St. Jude Medical's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.16.14 | About: St. Jude (STJ)

St. Jude Medical, Inc. (NYSE:STJ)

Q1 2014 Earnings Conference Call

April 16, 2014 8:00 AM ET

Executives

Daniel J. Starks – Chairman, President and Chief Executive Officer

Donald J. Zurbay – Vice President-Finance and Chief Financial Officer

Eric S. Fain – Group President

Analysts

Robert A. Hopkins – Bank of America Merrill Lynch

Mike J. Weinstein – JPMorgan Securities LLC

Larry Biegelsen – Wells Fargo Securities, LLC

Kristen M. Stewart – Deutsche Bank Securities, Inc.

David H. Roman – Goldman Sachs & Co.

Rick Wise – Stifel, Nicolaus & Co., Inc.

David R. Lewis – Morgan Stanley & Co. LLC

Matt Taylor – Barclays Capital, Inc.

Derrick Sung – Sanford C. Bernstein & Co. LLC

Operator

Welcome to the St. Jude Medical First Quarter 2014 Earnings Conference Call. Hosting the call today is Dan Starks, Chairman, President, and Chief Executive Officer of St. Jude Medical. Before we begin, let me remind you that some of the statements made during this conference call may be considered forward-looking statements.

The Company's 10-K for fiscal year 2013 identifies certain factors that could cause the Company's actual results to differ materially from those projected in any forward-looking statements made this morning. The Company does not undertake to update any forward-looking statements as a result of new information or future events or developments.

The 10-K as well as the Company's other SEC filings are available through the Company or online. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the Company's press release issued earlier this morning or on the St. Jude Medical website at www.sjm.com. At this time all participants have been placed in a listen-only mode. And the floor will be opened for your questions following Management's prepared remarks.

It is now my pleasure to turn the floor over to Mr. Dan Starks.

Daniel J. Starks

Thank you, Jonathan. Welcome to the St. Jude Medical first quarter 2014 earnings conference call. With me on the call today as usual are John Heinmiller, Executive Vice President; Mike Rousseau, Chief Operating Officer; Eric Fain, Group President; Don Zurbay, Vice President and Chief Financial Officer; and Rachel Ellingson, Vice President of Corporate Relations.

Our plan this morning is for Don Zurbay to provide a review of our financial results for the first quarter and to give sales and earnings guidance, both for the second quarter and full year 2014.

I will then address several topics and open it up for your questions. Go ahead, Don.

Donald J. Zurbay

Thank you, Dan. Sales for the quarter totaled $1,363 million, up 2% from the $1,338 million reported in the first quarter of last year. Unfavorable foreign currency translations decreased this quarter sales by approximately $25 million. On a constant currency, first quarter sales increased 4% versus last year. We will update our currency assumptions in a moment, but the actual average exchange rates during the first quarter were within our previous guidance range.

During the first quarter, we recognized $25 million or $0.09 per share in after-tax special items. For further information regarding these items, please refer to details provided in our press release. Comments during this call referencing first quarter and full year 2014 results, including EPS amounts, will be exclusive of these items. Additionally at the end of 2013, the Federal Research and Development Tax Credit expired and it has not yet been extended for 2014.

In this circumstance, GAAP requires us to estimate and record our effective income tax rate, assuming that the R&D credit is not extended. For purposes of this conference call and our calculations of adjusted net earnings, however, we are assuming that the R&D tax credit will be extended for 2014 as in past years. As a result, comments referencing our first quarter results in guidance for 2014, including EPS amounts, are presented based on an effective income tax rate that contemplates the extension of the tax credit retroactive to the beginning of 2014.

Earnings per share were $0.96 for the first quarter of 2014, a 4% increase over adjusted EPS of $0.92 in the first quarter of 2013. We estimate that on a constant currency basis, first quarter earnings per share increased 9%.

Before we discuss our first quarter 2014 sales results by product category, with guidance for the second quarter and the remainder of 2014, let me provide a few comments about currency exchange rates. As discussed on prior calls, the two main currencies influencing St. Jude Medical’s operations are the euro and the yen. In preparing our sales and earnings guidance for the first quarter and full year 2014, we used exchange rates which assumed that each euro would translate into about $1.33 to $1.38, and for the yen, each JPY102 to JPY107 would translate into $1.

For the first quarter, the actual average exchange rates for the euro and the yen were consistent with these assumptions. In preparing our sales and earnings guidance for the second quarter and remainder of 2014, we are now assuming that each euro will translate into about $1.35 to $1.40, and we now expect each JPY100 to JPY105 to translate into $1. Additionally, we have assumed changes in various other currencies that impact our results. These changes and assumptions regarding currency exchange rates increased our total forecasted sales for the remainder of 2014 by approximately $10 million, and we now estimate that there will not be a significant year-over-year currency impact to our second quarter sales.

In addition, as we have previously mentioned, due to our 52, 53 week fiscal year convention, 2014 will include an additional calendar week of sales and operations. This additional calendar week includes New Year’s Eve and New Year’s Day. Given the holiday schedule, we estimate that this additional calendar week will result in approximately three additional selling days in the fourth quarter. For the first quarter, total Cardiac Rhythm Management sales which include revenue from both our ICD and pacemaker product lines were $687 million, up 1% from last year’s first quarter, including $10 million of unfavorable foreign currency translations.

