Boston Scientific's CEO Presents at Morgan Stanley Global Healthcare Conference (Transcript)

Sep. 9.13 | About: Boston Scientific (BSX)

Boston Scientific Corporation (NYSE:BSX)

Morgan Stanley Global Healthcare Conference

September 9, 2013, 11:45 AM ET

Executives

Michael Mahoney - President and Chief Executive Officer

Jeffrey Capello - Executive Vice President and Chief Financial Officer

Analysts

David Lewis - Morgan Stanley

David Lewis - Morgan Stanley

Go ahead and take your seats. Thank you all for being here. My name is David Lewis, Medical Device Director here at Morgan Stanley. And just as you know, please go to the Morgan Stanley research website and look at our research disclosure to see all interesting fun facts about me. But turning to our presenters here in our fireside chat format, we're honored to have with us Boston Scientific and their CEO, Mike Mahoney; and their CFO, Jeff Capello.

First, you do not know Boston Scientific is a leading provider of cardiovascular devices. What's most important about Boston is it is by far, I mean I was going to say, what a difference a year makes. It's been quite the year Boston has had. It's the best performing stock in our coverage universe by a significant margin of 80% or 90% and that could be a conservative number.

So I think we're going to focus on today is what's happened and in fact what could happen and what good things are to come. So I guess, Michael, what I was going to do is focus immediately on what's probably most -- the Red Sox we can view, we could probably spend a lot of time on that. It's my hometown team. Devil Rays is unfortunately my second team and they are faltering here in the end, it's very sad. And the Bucks had a terrible loss to the Jets yesterday, did you see that, it's awful.

Question-and-Answer Session

So in terms of growth, what's very interesting from the second quarter, first positive growth quarter for the company in literally years, but stock has reacted very favorably. What is interesting, if we go back to what you said at Investors in February, you said look, in the intermediate term, which we probably say the '14, '15, you can just see the low-single digit growth. You're already doing low-single digit growth as in the second quarter. So are you ahead of plans -- what do that second quarter, say, to us about back half of the year trends. And why can't you do a lot better than what you told us about in February, in '14 and '15, if we're not really getting any contribution from the pipeline yet.

Michael Mahoney

Well, thank you. Thank you for having us. Good morning, everyone. The good news is we're really executing nicely against the plan that we articulated at the Investor Day in February. And at that session, in the short-term we guided to getting back to growth in the second half of 2013. And the good news, as you indicated, we're able to do that in the second quarter 2013, which is great.

So we're executing against the plant that we laid out and we're really encouraged about the progress that our team is making globally. And without going through our whole strat plan, there's really four or five key areas that we're focused on. The first one is, to continue to develop our MedSurg sector and grow faster in the market. And we're doing that in our peripheral business, our Neuromodulation Division, our Women's Health Urology and our PI business.

The second key pillar that we are making progress on is IC and CRM, and we've seen those markets stabilized a bit more, although still not bullish, but slightly down negative markets, but our product and our portfolio continues to expand in that area. We are growing globally. Our BRIC market succeeded almost 30% in the second quarter, and we're also continued to focus on margin improvement.

I think we have unique opportunity to continue deliver on a margin improvement plan, where we talked about 19% to 25%, 600 basis point improvement on the strat plan horizon. So I would sum up, saying that we were right on track, if not slightly ahead of our guidance that we provided at the Investor Day and we're pleased with the momentum we have.

David Lewis - Morgan Stanley

And Mike, can you think of a headwind in the next quarter -- this quarter, assuming core markets idea for CRM stay stable. I guess I'm struggling with a headwind that gets you to setback, because if I can't find those headwinds and I know you have tailwinds from multiple pipeline drivers. What are we afraid of here? I mean it looks clear to me that something better than 2% is kind of likely mid-single digits looks much more likely '14, '15. I mean it's sort of a headwind we're not thinking about or something that you're concerned about, as what the growth profile we should be thinking about?

