3 putting us at about year-end as completion day for FDAs typical 90 day review cycle.

Moving on to oncology in PICCs as John has mentioned that in Q3 we launched our new PowerPICC SOLO 2 family of proximal valve catheters. The SOLO 2 incorporates a number improvements to our popular proximal valve PICCs and supports sailing and re-flushing every seven days in contrast to the non-valve PICCs that require daily hebraized sailing and flushing. Also in the third quarter, we launched our new Triple Lumen family of PowerPICC in 5-French. We then ended a very busy third quarter launch schedule with the introduction of our Groshong valve PICCs in a maximum barrier configuration.

These kits meet the new maximum barrier precaution guidelines and include sterile draping, access site preparation products, vascular access devices the PICC and sterile dressing. As outlined previously, the next potential gain/game changer in our PICC franchise will be our new Sherlock 3CG PICC placement tracking and tip confirmation system. We received 510(k) concurrence for this product in Q3 and continued to progress towards the commencements of pivotal clinical study. The study is designed to support a labeling claim for the systems ability to confirm tip location during placement without the use of X-ray. The study will randomized to PICC placement with and without Sherlock 3CG and it is designed to enroll several hundred patients. We anticipate beginning to study by the end of the year and expect the launch the product in the U.S. with additional claims in the second of next year.

Even after a busy Q3 in PICC launches, our pipeline remains robust. But with just a few weeks until our annual analyst meeting, I will wait to provide some of the details at that time. In ports we launched our new low profile PowerPort slim in Q3. This new port is design for peripheral placement in the upper arm and it also supports placement in pediatric and small or adult patients. As in PICCs, our port development portfolio is full of a number of new products and product configurations. With a few additional products scheduled to launch this quarter. However, due to the competition in this space I'll wait to discuss those products until December.

In imaging, we discussed on our last call, our plans to launch our high-performance ultrasound platform to Site-Rite Vision in September. We're still putting a few finishing touches on the product and now anticipate to launch this quarter. The Site-Rite Vision incorporates a number of new features, such as color flow doppler, on-the-screen vessel measurement capability and DICOM electronic format compatibility, all significant enhancements to our ultrasound platform and will support use beyond just vascular access.

I'll close out our oncology pipeline discussion with dialysis. In Q3, we signed an agreement to acquire the Spire dialysis business, which includes a strong intellectual property portfolio and a number of chronic dialysis products including the Ulta, Ulta Gold, Decathlon, Decathlon Gold and Retro families.

We believe the combination of Spire and Bard's technologies and intellectual property will give us the strongest flip tip catheter position and provides additional competitive protection and depth in this franchise.

Moving to our surgical business, in fixation, we're preparing for the launch of our internally developed Permafix permanent tack system planned for later this quarter. The Permafix product provides a permanent fixation option for our customers and builds upon the very successful fixation system and design pioneered earlier this year with the launch of our Sorbafix family. The Permafix will launch with both the 15 and 30 tack configuration.

As we move through the remainder of the year, we continue to anticipate the launch of new light weight versions of our market-leading PerFix plug and 3DMax products to support both open and laparoscopic surgical repair of inguinal hernias. Then in 2010, we expect to launch the next generation of the Ventrio family of ventral hernia repair products. This new design includes a new mesh configuration and additional sizes. And also next year, we expect to launch two new resorbable barrier ventral products.

In our biologics product family, we launch the XenMatrix and AlloMax breast reconstruction products in this last quarter and receiving very positive early clinical feedback. XenMatrix is a non-crosslinked porcine dermis-derived collagen product has been shown to rapidly remodel while maintaining strength. The product was implied from Brennen Medical. The AlloMax implant is an allogenic collagen material similar to our product for hernia repair. We expanded our license with RTI to include these configurations for use in breast reconstruction.

And finally moving to our obesity therapy project, we continue to follow our trim study patients, and have most patients at the nine month follow-up time point with very encouraging results. This small feasibility study enrolled 18 patients in the primary treatment of obesity using our RS2 endoscopic suturing device.

We are finishing up data collection and analysis and anticipate using these results to support the IDE submission of our trim pivotal study early next year. And we are currently in discussions with FDA concerning study design and depending on the outcome we plan to commence the primary study early next year. We remain excited about the prospects for the RS2 devices used in natural orifice procedures for the treatment of obesity. And over few years out, we continue to work toward the launch with the primary weight loss indication following completion of our trim pivotal study.

Now before I close I'd like to extend an invitation to you to our Annual Analyst Meeting where among other things we'll talk about some new items in our pipeline. The meeting will be held at the New York Palace Hotel in Manhattan on December 17 beginning at 4.30.