On a constant currency basis, total CRM product sales for the first quarter increased 3%. For the first quarter, ICD sales were $436 million, up 2% from last year’s first quarter. U.S. ICD sales were $267 million, up 5% from last year’s first quarter, and international ICD sales were $169 million, a 2% decrease from the first quarter of 2013, including $4 million of unfavorable foreign currency translations. On a constant currency basis, ICD sales for the first quarter increased 3%. For low voltage devices, sales for the first quarter totaled $251 million, flat with last year’s first quarter.

In the United States, pacemaker sales were $100 million. And our international pacemaker for international markets, pacemaker sales were approximately $151 million, including $6 million of unfavorable foreign currency translations. On a constant currency basis, pacemaker sales for the first quarter increased 2%. For the second quarter of 2014, we expect total CRM sales to be in the range of $705 million to $735 million.

For the full year 2014, we now expect total CRM sales to be in the range of $2,800 million to $2,850 million. Atrial fibrillation or AF product sales for the first quarter totaled $251 million, up 8% over the first quarter of last year, including $6 million of unfavorable foreign currency translations.

On a constant currency basis, AF product sales for the quarter increased 10%. For the second quarter of 2014, we expect AF product sales to be in the range of $240 million to $260 million. We now expect full year 2014 AF product sales to be in the range of $125 million to $165 million. Total sales of cardiovascular products for the first quarter of 2014 were $326 million, down 1% from the first quarter of 2013 including $9 million of unfavorable foreign currency translations.

On a constant currency basis, cardiovascular product sales for the quarter increased 2%. For the first quarter of 2014, within the cardiovascular category, sales of structural heart products were $154 million, up 3% over the first quarter of 2013 on a constant currency basis.

Sales of vascular products in the first quarter of 2013 were $172 million, up 1% versus the first quarter of 2013 on a constant currency basis. For the second quarter of 2014, we expect cardiovascular product sales to be in the range of $335 million to $355 million. We now expect full year 2014 cardiovascular product sales to be in the range of $1,355 million to $1,395 million due to the lower outlook for revenue from renal denervation products for the year.

This guidance continues to include sales of approximately $15 million to $20 million related to the CardioMEMS product line. As a reminder CardioMEMS is an independent company in which we hold an equity interest and have an exclusive option to acquire the company.

Total sales of neuromodulation products in the first quarter of 2014 were $99 million, flat with the first quarter of 2013. For the second quarter of 2014, we expect sales from neuromodulation products to be in the range of $100 million to $110 million. We now expect full year 2014 neuromodulation sales of $430 million to $450 million.

Let me pause at this point to recap our revised full year sales guidance. If you add up the sales guidance across all product platforms, we now expect total sales for 2014 to be approximately $5,610 million to $5,760 million. This guidance results in consolidated sales growth in the range of 3% to 5% on a constant currency basis.

The geographic breakdown of St. Jude Medical sales in the first quarter of 2014 is detailed in our press release. In total, 47% of St. Jude Medical’s sales in the first quarter came from the U.S., while 53% came from international markets.

The gross profit margin during the first quarter was 72.0%, down a 120 basis points from the first quarter of 2013, primarily due to the impact of excise taxes, which had a negative 120 basis point impact year-over-year.

Additionally, there was a 10 basis point decline related to currency. For the full year 2014, we continue to expect gross profit margin to be in the range of 71.5% to 72.0%. Our first quarter SG&A expenses were 34.0% of net sales, representing a 100 basis point improvement over the first quarter of 2013. For the full year 2014, we continue to expect SG&A as a percentage of net sales to be in the range of 33.5% to 34.0%.

Research and development expenses in the first quarter of 2014 were 12.5% of net sales. For the full year 2014, we continue to expect R&D expenses to be in the range of 12.2% to 12.7% of net sales. Other expense was $20 million in the first quarter. For the second quarter of 2014, we expect other expense will be approximately $18 million to $23 million. For the full year 2014, we expect other expense of approximately $75 million to $85 million, primarily driven by interest expense on our outstanding debt. For the first quarter our effective income tax rate was 18.3%.

For 2014, we continue to expect the effective tax rate to be in the range of 18.0% to 19.0%. Consistent with previous quarters, we are treating both CardioMEMS and Spinal Modulation as variable interest entities in consolidating their results. The portion of their net losses that is not attributable to St. Jude Medical has been added back to our net profit on the line net losses attributable to non-controlling interest, and totaled $10 million in the first quarter of 2014.

For the second quarter, we estimate that this line item will total approximately $10 million to $15 million. For the full year, we expect this line to total approximately $30 million to $40 million. Moving on to the balance sheet, at the end of the first quarter, we had approximately $1.4 billion in cash and cash equivalents and $3.9 billion in total debt. There were no borrowings outstanding under our $1.5 billion revolving credit facility available with the group of banks.

Next, I want to offer some comments regarding our EPS outlook for the second quarter and the full year 2014. In preparing our EPS guidance, we have assumed that in the second quarter of 2014, the weighted average outstanding shares used in our fully diluted EPS calculation will be about 290 million to 292 million shares, and the weighted average outstanding shares for the full year 2014 will be about 291 million to 293 million shares.