Michael Mahoney

Well, we get paid to worry about lots of things. So we have spent a lot of time with operating companies across the divisions and our global teams, and we try to provide these contingencies. But we've had nice traction on our new adjacencies, they're still small percent of our revenue, but we've had very good data on our Alair Bronchial Thermoplasty system that was just published past few weeks. We have a nice progress with our hypertension programs.

So our adjacencies are -- we get an excellent clinical data, but there are also challenged with reimbursement. So one of the headwinds is we continue to see reimbursement challenges in some countries in Europe and the FDA approval process is still a challenge. We're hopeful to have Atritech product approved in the second quarter. So we continue to see headwinds with the reimbursement in some countries and the regulatory process continues to be a challenge for us.

David Lewis - Morgan Stanley

Are there any questions, please raise them high, so I can make this as interactive as possible. So I want hit -- drill down on revenue for a second, and then come back to Jeff and talk more to margins. What are the products that everyone is really focused on is, obviously S-ICD, your subcutaneous ICD therapy. It came out in February. You gave a certain target that fell off the second quarter call. You've already raised the expectations for that product. You've been a little capacity constraint and kind of heading up into September. Can we talk about this product? What was the size of the market you were thinking about? What is the size now? And when do investors begin to see that momentum from that product?

Michael Mahoney

Well, this is a terrific long-term platform for us and we're trying be for quality first, this is a life-saving life-enhancing platform. And we're doing lots of work in the supply chain to ensure a high quality with this device, so we can scale it up. And what we see in terms of that progress, we're moving our manufacturing capabilities from California to leverage our CRM manufacturing both in Iowa and in Minnesota. And we'll see it back in the market in the third quarter as we guided towards. We'll ramp up the supply chain in the fourth quarter. And we'll really have multi-supply constraint as we enter the 2014.

In terms of the market size, we've talked about this being a $750 million market globally. And really as Dr. Stein said at our second quarter call, we think for patients this should be the first choice for de novo, not only primary care, but also potentially for the right patient for replacements, if they don't have a need for a CRTP or for patient capability, so we think especially for the single chamber ICD market, this should be the first line of option for patients.

David Lewis - Morgan Stanley

Is there any, specifically in the European experience that sort of has increased your confidence in the size of the market from February through September?

Michael Mahoney

Unfortunately, we haven't had -- we had the noble supply as much as we wanted to, but the experience from EPs has been very, very positive. And there's been a number of surveys that various analysts have produced that would reinforce that. And I think you're seeing excellent clinical data come out of S-ICD, and so EPs are becoming more comfortable with it. And even the more bearish EPs, who indicated that would be 1% to 2% of the patient population are now indicating 5% to 10%.

And that the more bullish EPs that said, it would be 5% to 10% are now saying 10% to 20% of their patient mix. And so we're seeing greater comfort levels with EPs with the device, the clinical data is excellent and our job is to get it where we can scale it out and extend it beyond just our IDE centers in the U.S., where it's been constraint to today.

David Lewis - Morgan Stanley

And then maybe, Jeff, just a quick follow-on related question to subcutaneous. There are multiple innovations you're going to come through with subcutaneous ICD to get those gross margins up. And maybe talk just about, if capacity is no longer an issue and you head into '14, is it gross margin accretive to Boston, our census is probably not, but is it EBIT accretive to Boston heading into '14?

Jeffrey Capello

Well, you've got to look at it two different pieces. So we've said, Cameron is a smaller company. As Michael said, we're quoting over their supply chain to our supply chain, which will help us from a gross margin perspective. So individually the product will not be at our average gross margins. However, the pull-through benefit of getting into new accounts, which we're having conversations. We've not have been able to had in the last five years, and the incremental sales of ICDs and CRTDs and pacemakers that will do as a result of getting other accounts. It's highly accretive.