For those of you that cannot attend, we will be webcasting the presentation and I am sure we will provide more details later.

Thanks for your attention. Let me now turn you back to Tim Ring.

Timothy M. Ring

Thanks, John. That concludes the formal part of the presentation. I'll now turn the call back to the moderator to facilitate the Q&A session.

Question-And-Answer Session

Operator

Thank you, ladies and gentlemen we will now begin the question-and-answer session. (Operator Instructions) And our first question will come from the line of Seth Banerjee with Deutsche Bank. Please go ahead.

Seth Banerjee – Deutsche Bank

Hi guys, thank you for taking the question. Just first I wanted to just talk in general on pricing it’s been a common theme this quarter in Medtech and Todd, you mentioned that volumes in the back half of the year are going to impact the gross margin, but can you provide any color on pricing this past quarter and what you've seen overtime? I mean I realize in the past that Bard has been pretty impermeable to pricing pressures, but any color would help?

Todd C. Schermerhorn

Well, no change Seth, really and obviously we look it on a same-store, same SKU basis and on a same SKU basis we are just not seeing price. Now, arguably it’s more difficult to upsell technology and new features and so on, and so on a composite basis you might see a mix difference in our sales, we’re not getting the new mix. But on a same SKU basis we’re just not seeing it and we are looking hard for it. In terms of the comment on GP, it’s just that at 6% constant currency growth we weren’t budgeted at 6% constant currency growth in our plans. So that’s a lower level of volume and the inventories climbed a little bit in the middle of the year and we are just going to have to adjust it into the fourth quarter here.

Seth Banerjee – Deutsche Bank

That’s helpful. Also, on the hernia side I mean, you did well in fixation and in natural tissue and I’m trying to understand why the synthetic business is lagging the market growth a bit. Have you seen some of the accounts that had maybe moved to elsewhere have you seen them start to move back towards Davol synthetic are they reluctant and waiting for next generation products.

John H. Weiland

I think we've seen some of that with the Ventrio line of products that we launched in the Ventrio space, but we’ve really been without the new products and waiting for these new products in the inguinal space that both John DeFord and I commented on late PerFix plug in late 3DMax. So it really is much like anything else it’s a pipeline issue and we'd like what we see coming to the pipeline both in our Q4 launches and also what we have in our pipeline for next year.

Seth Banerjee – Deutsche Bank

That’s great and just one last one I'll jump in the queue. On guidance and I just wanted to touch on the reduction in constant currency guidance I think 4 to 6% from 6 to 7 and on the bottom line is most of that just due to not getting products approved in time or is that a mix of volumes or maybe just a little more color on that will be helpful?

Todd C. Schermerhorn

Well, the price increase it is really dollar for dollar with the price increase. Typically we have price a increase in the fourth quarter, it forces the deal is to buy and early ahead of that and we are not going to do that this year. The Q4 number for that was about 2% of sales, so if we don’t do that this year we are going to lose the buy in and we are basically just going to push it into next year we are about to buy in and the destocking will occur in the same period.

Seth Banerjee – Deutsche Bank

Thank you.

Todd C. Schermerhorn

And that’s fundamentally that the difference between our guidance this period and our guidance the last couple of quarter.

Seth Banerjee – Deutsche Bank

That’s helpful, thank you.

Operator

Thank you. Next we go to the line of Rick Weiss from Leerink Swann. Please go ahead.

Frederick Wise – Leerink Swann Llc

Good afternoon, everybody.

Timothy M. Ring

Hi Rick.

John H. Weiland

Hi.

Frederick Wise – Leerink Swann Llc

Couple of things Tim just to make sure, I understand in your view of the urology inventory distributor whatever drawdown on the basically done and behind the company, is that correct?

John H. Weiland

Assuming that this is John Rick, assuming that dealers don’t reduce anymore inventories in the later part of the year. We just did not see that phenomenon exist in the third quarter, but it's really up to them and what they are seeing in demand at the end-user level and make that decision, Rick.

Frederick Wise – Leerink Swann Llc

Yes. And just thinking about growth as the inventory brought down, it has three quarters about 6% growth overall fourth quarter, I understand that the factors what get you back to the double digits ex acquisition or is it possible is that difference between sort of a 6% or 7% normalized growth with the various pieces. Is the incremental difference as the new products or the rebound in cap spending is that are still having several pieces is that what gets you back closer to the double digit level again as we think about 2010 and beyond.