The company expects adjusted EPS for the second quarter of 2014 to be in the range of $0.99 to $1.01. For the full year 2014, we now expect adjusted EPS to be in the range of $3.95 to $4. This expectation includes the impact from negative currency translations which we estimate, based on our current exchange rate assumptions, will reduce our reported consolidated sales by about $30 million to $40 million.

On a constant currency basis, our adjusted earnings per share guidance represents EPS growth of approximately 6% to 8%.

I will now turn it back to Dan.

Daniel J. Starks

Thank you, Don. During our Annual Investor Conference earlier this year, we said that we are focused on accomplishing three high level goals in 2014. Our first goal is to meet or exceed the guidance we gave on our Q4 earnings call. Our second goal is to accelerate our sales growth rate during the year. Our third goal is to exit 2014 capable of delivering both EPS leverage in mid to high single digit sales growth in 2015. Our first quarter results reinforce our confidence that we are on track to accomplish all three of these high-level goals. We are encouraged that revenue from CRM and AF products came in above the top end of our previously issued guidance ranges during the quarter, and that revenue from Cardiovascular and Neuromodulation product came in toward the higher end of our guidance. We also are encouraged by our revenue trends in international markets during the first quarter.

International markets account for the majority of St. Jude Medical’s revenue including approximately 13% of our sales that are generated from emerging markets. International revenue during the first quarter grew more than 6% on a constant currency basis compared with less than 1% growth in revenue in the United States. We expect constant currency revenue in international markets to continue to grow at a mid to upper single digit rate for the reminder of 2014 as we expand the launch of our Nanostim Leadless Pacemaker, our TactiCath contact-force sensing line of ablation catheters, our new Prodigy with Burst line of spinal cord stimulators, and are able to offer customers all four sizes of our Portico transcatheter aortic valve product line once approved.

Each of these technologies demonstrate our commitment to developing solutions backed by strong clinical and economic evidence that improve patient outcomes, ensure the highest quality and lower the cost of treating expensive epidemic diseases. Even the strength and visibility of our international sales I would like to shift the discussion to four catalysts that we think give us a realistic opportunity to accelerate U.S. sales growth to a mid or upper single digit rate during the second half of this year. Our first catalyst is the strategic launch of the CardioMEMS product line in the United States.

As we have communicated previously this product launch will be supported by clinical data from the landmark CHAMPION trial that shows class III heart failure patients whose medical therapy is guided by a CardioMEMS system enjoy a higher quality of life and are hospitalized less often

Reimbursement already is in place in the United States for the implant procedure. Patient monitoring already can be facilitated by our Merlin.net remote monitoring system a strategic launch will take time as we develop the market for this innovative technology, but we are optimistic that revenue from the CardioMEMS product line can have a visible impact on our U.S. sales growth rate as early as the second half of this year and help us exit 2014 capable of delivering mid to high single digit sales growth in 2015.

The second catalyst we see for acceleration of our U.S. sales growth rate during the second half of 2014 is the FDA approval and launch of the four new CRM product lines we announced on March 24. We’re especially optimistic that our Assurity, Endurity, and Allure Quadra CRT-P low voltage product lines we’ll have a noticeable impact on our U.S. sales growth rate in the second half of this year.

Note that during the first quarter revenue from low voltage devices in the United States declined 6% while revenue from low voltage devices in global markets outside the United States increased 9% on a constant currency basis. This difference in growth rate can be explained partly by the fact that the Endurity, Assurity and Allure Quadra low voltage product lines all received CE Mark and were launched in key international markets in 2013 where we have experienced strong demand and share capture. We expect the difference in international and U.S. sales growth rates to narrow as we launch products in the United States that already have been launched in key international markets in 2013.

The third catalyst, we expect to accelerate our U.S. sales growth rate in the second half of 2014 is the likelihood of FDA approval and U.S. launch of our TactiCath line of contact-force sensing ablation catheters. Although FDA approvals always are subject to risk and uncertainty, we are optimistic that we will receive FDA approval for this product line in the second half of this year.

We expect inventory constraints in Europe for TactiCath products to be resolved by mid year and do not anticipate inventory constraints to impact our U.S. launch. Once these events occur, we expect the growth rate for revenue from AF products in the United States to begin to accelerate.

The fourth catalyst we expect to help accelerate our U.S. sales growth rate in the second half of 2014 is the U.S. launch of our Protege line of spinal cord stimulation, or SCS devices, which was approved by FDA earlier this month.

Protege is the world’s smallest and longest-lasting rechargeable device to treat chronic pain. Protege is the first and only neurostimulation device that allows approved SCS technology upgrades to be made via software updates. We presented our Protege product line to physicians at the recent American Society of Interventional Pain Physicians Scientific Sessions in New Orleans earlier this month and we are encourage by the favorable preliminary feedback we received from a cross-section of key opinion leaders.

To summarize, revenue from international markets is growing at a mid-to upper single-digit rate. We expect revenue from international markets to continue to grow at a superior rate for the remainder of this year as we ramp up manufacturing and expand launch of our Nanostim and TactiCath product lines, receive CE Mark for our 27 millimeter and 29 millimeter versions of Portico and expand the launch of our Prodigy with Burst line of spinal cord stimulators.

We expect U.S. sales growth rate to accelerate and reach a mid or upper single-digit level during the second half of 2014 based on the launch of seven new products. The CardioMEMS heart failure technology, four new CRM product lines are TactiCath line of contact-force sensing ablation catheters, and our Protege line of spinal cord stimulators.