So we like the mix between getting Cameron in the market at these gross margins plus the carry-through the existing product set. And then as it relates to the SG&A, there is a not a lot of SG&A burden associated, we bring that product to market. So it's highly accretive from SG&A perspective. So it's a good combination for us overall. And it just gets better, as Mike had said, as we ramp up our volumes, we're moving manufacturing from the West Coast, which is a small facility to a very mature facility where -- that's all we do. That's a really good equation for us overtime.

David Lewis - Morgan Stanley

Okay. Maybe we're sitting up here, two, three and four years ago, and we'll be talking about this expense. And now it's so many things going in the pipeline. And I think you know I'm talking about growing expense, but there are a couple of things happening here in the next 12 months, and you've talked about taking share, getting back to a share position in the back half of '13, and obviously SYNERGY building out large as you head into '13, heading to '14. So not the same company, but they are actually using undepreciated benefit here from SYNERGY. Maybe talk us through your share expectations U.S., o U.S. and your enthusiasm around SYNERGY?

Michael Mahoney

Yes, it's clearly a big part of our operating income as you see when we report. Moving forward, we're very bullish about our interventional cardiology business and the DES segment within that. Our IC, other category, non-DES grew in the second quarter about 3%. But the encouraging that we think that we talked about in the second quarter and then we think that hopefully it will be a reflection of our progress going forward is a momentum we had in Europe in the second quarter. So in Europe we have the SYNERGY spend that you just highlighted that we're really in a kind of a limited launch mode, we'll launch that fully in 2014, but we also have our Promus PREMIER.

So we believe that we have the most innovative unique bioabsorbable drug and polymer with SYNERGY. Of course, with the drug and the polymer were allude at the same time at 90 days, and still deliver that control that a physician wants for a complex coronary disease. So we think that it's the premium product. We're asking to getting a premium ASP for it and we also launched our Promus PREMIER platform, which will be over-the-course platform in Europe as well.

So the growth in the second quarter was encouraging and that platform will eventually come to the U.S. market, pending the regulatory approval and we're hopeful to have the Promus PREMIER platform approved in the fourth quarter in the U.S. and SYNERGY will be out in the -- late 2015, '16 time period.

David Lewis - Morgan Stanley

Okay. And this was one of your big mantras, when you became CEO of the company, but you're brethren out there in med tech, you're talking about bundling and the importance of bundling. You really talked about growth. You've built your pipeline around building this growth portfolio and that certainly has begun to contribute to the topline.

But what's interesting is you are in a better bundling position in certain areas like the non-interventional cardiology, the non-DES interventional cardiology franchise, your EP business is definitely an area where you attacked trying to leverage what you've done in CRM. I think what really surprised people off of the second quarter was the non-DES IC business. And I guess are you beginning to see early benefits of bundling or is that really a lot of emerging market success?

Michael Mahoney

Really our non-DES IC growth is through our portfolio and through the expansion the U.S. So we thinking bundling is nice, but it is not what we lead with. We try to lead with our innovation and driving economic value for hospitals. And most hospitals quite frankly would prefer to procure CRM by itself or Endo by itself or Neuromod by itself. And most hospitals aren't realty even organized in that for this bundling concept.

But nonetheless, we have very broad portfolio across our interventional cardiology and with respect to the IC and other category, it's really new product launches, new IVUS catheters, new balloons, new guidewires. So really their incremental pipeline enhancements to a pipeline that had been stale for a while, but its no longer -- and it's really getting the benefit of some portfolio planning that we've done over last few years.

David Lewis - Morgan Stanley

Any questions for Mike or Jeff? So Jeff, I want to spend a few minutes here, if you want an important driver. I mean, people think about Boston they think about leveraging the P&L, it's a big focus for investors premium growth relative to your peers. If you think about just the gross margins first half of the year. Maybe talk us about the progression of gross margins at first to second, and over some of the factors during the second quarter. And how would you expect that to trend into the back half of the year?