Timothy M. Ring

Rick this is Tim, there is a couple of factors going on. Clearly, we’re into a headwind here relative to the demand in the market. We call that out early in the year. We started to see it early Foley business where we have significant share not surprising we saw that earlier and that’s continued, so just the demand side is got somewhat its been previously. Other than that on a strategic level we still think product leadership and technology leadership is going to what we would drives growth in the market as we’ve mentioned during the call. As we up selling benefit that we had over the years and we've added features and benefits, hospitals are taking a longer look at those kinds of things, but we think having the best product with the best data at the end of the day will win the day there. So a combination of those two things we think will get us to a higher growth rate.

Frederick Wise – Leerink Swann Llc

Two last things, the European restructuring you talked about last quarter where do thing stand and I just apologize I missed the EU growth this quarter? I know you grew 2% last quarter.

Timothy M. Ring

Five.

Frederick Wise – Leerink Swann Llc

Five

Timothy M. Ring

Five this quarter Rick. As I mentioned last quarter, I believe the number was we had 57 open positions last quarter, including sales and management, we have approximately 30 open positions as we sit here today and our viewpoint is we'll have 95% of those positions fill by the end of the year. So as you may know in Europe it takes a little longer because once you identify the candidate you want to hire and you make an offer and it’s accepted it usually takes a couple of months notice period before the person’s able to leave where they were before and then start with you. So I think that we’ll be pretty well where we want to be at the end of the year in terms of our strength. We'll continue to do our training in the early part of next year and hopefully that will be a catalyst for us in terms of growth as we move forward.

Frederick Wise – Leerink Swann Llc

So that should help to drive better European growth. And last on the FDA, it’s been a tough FDA environment for a number of years of course. It seems like the pressures and the scrutiny and the policy changes on tap for 510(k) approvals, it looks like it's going to be tougher and more challenging even in the months ahead. Are you concerned broadly that this could further delay timing for product approvals and is it a legitimate growth concern as we look out at 10 and 11 given your strong pipeline? Thank you.

John A. DeFord

John DeFord here. Rick, it’s I don’t know about growth long-term and the impact, but certainly there's no question, we're seeing FDA is a little more difficult environment and that manifest itself in our two pelvic floor products that we talked about, both of which have been held up for 510(k) concurrence. So, we're absolutely seeing that, I'm not exactly sure where that's going to end up, but we're doing our best to manage it from our end. As Tim said, believe that we can provide the best data and the highest quality products and we provide that information to FDA, we think ultimately that's going to prevail.

Frederick Wise – Leerink Swann Llc

Thank you, very much.

John A. DeFord

I believe it's an opportunity for us to provide competitive advantage. If we can be better than the rest at that process then it's another way to distance ourselves.

Frederick Wise – Leerink Swann Llc

Good point. Thanks again.

Operator

Thank you. Next we'll go to the line of Matthew Dodds with Citigroup. Please go ahead.

Matthew Dodds – Citigroup

Thank you, a couple questions. First, Todd for you, the change in the incentive grant timing, I think you did highlight that last quarter but how does that change? Is it now spread more evenly in go-forward quarters on the SG&A side?

Todd C. Schermerhorn

Now the bonus then hits in Q4

Matthew Dodds – Citigroup

Okay.

Todd C. Schermerhorn

As opposed to Q3, and really the bonus is about retirement eligibility, you've got to book all that at the grant date. So that'll be about, I don't know, probably versus your models it might be an additional $4 million, $5 million in the fourth quarter, so that's what we really swap.

Matthew Dodds – Citigroup

Okay, and then, John for you. When you look at the increase in the price increases in December usually, are there any particular businesses that it’s an outsized difference of that 2%? Is urology sort of more impacted if we look at Q4 versus Q1 or is it pretty similar across the board?

John A. DeFord

No, you could expect urology would be about 65% to 70% of the entire price increase that we would see.

Matthew Dodds – Citigroup

Okay, and then one last question. On the biologics, I want to make sure I've got this right I thought I heard a couple of different comments. Did you get much from breast reconstruction in the quarter, or is it really early in terms of the incremental that 62%?

John H. Weiland

Well it’s certainly early in terms of our introduction of the product and the amount of time that we've had the detail of the product. However, the results were meaningful to us in our numbers for the quarter.

John A. DeFord

That’s better than we expected, I would say.

Todd C. Schermerhorn

Yes, It’s a much quicker start than what we thought it would be.

Matthew Dodds – Citigroup

Okay, perfect. Thanks guys.

Todd C. Schermerhorn

Okay.