On the strength of these approvals, we are continuing to develop strategic partnerships with hospitals, payers, and physicians to ensure that we are addressing their needs and are offering solutions that align with their economic and clinical objectives.

If we continue to execute successfully over the next three quarters on all of the key milestones, we defined at our annual investor conference earlier this year, we will be on track to exit 2014 capable of delivering both EPS leverage and mid to high single-digit sales growth in 2015.

Next, we would like to offer additional information on our first quarter results for each of our franchises, starting with our CRM franchise.

Usage in ASP dynamics in the CRM market during the quarter were similar to what we have seen in recent prior quarters. With respect to ASP dynamics, it is worth reminding investors that the bi-annual government mandated price cuts in Japan just took effect April 1 and will negatively impact year-over-year average selling price comparisons in the next four quarters for this portion of our business.

Our guidance continues to assume that the global CRM market will be flat year-over-year on a reported basis, and that St. Jude Medical will gain approximately 50 basis points of global market share.

Our expectation that we will gain a modest amount of CRM market share for full year 2014 takes into account that our high voltage, lead-to-port ratio is stable that we are benefiting from a high voltage replacement market tailwind in the United States, that our MPP or multi point pacing, CRT-D technology is being well received in Europe. That we’re just beginning to launch three new low voltage product lines in the United States and that we are just beginning to launch our new Optisure line of high voltage leads in the United States, Europe and Japan.

Nanostim contribution to revenue was not material in the first quarter due to supply constraints. But we are on track to have inventory in place to support an expanded commercial launch of our Nanostim product line in CE Mark countries by the end of this quarter and believe Nanostim also will help us gain CRM market share in the second half of this year.

With respect to the warning letter FDA issued last year relating into our Sylmar facility. We indicated during our annual investor meeting in February that we have completed our remediation of the conditions that led to that warning letter and that we anticipated FDA reinspection by the end of the second quarter of 2014. FDA now has conducted and completed that reinspection.

The reinspection generated a single Form 483 observation that was corrected and verified as completed before the end of the inspection. Given the completion of our remediation and the conclusion of this reinspection, we are optimistic that we are on track for the Sylmar warning letter to be closed out later this year.

Next, we would like to offer an update on our AF franchise. While we reported 10% year-over-year currency neutral growth in AF revenue for the first quarter, it is important to note that AF revenue from international markets increased 13%, while AF revenue from the United States market increased only 5%. One reason for the difference in these growth rates, is that AF revenue growth in international markets benefitted from a limited launch of our TactiCath line of contact-force sensing ablation catheters

The availability of this best-in-class line of ablation catheters helps drive sales of our entire bundle of EP products. We are on track to have inventory in place to support full commercial launch of our TactiCath product line in CE Mark countries by the end of this quarter. We expect the growth rate for revenue from AF products in the United States to accelerate once we receive FDA approval for the TactiCath product line the second half of this year.

The global market for AF and other electrophysiology products is expected to continue growing at a high single-digit or low double-digit rate year-over-year on a currency neutral basis for the foreseeable future. We believe revenue for St. Jude Medical’s AF franchise will continue to grow at approximately the same rate.

Next, we would like to offer an update on our structural heart franchise. Although first quarter revenue from structural heart products increased only 3% on a year-over-year currency neutral basis, we are encouraged by favorable underlying trends. Our revenue mix from surgical heart valves continues to shift from declining mechanical valve revenues to growing tissue valve revenue each quarter.

In fact, our revenue from tissue heart valves during the first quarter grew approximately 12% and it’s expected to continue growing at a low double-digit rate for full-year 2014. Revenue from our Portico, transcatheter aortic heart valve product line in the first quarter increased an encouraging amount on a sequential quarter basis for the second quarter in a row due to the availability of our 25 millimeter Portico product lines in CE Mark countries. Our 27 millimeter and 29 millimeter Portico valve product lines remain on track for CE Mark approval in the second half of this year.

Our left atrial appendage or LAA closure revenue grew approximately 70% in the first quarter and is expected to continue to grow at a strong double digit rate for full year 2014. Taking all of these favorable underlying trends together, we think revenue from structural heart products will increase at least at a mid single-digit rate on a year-over-year constant currency basis the remaining three quarters of 2014 and that our structural heart franchise is on track for the possibility of a higher level of growth in 2015.

Next, we would like to offer an update on our vascular franchise. Revenue from vascular products in the first quarter was negatively impacted by a drop in revenue from renal denervation products both on a year-over-year and on a sequential quarter basis. We have reset our expectations for renal denervation revenue for the remainder of this year and no longer expect renal denervation to be a growth driver in 2014.

We recognized the significant potential of this therapy to dramatically improve the lives of millions of patients with severe high blood pressure and we will continue to invest in renal denervation as a potential long-term growth driver. However, we will not provide updates about our proprietary renal denervation program at this time for competitive reasons.

With respect to the remainder of our vascular business revenue from our Fractional flow reserve or FFR and our optical coherence tomography or OCT programs continued to grow at attractive double-digit rates during the first quarter and are expected to continue doing so for the full year.