Jeffrey Capello

So this is a recap from a margin perspective, we had a Investor Day back in February, where we suggested the investment community, we have an opportunity to expand our margins by 600 basis points over the next five years. And 400 basis points is through gross margin expansion and 200 basis points is through reduction of SG&A level.

So very few companies in our sector have that type of expansion opportunity in the medium term I'd say and we're off to a good start. So our margins were up in the second quarter. In fact our gross margins were up 230 basis points year-over-year. Part of that was driven by a one-time benefit of settling up some distribution arrangements with one of our competitors Abbott, but half of that was due to better discipline on the pricing front, better manufacturing efficiencies and better mix benefits.

And as you look at the story going forward, a lot of the story does revolve around that. We are going to be in an industry, where we are going to have pricing headwinds. I think we've got our arms around that. We've got some very targeted efforts reducing that. We have a very strong manufacturing organization that's riveted on taking at least 5% of the standard cost out of every product that every year. And they think they can do more than that, so that's good. And in the mix benefit, every product that we invest in, every product that we acquire, is designed to be accretive from a gross margin perspective. Some are accretive right out of the gate, some like Cameron take a little bit of time, but it's all both around that story.

So if you look at all those pieces plus we have a number of manufacturing facilities, probably too many at this point. There is a lot of opportunity for us to expand our gross margins going forward. And we started to do that in our guidance for the back half of the year as kind of in the 69% to 70% range from a gross margin perspective. And we did well in the second quarter and expect to do well for the rest of the year.

David Lewis - Morgan Stanley

Jeff, one of the interesting things you did or the company did two quarters ago, as you broke out your segment margins, right. So you're actually isolating CRM. If you specifically look at CRM, you're trading basically half the margin of your peers. It actually was depressed around 10%. And we estimate you get back to a peer-based margin, 20% accretive to the business. So can you walk people through, what is pressuring CRM margins? What's interesting is, in other segments of your business you're growing 3%, 4%, 5%, you're getting 200 basis points, it's a 100 basis points of leverage a year, and you have this one division sitting out at around 10%, 11%. So what's currently pressuring that business? And obviously, the biggest juice factor to the P&L is what are the key factors in getting that moving? And what are the key inflection years, when you're going to see that?

Jeffrey Capello

So certainly, I mean there is no disagreement that our operating margins from CRM perspective are about half what they are at competition. Part of that's driven by some share that we lost as a result of some legacy issues that we had and we've addressed. So when you lose revenue and its high gross margin revenues, it's a little painful on the way down. Part of it's due to the EP business being commingled in with the CRM business and that's a business is you both been talking about, we've invested in heavily and part of this is all the acquisitions we've done. We've now done three acquisitions that are all in the highly investment mode, both from an SG&A and R&D perspective.

The good news is we think we've got the right portfolio to grow the CRM business and we had a pretty good second quarter. We think we'll pickup steam in the back half. That's painful as it was in the way down. It will be more beneficial on the way up from an accretion perspective gross margin wise.

Second factor is our EP business at $150 million with the Bard EP acquisition that we hope to close here at the end of the third quarter, beginning of the fourth. That we think is going to bring a lot of scale to our EP presence, which is a big growth market. And then those acquisitions, they're all designed to start hit the market here in the back half of this year and into next year. And they'll start to have revenue growth.

Those three combinations plus our global cost containment programs and reductions give us good confidence to say, we think we can double our operating margin in CRM within next five years. And it's a big part of the profitable expansion story. And that's in inbred into kind of how our executives are compensated. They're focused on a 24 x 7, how we drive those margins up.

David Lewis - Morgan Stanley

Do you think, is '14 the first year investors see that inflection or is it '15?

Jeffrey Capello

One, I can't give you guidance with regards to '14. We haven't finished that yet. But I think we stand behind what we said relative to Investor Day, back in February, that we think we can expand our operating margins at least a 100 basis points a year in '14 and '15, and then more aggressively thereafter. Could we do better than that, yes, certainly we could probably do better than that. We'll have to see what happens.