Operator:

Thank you. Next we go to the line of Taylor Harris with JP Morgan. Please go ahead.

Taylor Harris – JP Morgan

Thanks a lot. I wanted to ask about the irrigation and enteral feeding business issues. So first of all, did you guys know about these issues going into the quarter and then secondly is this going to be tough comps in these two businesses for the next three quarters I guess?

John H. Weiland

I think there is a tale of two cities here. First, on the irrigation side of it, this is really the story that one of our competitors was off the market because they closed one of their plants last year. We had no idea when and if they would get back on the market, but they did get back into the market and we're able to go back to the customers that they originally had and take some of that business back again. That was the biggest swing for us in terms of irrigation. And the enteral feeding line this is based on a move that we made last year to discontinue some products in the second quarter of last year, that we saw the impact rolling out on a comp basis to us in the third quarter of this year. Now and both of those moving forward will still have a few more quarters of difficult comps in those areas primarily that toughest comp will be in the performance irrigation business versus the feeding business.

Taylor Harris – JP Morgan

Okay, but the feeding business did you say you made the decision last year, but this was the first year that, this was the first quarter that it really started affecting you?

John H. Weiland

Yes this is the first quarter we really starting an effect date, because we first quarter, we were selling the inventory that we had during the majority of that period of time and as well as, our joint venture in Medicon in Japan.

Taylor Harris – JP Morgan

Okay, gotcha. And in irrigation, will the impact to be roughly the same for the few quarters going forward or was there a tougher hit this quarter as maybe people just worked down the inventory that they already had from you?

John H. Weiland

No the next two quarters will be roughly the same.

Taylor Harris – JP Morgan

Okay, gotcha. Then in the urology business, I want to make sure I understand what's happening in the Foley catheter front, so it looks like there was a mix shift away from IC Foleys back to standard Foleys. So is that your view of what happened or was it just an inventory work down of IC Foleys?

John H. Weiland

No, we've done a pretty deep dive in this. We went back actually on the IC front to all our customers back to 2006 and took out the gain and loss issue out of the equation and the bottom line becomes for these customers that we’ve had for this long period of time. If you look at 2008 their unit growth was 5% last year. This year the unit growth is only one it has actually decreased about 1%. So from our advantage point, it's a story of utilization and it's a story of admissions, it's not a story in terms of a big movement away from the IC. In fact we continue to convert customers to IC and we can count the, then we call it a handful of customers that have downgraded form IC to the standard Foley line. I would also add to that we further substantiated what was going on the entire Foley market with the IMS data that was recently published and they also show about a 5% swing year versus year in terms of the growth rates of Foleys across the board and the marketplace. So the whole issue here is the utilization issue and an admission issue more than anything else.

Taylor Harris – JP Morgan

Okay. But I thought I heard that your overall drainage business was up 3% but the IC component was down 1%, is that did I hear that incorrectly.

John H. Weiland

That is absolutely correct.

Taylor Harris – JP Morgan

Okay. So is there is something else in basic drainage beside standard Foleys and IC Foleys.

John H. Weiland

Well some of the growth as you probably noticed is the growth in internationally was higher than the U.S. growth rates and that is heavily non-IC Foley related.

Taylor Harris – JP Morgan

I see okay. So in the U.S. mix isn't changing.

John H. Weiland

No.

Taylor Harris – JP Morgan

Gotcha. Okay. Tim on the deal front, you’ve talked about having a pipeline of deals for the last couple of quarters and you've done a couple here recently, is there anything more material that you are looking at, should we expect similar technology type deals or are you interested in looking at potentially larger acquisitions.

Timothy M. Ring

I would say that, if you look at the profile of deals that we’ve done over the last several years ranking from technology deals like that to we just said where there is really no sales associated with them and it almost becomes an R&D project to us. Two, in the past we will be about product lines of business is with the sales, none of them what I would considered to be really large and the full range what I've just mentioned as where we continue to look at.

Taylor Harris – JP Morgan

Okay. Thanks a lot.

John H. Weiland

Okay. Thank you.

Operator

Thank you. Next we go to the line of Matthew O'Brien with William Blair. Please go ahead.

Matthew O'Brien – William Blair

Good afternoon. Just wanted to follow up on Rick’s question a little bit on the inventory levels at you distributors, did you actually see that go the other direction a little bit in Q3 to get a bit of catch up from what's you'd seen in Q1 and Q2?

John Weiland

No, it was basically flat.

Matthew O'Brien – William Blair

Okay. And then moving over to your new PICCs and one port that was released in Q3. Did you release that kind of earlier in the quarter or is that later on?