As the sales mix in our vascular franchise continues to shift from declining revenue in vascular closure, renal denervation and third party product sales in Japan to fast growing revenue in FFR, OCT, and CardioMEMS products, we expect the rate of revenue growth from vascular products to accelerate in the second half of 2014. We think that similar to the rest of our business our vascular franchise will be well positioned at the end of this year, to help us deliver mid to upper single-digit sales growth in 2015.

Next we would like to offer an update on our Neuromodulation franchise. We believe 2014 will mark the turnaround of our Neuromodulation franchise as a growth driver. Although revenue from Neuromodulation products was flat in the first quarter on a total global basis, this result was a combination of 28% year-over-year currency neutral growth in revenue from international markets and a 9% decline in revenue from the U.S. market.

We expect revenue from Neuromodulation products in international markets to continue to grow at a strong double-digit rate for the remainder of 2014 supported by the launch of our new Prodigy with Burst spinal cord stimulation product line, the value of these spinal modulation dorsal root ganglion or DRG stimulation technology and the continued growth of our deep brain stimulation or DBS business.

We expect revenue from our Neuromodulation business in the United States to return to growth before year-end as we fully launch our Prodigy SCS product line over the next two quarters. Given the continued strength of our international sales and the anticipated recovery of our U.S sales of Neuromodulation products, we expect to exit 2014 with global revenue from neuromodulation products growing at a mid to upper single-digit rate and be well positioned for the possibility of higher growth in 2015.

To summarize, we entered 2014 with sales growing at an annual rate of approximately 4% on a year-over-year currency neutral basis. We delivered this level of sales growth in the first quarter and are on track for our sales growth rate to accelerate from here as our product mix shifts to faster growing markets and as we continue to launch new products. We reaffirm that our goal is to exit 2014 capable of delivering both EPS leverage and mid to high single-digit sales growth in 2015.

With that I would like to turn the call back to our moderator, Jonathan, and ask you to open it up for questions, please. Jonathan?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Thank you. Our first question comes from Bob Hopkins with Bank of America. Please go ahead.

Robert A. Hopkins – Bank of America Merrill Lynch

Thanks and good morning.

Daniel J. Starks

Good morning.

Robert A. Hopkins – Bank of America Merrill Lynch

So two quick things. First, I just wanted to ask a quick question on your U.S. markets. And then secondly, I wanted to ask a more important question on the pipeline. So first on the U.S., obviously growth was less than your OUS growth and less than recent trends. And I’m wondering, Dan, is that more a function of relative product cycles or did weather play a little bit of a role this quarter in the United States? And if it did, I’m not sure if you’ve been able to quantify, just wanted to be clear on U.S. growth trends here this quarter.

Daniel J. Starks

Yes, Bob, it’s a good question. We have a philosophical bias against blaming the weather for sales in a quarter and on the one hand, so that’s why we didn’t mention it in our prepared remarks and I won’t make much of it here in response to your question. But the weather probably had an impact on sales in some markets. There was quite a bit of weather and snow days and lack of selling days compared to the same quarter a year ago, but we don’t really know how to model that, and we don’t focus on it, and we, as an organization, we really don’t accommodate excuses internally and we don’t want to make excuses externally. It probably was a factor, but we aren’t able to quantify it and won’t rely on it as a reason.

Robert A. Hopkins – Bank of America Merrill Lynch

Okay. Just curious. And then more importantly on the pipeline as a follow-up, it sounds like you’re very encouraged and positive on the potential for a very near-term approval from the FDA on CardioMEMS. I was wondering, are you still assuming a kind of mid-year – approval by mid-year? And maybe you could comment on what gives you that incremental confidence, I mean are we in labeling discussions at this point? But I just wanted to get an update on CardioMEMS. And then also on Nanostim, I realize you’re constrained right now, but I assume you are in some accounts. And I was wondering if maybe you or Eric could give us some anecdotal feedback on Nanostim in the accounts that you are in, and what you’re seeing in there in terms of is it rapid uptake in those accounts or is it some trialing going on, just wondering about some anecdotes from the field on Nanostim.

Daniel J. Starks

Sure, with CardioMEMS, I can tell you that we do continue to expect approval by the end of this year. And I’m tempted to ask – by the middle of this year, pardon me. People are signaling that I have misspoken, pardon me. And Eric, do you want to say anything more about that, I mean we don’t really talk about the details of communications with FDA and we don’t talk about the – and we defer to CardioMEMS for any communications beyond what we said on this topic. So I know you’re not going to comment and I probably shouldn't even refer the question to you. And so as I thought that through, Bob, I'm not going to ask Eric to comment, but our expectation is unchanged.

On the topic of Nanostim and anecdotal feedback, first, with respect to update Bob, our supply was very severely constrained here in Q1. So we aren't in a position of supplying the needs of any of the customers. We're on very limited allocation and the – as I said before, the revenue was not material in the first quarter.

I think it rounded to less than $1 million, so it's premature to talk about the rate of uptake. But on the anecdotes, anecdotal feedback has been extremely positive. And Eric can offer examples of that, Mike Rousseau can offer examples of that. I can offer my own examples of that. We – the product has been shown in a number of meetings. It was implanted in a live procedure in Dr. Pappone's Laboratory at a meeting with a number of Electrophysiologist, the feedback from the audience was extremely positive, the feedback from the implanting center was extremely positive.