David Lewis - Morgan Stanley

So an element of your LRP on the earnings side that we always struck as goofy, when you give it out in February, frankly no offense. You're basically saying look, if you take your revenue targets and I take your margin targets that can you get you mid-to-high single digit EBIT growth and you're also saying you'll get us mid-to-high single digit earnings growth. But that seems to leave out of couple of important factors here. It doesn't have any input for M&A, share repurchases, debt pay down. I guess if you hit your revenue and margin targets, why are you not growing your earnings sustainably, materially faster than EBIT, based on your balance sheet profile.

Jeffrey Capello

Well, I think we are very clear with people, when we did the Investor Day that there was several layers conservatives on and we have aspirations to grow the business faster. And we think there are opportunities to drive the profitability higher. And I think it was very clear when I gave the financial overview with the long-range plan, they had assumed that we are a company that generates $100 million of free cash flow a month and we brought back 14%, 15% of the company over the last 18 months. We've assumed in the next fiver years, we basically keep all our cash in the balance sheet.

So there a number of layers of conservatives that are built into the plan. I think that's a right way to do it. I mean there are always surprises in these industries, whether they be end-markets or whatever. It beholds us to be a little bit conservative. And perhaps under promise and over delivered.

Unidentified Analyst

Questions here, Mike or Jeff. I hate being up here, just talk about, I absolutely hate it. So you've got a lot of business reshaping these last -- since you've really been there or little bit before, but really the last 12 months a significant number of deals and the portfolio kind of looks, where it needs to be from growth perspective.

You said something interesting. I think it was two quarters ago, when you talked about, maybe going forward our deals are more mature. I think investors took that to mean, were at they high growth, dilutive or early stage acquisition mode and now we're looking at bigger more substantive, I mean is that what you wanted us to hear?

Michael Mahoney

That's what I said for sure and I think it's a balance. We have been aggressive, expanding into high growth adjacencies that are synergistic with our core business. And you know what they are, and our severe asthma platform, our Atritech platform, our Lotus TAVR program, just to name a few, hypertension program. All those have high synergies. And Jeff touched on the margin proven opportunity we have with those as they begin to drive revenue.

The Bard deal as you said is a great opportunity for us to expand in the EP. There is a lot of synergies there and it will be accretive in 2014. So we'll continue to look for the right opportunities and balance that. Ideally we would go after targets that have revenue, where it's highly synergistic with us.

But we want to be category leaders in interventional cardiology, endoscopy, peripheral, so forth. So we also continue to leverage our BSC venture fund. And so it's not something we talk about much, but we've made a number of small investments in interesting companies of the right size and the right scale for us to continue look at.

Unidentified Analyst

There is one asset has sort of gain an important sort of this year, because S-ICD has overwhelmed, but that was with asthmatics and the whole key this year was interesting asset, very proprietary and differentiated, but there is no reimbursement, so where we stand in asthmatics, I mean relative to where you purchased it and where you thought it would be -- are we behind, are we ahead or are we where we wanted to be and what is it going to take to really get this business to really contribute to the growth profile in '14 or '15?

Michael Mahoney

So that was the -- you said what are the headwinds, I mentioned reimbursement, reimbursement and regulatory for any company, especially when you're pioneering a new platform that's really a life-changing product, so reimbursement really has been the challenge for Alair, those reimbursement restrictions that we're working through in Europe and reimbursement restrictions in the U.S. The great news is just last week, the public information that was presented in the largest asthmatic journal.

And it's five years, safety and efficacy data and there is just an episode on ABC World News last night that highlighted it, and so it's a terrific five years, safety and efficacy data that shows a -- I think it's a 88% reduction in ER business and about a 48% to 50% reduction in severe asthmatic exacerbations per patients. So its terrific data published in the most credible asthmatic journal.