Timothy M. Ring

Well. I guess if you look at the power drivers in ports, the PowerPort duo we launched last quarter, so we are starting to get the uptick in the third quarter of this year and then the PowerPort slim, we just launched recently here so. We’ve really not gotten that into the equation in terms of our momentum. If we would like to take a look on the PICC side the Triple Lumen PowerPICC that was the third quarter launched that just recently launched, the Groshong Valve PICC with the maximum barrier configuration that was a third quarter launch.

Matthew O'Brien – William Blair

So really, we have yet to see the momentum from these in our numbers at this point in time.

John A. DeFord

Yeah. Just add to that Matthew. All of those work late Q3 launches.

Matthew O'Brien – William Blair

Okay, thank you. And then finally, on the operating margin side, you made just some very good progress there, however we’re getting to level now where it starts to beg the question whether or not we can start to see 30, 31, 32% operating margins longer term or should we start to think that you know this is pretty much, where we'll kind of stabilize and maybe even contract going forward given the progress you made on the gross margin side as well as with your restructuring in Q1?

Todd C. Schermerhorn

Well, we are not stopping any of those processes, Matthew, so we would continue to look for improvements in gross margin and continue to try and leverage the expense pool where we can. Admittedly, its been we've taken a lot out at this point but I think the same we'll employ the same processes going forward that we have this year, and we'll talk more about that I guess in December. And as we continue to focus on driving R&D and driving our sales force expansions around that globe that part of the equation is not going change.

Matthew Dodds – Citigroup

Okay, great. Thank you.

Operator

Thank you. And next we go to the line of Michael Matson with Wells Fargo Securities. Please go ahead.

Michael Matson – Wells Fargo Securities

Hi, just given the pretty significant decrease that we saw in SG&A and also the increase in R&D, can we expect the spending levels as a percentage of sales to kind of stay at these levels going forward. I understand part of that was from that incentive comp issue but stripping that out can we expect them to stay at these levels?

Todd C. Schermerhorn

Well I would all I comment on is Q4 they are going to come up a little in Q4 overall SG&A because we are going to move some of that incentive grant into the fourth quarter. As it relates to the values going forward we are going to have to talk about that in December.

Michael Matson – Wells Fargo Securities

Okay. And I guess just with the significant cost cutting that’s going on this year, how do we get comfortable but that’s not going to comprise your growth rate in other words the reduction that we've seen in SG&A at least as a percentage of sales where is that really coming from and how discretionary is that really are you reducing sales force headcount and things like that and if so is there risk that could comprise your growth.

Todd C. Schermerhorn

Well, if you look at the 350 basis points from this period, we're favorable a 120 year-over-year on the LTI side. So if you pull that out there's 230 basis points, that's above $15 million, now, we told you in the first quarter that our restructuring would get us between $24 million and $29 million, all of it in the back-half of the year. So, effectively that's what you're seeing in that 230 basis point move. Arguably, other than that restructuring, I think we talked about this a little quarter, this is really a containment of expenses much, much more than it is cutting across our businesses. We've really not cutting across the businesses, it's basically expense control other than the sort of directed restructuring projects that we did.

Michael Matson – Wells Fargo Securities

Okay. And then, I know that in the past, you've disclosed and some of your filings that Owens and Minor is one of your larger distributors and just looking at would that some other commentary recently, I guess they did an acquisition of another distributor of last year and they've been talking about, I guess there were some inventory levels are little higher there, they've been talking about working some of that down. Have you seen the happening and as that had any kind of an impact? I know you've talked about destocking at distributors before but this sounded like it was something that was supposed to happen kind of in the second half of 2009?

John H. Weiland

They've done a very good job of reducing inventories this year and combining, I think, that was Burrows acquisition you're speaking about, of taking the inventories from both entities down. So, they're very good at doing that. They manage it very tightly.

Michael Matson – Wells Fargo Securities

And so is that, had a negative impact on Bard?

Todd C. Schermerhorn

Yeah. They were definitely part of the restocking, and they were the largest one but they were a big part of it.

Michael Matson – Wells Fargo Securities

And is that largely run its course now or because reading your transcript, it looked like it was going to be more focused in the second half of this year?

Todd C. Schermerhorn

Yeah, it's hard to say, is it Matt?

Michael Matson – Wells Fargo Securities

Mike.

Todd C. Schermerhorn

It's hard to say, when we go back through their financials these distributors, we often can find it, we don’t always know.