And that's just uniformly – that’s representative of the feedback we’ve gotten both in the centers in Europe and in the few centers here in the United States that have been able to start to implant Nanostim as part of the IDE. So it's very, very encouraging, I think when we discuss this internally among ourselves, the comments that I hear from people that are closest to it is that the anecdotal response is even more favorable and we expected.

Robert A. Hopkins – Bank of America Merrill Lynch

Congrats on a great start.

Daniel J. Starks

Thank you.

Operator

Your next question comes from the line of Mike Weinstein with JPMorgan. Please go head.

Mike J. Weinstein – JPMorgan Securities LLC

Good morning. Thank you for taking the questions.

Daniel J. Starks

Good morning.

Mike J. Weinstein – JPMorgan Securities LLC

Dan, I want to start with the U.S. ICD business. You had a really strong fourth quarter in the U.S. and there were a lot of companies that had strong fourth quarters in different US markets, Johnson led up to pull forward of procedures and HCA and timing. And then you posted another really good first quarter in the U.S. ICD market. So one quarter is a data point, two quarters seems to suggest a trend. In both cases, looks like you're growing above market. Can you just talk a little bit more about it? I'm pleasantly surprised obviously, but just want to get your insights into the renewed momentum in the business. And then second, you had some positive developments on product approval this quarter. In both cases you got approvals despite warning letters on the CRM and Neuromodulation businesses. You didn't comment on the Plano one, you did comment on Sylmar. Is there any update on Plano, and any visibility on when that might lift? Thanks.

Daniel J. Starks

Sure. Mike let me start with your last question first. We’re awaiting reinspection. We’re prepared for and waiting reinspection from FDA at our Plano facility. So the posture is very similar to what the posture was in Sylmar at the beginning of this quarter, and we would hope that on the – by the time of our call next quarter we'll be able to report that FDA has conducted that reinspection and we'll report on the outcome of the reinspection. But we’re – we have completed our remediation. We're ready for reinspection and hope to have that reinspection during the second quarter. On the – and I'm sorry, Mike, would you direct my attention to your one of your question?

Mike J. Weinstein – JPMorgan Securities LLC

Yes. Dan, I was asking about the U.S. ICD business and momentum not only this quarter, but the last two quarters, and your thoughts on kind of what's reestablished that for you over that period of time. It really hasn't been new products, but it's been a pretty notable reacceleration with the market but also in excess of the market. Thanks.

Daniel J. Starks

Yes, sure. Well, so the starting point would be that we’ve had some favorable trends in our U.S. ICD business during this last year that were masked in part by a declining back – going back a number of quarters now, going back to 2012, that was offset in part by a declining lead-to-port ratio.

So really the seminal event was to have our lead-to-port ratio stabilized, and once the lead-to-port ratio stabilized and we were not losing share in that portion of our ICD business, then the impact of the portions of our ICD business where we were gaining share started to become visible in our quarterly results. So that's the first thing that I pointed attention to.

And then keep in mind that besides the stable lead-to-port ratio and our continued gain in the CRT segment of the ICD market that we have the benefit of a tailwind in the replacement market. And I didn't revisit the exact metrics prior to this call, but I have – I’m familiar with them generally and so give me a little bit of slack in my comment here for maybe a little bit of lack of precision. But there was about, the last time I looked at this number, we were – we had about a five point difference as I recall between the – our de novo share and our replacement share, and that's a difference that in the past was even larger, that gap has narrowed. We expect that gap to continue to narrow even if we don't continue to gain de novo share.

So and as that replacement market tailwind market share comes up to the level of our de novo market share, which is the – would be the natural course of expectations. That implies continued share gain for us too. But meanwhile, we continue to gain share in the CRT segment and de novo CRT segment of the ICD market. So those are the dynamics I would point to as what the main forces behind what you see in our Q4 results and what you saw again here in our Q1 results. And anything that anybody would add to that? I’m looking around the table here. I think those are the main points, Mike.

Mike J. Weinstein – JPMorgan Securities LLC

Okay. Perfect, Dan. Thank you.

Daniel J. Starks

You’re welcome.

Operator

Your next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.

Larry Biegelsen – Wells Fargo Securities, LLC

Good morning, and thanks for taking the question.

Daniel J. Starks

Good morning.

Larry Biegelsen – Wells Fargo Securities, LLC

Good morning. One on HRS and one on the guidance, so on HRS, maybe it would be helpful to hear from Eric on his expectations for important data that we're likely to see there.

Daniel J. Starks

Sure, yes. Eric what are you – what would you direct investor attention to for the upcoming HRS regarding St. Jude Medical?

Eric S. Fain

We'll have a good showing. We'll have over 25 abstract presentations at the meeting. I'd highlight a few different areas. First of all, we have a number of presentations in the late breaking clinical trial session. We'll have Nanostim one year follow-up results. As you recall from last year at the late breaking clinical trial session, the initial results with Nanostim were presented. So now we'll have full one year follow-up results on those patients. We’ll also have a presentation that will talk about reduction in mortality associated with remote monitoring of both pacemaker and high- voltage device patients.

And finally, there's another late breaking clinical trial presentation and that describes first-in-man experience with thoracic spinal cord stimulation for heart failure. Those will all be in those large sessions. We'll also have a number of presentations that are focused on our high-voltage leads. The first one of note would be on the biostability of our Optim Insulation in patients based on return leads going out to five years.