And we believe that would go a long way to driving reimbursement capability in the U.S. and once we have greater reimbursement -- we talked about a $500 million market opportunity for Alair, but it's been slow due to reimbursement. We think this five year data that we just published will be the key to unlock the reimbursement in U.S.

Unidentified Analyst

Is it too optimistic to assume we see big payer decisions in the fourth quarter?

Michael Mahoney

We'll see.

Jeffrey Capello

Not, now, now.

Michael Mahoney

We're hopeful.

Unidentified Analyst

Okay.

Michael Mahoney

We deserve it. I mean, the patients are there. There is 25 million patients, 10% of those, 2.5 million suffer from severe asthma, there are on multiple drugs. You save the healthcare system money by reducing the ER business, the life saving, life enhancing product and it deserves reimbursement.

Unidentified Analyst

Okay. You mentioned obviously the Bard asset, so have built a lot of interesting assets to improve your EP and AF profile. You came from an organization that had a very -- a world meeting AF franchise, when you talk to those guys and girls, they're going to say, come on, they hadn't been in this business, they are jumping in this business for a couple of deals, but What does it take for you to really have an impact on AF therapy? I mean just going to take three to five years or do you think you have the portfolio today to be a share gainer in broad AF?

Michael Mahoney

We're building a portfolio. If you look at our portfolio in EP and AF versus 24 months ago, it's 90 day difference. We have a world-class leading mapping system that's new and we'll begin installing that platform in the fourth quarter. We have the Bard capabilities which is recording devices in diagnostics and also expands our commercial footprint in Europe and we have some internal R&D program that are exciting. So we clearly have a lot of respect for our competitors in this field and we're clearly number three. But we think there is room for a innovative number three player. And do we expect to gain share in this strat plan horizon, in that division.

Unidentified Analyst

Any questions for Mike or Jeff. Jeff, coming back to you, in the old days, and by old days, I mean two to three years ago, not the days of yore, but in those days we talked balance sheet for Boston by your highly levered -- you now paid on that balance sheet to a more respectable level, we also had a lawsuit and IP judgments against the company. The balance sheet was really a significant risk, it's no longer a risk for the asset. But one area that people had not talk much about is Mesh lawsuit, Mesh litigation. I think you have taken a reserve for it.

It's a bigger issue for other companies out there in the healthcare landscape. You have not pulled away from the market as aggressively as some of your other peers, why, and this is better question for Michael, why you hadn't pulled away from that market, but for Jeff, how should we think about sizing that investment and why is Mesh litigation not something investor should be concerned about?

Jeffrey Capello

Well, it's like any other issue that comes up. I think we do a pretty good job of kind a sizing up these issues and we have a legal liability, it's a little over $600 million that encompasses kind of all of our legal matters and this is a subset of it, so something we keep our eye one. It's one of those issues we just have to work away through like everyone else in the industry. So we pay attention to it. But we think it's something that's coolly manageable.

And I think you're absolutely right. I think we've done a lot working around the balance sheet. We're back up to investment grades across all through rating agencies. And we just did a major bond deal that was seven times oversubscribed, so we've got a lot of good momentum from the balance sheet perspective. And it's going to allow us a lot of flexibility going forward to do the things we want to do strategically.

Michael Mahoney

Now, I think just our vision is mission is advancing science for life. And we don't want to give up on this sector not because we're just stubborn, but we think it's a critical opportunity for patients who are suffering from stress urinary incontinence or pelvic organ pro-lapse. We've actually invested in the pipeline in this division over the past few years. We have new abdominal approaches which we think are interesting. So there may not be upper-single digit market grower. But we think it will be a solid market. And we think we have differentiated portfolio and our margins are pretty good.

David Lewis - Morgan Stanley

So Mike, I feel like, we talked over the Boston Scientific, stocks had a big year, but it's now, we've some negative growth to positive growth who cares. It's a cardiology company, heading into healthcare reform, this is just not an asset I can be with, how do you think your business is going to change your reform sort of beating down on our door here. How does the business change and why are your end markets like CRM and DES are attractive investments despite what investors think?