Michael Matson – Wells Fargo Securities

Okay, all right. And then just one question on XenMatrix is there any plans to run any kind of clinical trials they are to help market the products, because I know that the big competitor there by sales typically had a lot of data behind their products. I guess they don’t have as much right now with Stratus but any plans just to try to get at least some marketing data behind that product.

John A. DeFord

Michael, we are always looking at those opportunities. We've built a lot clinical capability here and although we haven’t talked about what we might or might not do with XenMatrix certainly there is a lot of activity in that clinical space and we want to be out ahead of that.

John H. Weiland

We actually had more clinical data with XenMatrix at the time of launch then that most products that were launched into the marketplace.

John A. DeFord

That’s right. There is a publication as well on clinical use of that product. So there is already some information out there.

Michael Matson – Wells Fargo Securities

All right, thanks.

John A. DeFord

Okay.

Operator

Thank you. And next we go to line of Joanne Wuensch with BMO Capital Markets. Please go ahead.

Joanne Wuensch – BMO Capital Markets

Thank you, very much for taking my question. Most of them answered, I have two right now. One is that, at the beginning of the conversation if I have heard you right, you were talking about a somewhat improving U.S. market but you didn’t want to call it a trend. Is there anything you can give us a little bit more on that to say at what stage do you call it a trend and are you seeing improvement in pricing in volumes and demand or is it pocketed into individual subdivisions.

Timothy M. Ring

Hi Joanne, this is Tim. I think what John talking about was specifically targeting the EP lapse system growth that we had in the quarter. And he you basically said we had a pretty good September growth we are not calling that a trend.

Joanne Wuensch – BMO Capital Markets

I mean could you comment on any of the other divisions that you might be see in the U.S. or is everything sort of flat.

John H. Weiland

We have not seeing any data, that leads us to conclude that admissions are changing in hospitals today.

Joanne Wuensch – BMO Capital Markets

Another big picture question if you will. Can you comment on healthcare reform and what it may mean for Bard?

Timothy M. Ring

Yeah. A little bit I mean to the extent that we know and all we know at this point as we are not sure it's going to look like. So, clearly it wouldn’t be a positive for us with a medical device in fact we call it an innovation tax. I think a number of other companies that commented on that. I will tell you this that I find it kind of strange that the government would target on industry that's created a lot of job here over the last several years. And above average paying jobs because it certainly going to have some kind of an impact on how companies invest, including the creation of future jobs and investment. So, that clearly would have an impact until we understand how that is going to be sorted out it's in fact if it's determine to be that will give you a better we done that once we understand it.

Joanne Wuensch – BMO Capital Markets

And then it was final question, if you've done a very, very good job of leveraging single digit top line growth into double-digit EPS and it sounds like you're on track for 10% for the year. At what stage, as we roll in to next year and we are still doing mid single digit top line growth is that leverage just not become possible with that cutting in to me? Thank you.

Todd C. Schermerhorn

Yeah well, I think we'll talk about that more in December Joanne but I don't think that we can go on. I think in a year-to-date basis if you take out the items or the comparability items. You know we're growing on top line two in real terms and growing the bottom line 14, you can't do that forever we recognize that as we need to get revenue acceleration to get what we need to go. And it's really that simple.

Joanne Wuensch – BMO Capital Markets

Thanks.

Operator

Thank you. And next we go to the line of Christopher Warren with Caris & Company. Please go ahead.

Christopher Warren – Caris & Company

I wanted to ask a tactical and a strategic question on R&D and I noticed your spending increased this quarter. So my question tactically would be, to what extent should we expect in quarters forward that that level continue to increase from the second quarter? And then the strategic question is, as you think about where you invest the incremental R&D dollar? Is there a shift in the size of the program you're targeting, the requirements for the clinical to that program, and maybe ultimately for the magnitude of the pricing premium that the targeted program will achieve?

John A. DeFord

Well, first off, Chris, just a couple of things tactically. That increase, that's something Todd would be best to respond to.

Todd C. Schermerhorn

What do you want me to do that?

John A. DeFord

So, why don't you do that?

Todd C. Schermerhorn

So, Chris, if you look at the flow last year, I mean, it is a big number, $43 million, and it's large sequentially and the largest we've ever had on an organic basis, but we also had a particularly low comp in the third quarter of last year. I would not be surprised, though, to see another number with a four in front of it in the fourth quarter. It is the priority for us in terms of our expense dollar to get that money into R&D. So, we continue to focus on that and I think when we run a good quarter we get that number up into the 40s.

Christopher Warren – Caris & Company

And then just as a follow-up, the type of programming you're targeting in an environment where you're particularly challenged on the upsell. Does that or how does that impact what you do in R&D?