And that will pair up with a publication that we expect momentarily, of an article in the Journal of Biomaterials Research, which really kind of goes through a very detailed analysis using number of the metrics that people have been interested previously coming out of the macro molecules article that will shed new light on the types – the methodology behind the analysis.

We’ll also have an update in our Riata lead evaluation study, demonstrates a low incidence of new externalized conductors at the one-year follow-up of that study and that was the information that people had been interested in. And then finally, there will be an update on the performance of our Durata and Riata SD Optim leads from the VA National Cardiac Device Surveillance program that will also be there.

And then the last set of presentations that I'd highlight would be focused on our quadripolar CRT system. One that I had mentioned at the investor conference that we think is very significant is a study which demonstrates reduced mortality in patients whom – who receive quadripolar versus bipolar LV leads. Also some presentations that are focused on reduced cost post implant with quadripolar leads compared to bipolar leads, and then some additional data on the effectiveness of our MPP, or multi-point pacing, CRT system. So really a full, very positive program for us at HRS.

Larry Biegelsen – Wells Fargo Securities, LLC

That's very helpful. And then just as my follow-up, obviously you put up a good quarter here, 4% constant currency growth. Can you talk a little bit about the second-quarter guidance? It looks like the midpoint is about 1%. What's your thinking? I understand that some of the new products don't kick in until the second half of the year, but is there any reason why Q2 would be a little softer than Q1, maybe what gets you to the high end of your Q2 guidance range, and I'll drop. Thank you.

Daniel J. Starks

Larry, our practice with and setting guidance ranges is to set them with the idea that we don’t get penalized for overachieving, but we certainly get penalized if we don’t meet expectations. So we have an organizational philosophy and a bias of setting our guidance conservatively. And so that’s what you see in the – as you look at mid point in lower end of the guidance range for Q2. The commentary that we’ve offered here in our prepared remarks was that we – in second half of 2013 we were running at about a 4% constant currency sales growth rate we came into Q1. With that, as sales growth rate we delivered it, we think we have the conditions in place where we can build on that 4% sales growth rate during – particularly during the second half of this year.

So I would not read between the lines and take a negative from the guidance for Q2. We think the business is in good shape and we think we are operating it about a 4% sales growth rate and we see the opportunity to build from there. So there is nothing more to it than a philosophy that, if we’re going to err with our guidance it’s better to err on the side of being conservative.

Larry H. Biegelsen – Wells Fargo Securities LLC

Thanks for taking the question.

Daniel J. Starks

You’re welcome.

Operator

Your next question comes from the line of Kristen Stewart with Deutsche Bank. Please go ahead.

Kristen M. Stewart – Deutsche Bank Securities, Inc.

Hi good morning.

Daniel J. Starks

Good morning.

Kristen M. Stewart – Deutsche Bank Securities, Inc.

I was wondering if you guys had any updates on the transcatheter valve program. I know at the analyst day you guys had mentioned you'd be starting the US pivotal study and that you were in discussions with FDA over some modified I guess trial design in terms of the number of patients and what the trial may ultimately look like. Any more clarity I guess over the last couple months on that topic?

Daniel J. Starks

Kristen, let me refer your question to Eric. Eric, do we have any update on that topic.

Eric S. Fain

Yes, Kristen, we are on track to begin enrollment in the IDE study later this quarter. And then, in parallel, we are continuing our discussions with FDA on finalizing a revised study design that again we expect will significantly decrease the overall sample size of the study. We anticipate that patients that get enrolled in – under the original protocol will be able to roll over into the redesign study, so we won’t lose any ground there, and I’d say we anticipate that we’ll finalize that design with FDA through some further discussions here during the second quarter.

Kristen M. Stewart – Deutsche Bank Securities, Inc.

Okay. Perfect. And then Boston Scientific just announced approval of some quadripolar CRT-Ds last night. I was just wondering if you could comment on maybe how you just see the quadripolar landscape just kind of shaking out. And then also to what extent any of their uptake in S-ICDs has been a little bit of an issue for you in the quarter?

Daniel J. Starks

Sure. On the announcement from Boston yesterday, we have discussions here internally on whether that represents upside to our sales or whether that represents a risk to our sales. And from an objective perspective it’s really kind of difficult to model, because we are actually comparing recollections, and we can’t think of any ICD launch without the leads to go with it here in any of our collective experience is going back to last couple of decades.

So there really isn’t a precedent for it as a starting point from an objective perspective. Then again, we really need to see – we need to here from Boston Scientific whether they’re actually planning to launch this without the leads it needs or whether they’re going to just have it available for some kind of occasional use. So we didn’t see any announcement of launch plans in the last night. So we don’t know what the company is planning to do and we’ll wait for them to educate the market on it, and as they do so, we will pick up what we can. But number one, there's no precedent. Number two, the idea of – if you have a product that you launch, you're going to tend to – if you think it's a good product, you tend to take it to the customers with whom you have a very good relationship first.

That's just typical it's part of a courtesy of rewarding customers with whom you have a good working relationship, given first access to your technology. And this is kind of an interesting choice for that company to decide whether to go to some of their best customers and tell their customers they need to do business with St. Jude Medical to use that product.