Michael Mahoney

Well, one that we talked about in the strategic plan. We're, call it, 55%, IC and CRM and 45% the other five divisions of Boston Scientific. Those other divisions of Boston Scientific are growing very well, expanding globally and taking share. We've also seen in the IC and CRM markets an improvement in the growth profile, not a dramatic turnaround with the growing single digits, but really a stabilization of those markets.

We think with the portfolio we have we talked about SYNERGY. We talked about Promus PREMIER. We talked about S-ICD. We talked about EP. So we think the portfolio that we have in CRM and intravascular cardiology will take us to share gains in the tough markets and we talked about that in the back half of '13 and we think that will happen in '14 and '15.

So I think we will gain share in the market that has been relatively stable. We have also done a good job, I don't use the word bundling, but in really providing solutions for, for example, cardiologist and intravascular cardiology in complex total occlusion devices, hypertension, so we had lot of adjacencies that are very important with cardiologist.

We think we'll do better than the market in those businesses. We think our other businesses that make up to 45%. That weighting is getting larger. Those are growing nicely. We are growing about 30% in the BRIC markets. And we've got terrific operating income leverage opportunities. So we talked about $1 billion opportunity for these adjacencies. And we are seeing good clinical evidence and good clinical data come out of them from our hypertension TAVR, Atritech and so forth.

David Lewis - Morgan Stanley

Do you think that anyway your business has to change, any reform?

Michael Mahoney

Yes. I think the biggest thing -- the couple of things. One is we focus a lot on are mix of products and reducing the cost of our products, because we think with healthcare reform, there is always going to be pricing pressure. The global transparency of price, and so we spent a lot of time ensuring that our products not only deliver economic value for hospital, where we can demonstrate the economic value just like our Alair product with that type of ER reduction, but also really focused on pulling on cost of our products.

We are also doing a lot for service area, in terms of heart failure management with our CRM business, our LATITUDE devices we are able to track patients remotely. We are also looking that how we continue deploy our different commercial models to reduce the SG&A in the company which is high at 36%. So we'd be looking to pull that down with different commercial models that we're experiment with in the start plan.

David Lewis - Morgan Stanley

Probably time for one or two more questions, if there are any for Mike or Jeff. One of the questions I would ask is really on spending. Everybody is thinking about this is the company that can grow very quickly or accelerating topline growth or even hold expenses. You just mentioned, Jeff has talked about it countless time. But I think about products like Lotus and Sadra, here is a very expensive clinical spend. And one of the concerns I think people had is the products like that in your business in general, how do the company go from negative organic growth to 4% to 5% organic growth that hold line on spending? How does that if there is anything you can give the investor to help them understand how you achieve those things?

Jeffrey Capello

Well, I would tell you right now that in 2013 we've got a heavy, heavy amount of OpEx in the P&L. We have done 11 acquisitions over the last year and a half, and we have got a number of internal expensive programs that we are developing. So there is no lack of spend in the P&L today in '13 for some these programs.

And that will stay with us for a little while, but some of that will go away, some of that will continue, but the combination of something, it's kind of easing off, some of the class programs that we have it will continue to kind of pay dividends plus the growth starting is a great combination, three factors for shareholders and for people internally of the company.

So yes, you're absolutely correct. Having the clinical trial in the U.S. for renal denervation and for TAVR is going to be expensive. But we've been running those programs for SYNERGY. We have been running those programs for TAVR in Europe. So it's not like the haven't been in the P&L, they are in the P&L, the difference is the end of this year beginning next year is when the growth starts. So you really haven't seen any contribution from these acquisitions. So when the growth starts, that's the point of inflection for the company.

David Lewis - Morgan Stanley

I think that's very clear. End on that note, we are out of time. Thank you so much for being here. Mike and Jeff, thank you so much for being here.

Michael Mahoney

Thank you.

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