Timothy M. Ring

Chris, from a process prospective, every one of our products and our development programs have a business plan and the impact to the market is rolled into that business plan analysis. So we look at all of that and I wouldn't say that we’re specifically targeting one thing or another, we're looking at every single investment and what that investments going to mean for the company. And we're not going to change that process; we are going to continue to look at that carefully.

Todd C. Schermerhorn

I think what we recognize there's a higher threshold of proving the value, though, and I think that's something we've talked about here. We've been trying to do that all the way along. So it's not a great change but there certainly is much more focus on proving the value in the upsell and that may mean more data, more clinical work et cetera, more and more economic data, maybe. But it's not something we haven't done. Historically, we have been very active in that.

John H. Weiland

If you look at the number of clinical trials that we'll run in 2009 versus what we ran five years ago, there is no comparison.

Christopher Warren – Caris & Company

Understood. Thank you very much. I appreciate it.

Operator

Thank you. (Operator Instructions) Next we go to the line of Kristen Stewart with Credit Suisse. Please go ahead.

Kristen Stewart - Credit Suisse

Hi, thanks for taking my question. Todd, I was just wondering if you could break out the gross margin in the year-over-year, like you kind of typically do for me?

Todd C. Schermerhorn

Yeah. Okay, sure.

Kristen Stewart - Credit Suisse

I know you're ready for it.

Todd C. Schermerhorn

Yeah, I'm always ready for it, Kristen. Foreign exchange is that maybe 20 to 30 basis points favorable. New amortization, I think it said in the script is 10 basis points unfavorable. Mix and price, frankly, neutral at this point, both of them. So, that leaves the rest of it which I think is about 70 to 80 basis points as cost improvement and as I said, our cross momentum is quite good. I think if we had seen sort of historical volumes in our plants, we might be talking about a record year this year. So, I think, overall, we are pleased to with where that’s gone.

Kristen Stewart - Credit Suisse

I'm sorry if I missed this, but can you help just kind of break out maybe where some of the restructuring efforts may have benefited through the P&L this quarter, or whether it's more kind of, I mean, it looks like a lot of it was within SG&A but was there any impact in the gross margin?

Todd C. Schermerhorn

No. I'm trying to think back whether anything hit gross margin, if it's not all in SG&A, it's 99% in SG&A.

Kristen Stewart – Credit Suisse

Anyway, just to quantify how much of the year-to-year change in SG&A was related to that program?

Todd C. Schermerhorn

Well, I think, I did say earlier, if you take out the LTI aspect of moving LTI grants into the fourth quarter, I think it was about 230 somewhat basis points of improvement and we've said that will represent about $15 million. We told you guys at the end of the first quarter that we thought we could save with the restructuring somewhere between $24 million and $29 million and we are right on track. When we track the restructuring in each of the areas where we've done it, we are exactly on track in all of those projects.

Kristen Stewart - Credit Suisse

And that was for the full year savings or…?

Todd C. Schermerhorn

Well, yeah. We said $24 million to $29 million for the full-year but we also said it would all be back-end weighted, it would be in third and fourth quarter. We didn't have anything in the second quarter, really, to speak off.

Kristen Stewart - Credit Suisse

Right. And then, as it flow into thinking about 2010, is it save to assume that the first half would see a similar benefit until we anniversary it in the third quarter?

Todd C. Schermerhorn

Yeah, I think that's probably true. We're going to have to take a look at how we spread the budget and how we look at sales growth and so on and so forth. There's still a lot of steps to go before we have that worked all the way through.

Kristen Stewart - Credit Suisse

Thanks very much.

Todd C. Schermerhorn

Okay.

Operator

Thank you. And next we go to the line of Doug Tsao with Barclays Capital, please go ahead.

Douglas Tsao – Barclays Capital

Hi, thank you very much for taking the question. Just in terms of LifeStent, I was curious how far along you are in terms of making progress with penetration with interventional cardiologists versus your current customer base with the interventional radiologist?

John H. Weiland

I think I noted last quarter that we had started to move into interventional cardiology right at about the end of the quarter. So, we've had a quarter to sell into that space but these conversions don't happen overnight. So I'd characterize it as we're early in the process.

Douglas Tsao – Barclays Capital

And then in terms of LifeStent, also, how significant do you see the addition of different sizes and lengths of the stent, I mean, do you feel that that will also enhance your penetration there? And quantify how significant you think that is, if you could?

John H. Weiland

We think it's very significant in that if you consider the fact that one of the largest problems with purple stenting is that you have extremely long lesions and which causes or resuscitates physicians to use, let's say, two stents. Where those stents overlap is probably the biggest area that they have the propensity to have structural damage or fractures. Having longer stents, you have the ability to remove one of the biggest obstacles in purple stenting. So I think it's a big deal for us long-term in terms of staying ahead of the curve with longer stents.

Douglas Tsao – Barclays Capital

Okay, great. And then turning to the PICC business and the 3CG product, in terms of the tip confirmation technology, how many different versions of the PICC is that going to be introduced into at first, or how quickly do you plan on following up following up and do you see it more applicable to some iterations of the technology versus others?

John A. DeFord

Well, when we look at the 3CG technology, it's going to be made available in all of our PICCs that use the Sherlock system. So it's really all of our PICCs that are placed at the bedside by nurses. So that's going to cover our standard PICCs, our PowerPICCs, our PowerPICC SOLOs, all of that's going to be covered.

Douglas Tsao – Barclays Capital

Okay. Great. Thank you very much.

Operator

We have a question from the line of Bonnie Cybulko from Longbow Research, please go ahead.

Bonnie Cybulko – Longbow Research

Thank you for taking my question. Most of mine have been answered, but I wanted to revisit the infection control products and you discussed quite a bit the challenges in upselling in a given market. I wonder if you could comment or give us a little bit more color on it? Where you expected to be, but given the current economic conditions, are we having more difficulty in upselling the particular product? And as a corollary, have you had any evidence yet from your customers that these never events not actually being reimbursed where that might be helping you present a dental product?

John H. Weiland

Are you expect to speaking about the infection control catheter or the Agento endotracheal tube?

Bonnie Cybulko – Longbow Research

The Agento.

John H. Weiland

Because we hadn't spent much time on that in our earlier comments. We are seeing a slow conversion rate with Agento. We continue to work hard on selling the benefits of that technology in this space. And as we've said, during the course of these conference calls, it's a one new conversion at a time game plan and we continue to work at it very hard.

Bonnie Cybulko – Longbow Research

Okay. And then in terms of your – you said you didn't really see a shift with the Foley infection control and you asked that that wasn't really an issue of losing the infection control to the standard Foley this quarter?

John H. Weiland

No, you can count the number of hospitals that have moved down from a infection control product to a standard Foley on two hands and that's considering a very large base of customers that we have in the United States. I think one of the issues that have been affecting us is the – you may realize that there were some drafted HICPAC guidelines that had been out there most of the year this year. And the original draft of the HICPAC guidelines were not exactly favorable in terms of the conversion to a silver ion–impregnated Foley, though. After that was drafted and physicians commented on it. The new guidelines which are scheduled to be published in the next two weeks in their final format, have absolutely turned around 180% – 180 degrees and that it actually says consider using antimicrobial impregnated catheters in patients. If after implementing a comprehensive strategy to reduce urinary tract infections, you're not having the results that you do. So, we think what was the headwind has just turned around to be a tailwind for us as we move downstream.

Bonnie Cybulko – Longbow Research

Okay. Okay, very good. If I could just double check on the Sherlock, John, if you could give me some details again, I missed that. Are you enrolling in a study now and you expect that to be completed by the second half of 2010, is that correct?

John A. DeFord

We're not enrolling now. We said we expect to start enrolling by the end of the year and enroll and through the first half of next year and anticipate launching with some claims in the back half of next year.

Bonnie Cybulko – Longbow Research

Okay. Launching the claims in the back half, okay. And then finally on the SG&A front, you mentioned that you are still about 30 openings in the European sales and management. So, as those are expected to be filled by the end of they year, do you see any measurable impact that in terms of your ability to manage that line item on the P&L?

John H. Weiland

I wouldn't expect to be meaningful for us. We are always increasing our sales forces year after year after year.

Timothy M. Ring

If the sales investment isn't paying back, we're in the wrong business. So, at the end of the day that's going to provide more on the top line and more funding for the P&L down the road.

Bonnie Cybulko – Longbow Research

Okay. Okay, thank you.

Operator

Thank you. This concludes our question-and-answer session. I would like to turn the call back over to Bard's management for closing or additional comments.

Timothy M. Ring

Great. Thank you. I'd like to thank all of you for attending the session today and I'd like to also take the opportunity to thank Bard employees around the world for all of their effort and hard work in a challenging environment. Thanks, very much, we'll see you next quarter.

Operator

And ladies and gentlemen that will conclude our conference for today. We thank you for your participation for using AT&T executive teleconference. You may now disconnect.

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