So if that happens, we would be happy to jump in there and take advantage of the opportunity to get into accounts where we typically don't have much of a presence. But it will be interesting to see how Boston decides to handle it. I think overall, there isn't precedent so it's hard to model, but I think personally I'd be surprised if it's a significant event one way or the other.

Kristen M. Stewart – Deutsche Bank Securities, Inc.

And on the S-ICD, any change to the thinking there?

Daniel J. Starks

Yes, no change to our thinking. Our single – the single chamber segment of our ICD line, has not shown any impact from the S-ICD.

Kristen M. Stewart – Deutsche Bank Securities, Inc.

Okay perfect. Thank you.

Daniel J. Starks

You are welcome.

Operator

Your next question comes from David Roman with Goldman Sachs. Please go ahead.

David H. Roman – Goldman Sachs & Co.

Thank you and good morning. Dan, I was hoping to go into a little bit more detail, in your prepared remarks we can obviously see it in the numbers a nice pickup in your international growth rates on the back of some of the new product launches. Is there any sort of anecdotal feedback you can provide us on what's driving such a quick uptake?

Because I think if we look across the industry broadly speaking the ramp in new products has been a little bit slower than what people have initially contemplated. But if I look at your results, the accelerations of your ex US businesses where you're launching new products is actually quite meaningful the past couple of quarters. Maybe you could just share with us some of the details regarding field feedback or anything else to just help us put into context some of the adoption rates you're seeing?

Daniel J. Starks

Yes, it's really product line-by-product line or franchise-by-franchise, David. I made an effort at least to flag the dynamics that were behind the stronger international growth the number of instances. The first thing that comes to mind for me is the impact of TactiCath. Even though we were inventory constrained, we did have material sales from our TactiCath product line, and it did have a visible impact on the international sales growth rate in Q1. And so I would point to that as one example.

And then again, if we went over to the CRM side of things, we had such a good flow of new products from in our CRM franchise in 2013 that we were not able to match on the U.S. side. And so it was the – it was particularly on the low-voltage side is where the biggest disparity in growth rate is, and so that’s – I am thinking, there were five or six new low-voltage product lines that we are drawing the investor attention to during 2013 that we put into the market in key international markets in 2013 that we were not able to put into the market here in the U.S.

And so I mean we could really tag into those particular differences and product line up, and I am just going to struggling then to think on the Structural Heart side, we’ve got LAA closure in international markets we don’t have it in the U.S. and so that makes a difference, we’ve got the two sizes and we’ve got CE mark pivotal trial going on the other two sizes of our Portico line. And so that makes a difference on the Cardiovascular side previously and another part of the cardiovascular side we had renal denervation growth going for us internationally that we weren't able to match in the U.S. side of our Vascular business and we've flagged now that that’s turned into a headwind rather than a growth driver. And we've adjusted expectations accordingly. So those are the kinds of things that come to mind for me.

David H. Roman – Goldman Sachs & Co.

Okay.

Daniel J. Starks

I was just going to say, Neuromodulation. I didn't touch on Neuromodulation. We've got the DBS business internationally not in the U.S. we’ve got the Spinal Modulation business internationally not in the U.S. and now we got the Burst technology internationally. So I think there are some – it's numerous identifiable products that are making the difference

David H. Roman – Goldman Sachs & Co.

Okay David. Maybe just a follow-up on the P&L. You guys have made a lot of progress on your SG&A sort of expense ratio. That's come down quite nicely the past several years. And I think it was down almost about 1 point in the quarter on a year-over-year basis. Is there any help you can give us in understanding how much of the leverage is coming from just your top line performing at a more consistent mid-single digit rate versus proactive measures you're taking to manage discretionary spending, and conceptually which is going to be more important from these levels going forward?

Daniel J. Starks

Yes, the accountants would undoubtedly have a more detailed kind of answer David and I just want to start out by acknowledging that and indicated detailed technical analysis with may add comments that I am not going to offer to you. But at a high level, the leverage has primarily been not from the leverage at the top line, but it's primarily been from the improvements to our cost structure and the restructuring that we’ve done.

That's really where the big money has come from. And I think – and going forward, we expect to have continued – we continue to be very focused and have – we see plenty of low-hanging fruit still for us to further optimize our cost structure with out a change in our sales trend.

And so this – here I would go to the topic of our philosophical shift to a centralized structure everywhere that it made sense and so now with that centralized structure in place. Now we can begin to implement programs to take advantage of the centralized structure beyond just having a centralized structure. So especially with supply chain management we see a lot of money available for us to save in costs in our supply chain in particular here with a centralized structure.

So I think in the near-term we continue to look at focused structured cost improvement programs, but I think as above the time that we gotten more of the low-hanging fruit and start to look at more difficult cost and productivity measures to capture it may be that at about that time we’ve got the top line moving at a meaningful rate and then can start to talk about leverage from the top line, but so far it’s been really activity focused at middle of the income statement rather than top line benefit trickling down.

David H. Roman – Goldman Sachs & Co.

Okay, that’s a very helpful prospective. Thank you.

Daniel J. Starks

You’re welcome.

Operator

Your next question comes from Rick Wise with Stifel. Please go ahead.

Rick Wise – Stifel, Nicolaus & Co., Inc.

Good morning, Dan.

Daniel J. Starks

Good morning.

Rick Wise – Stifel, Nicolaus & Co., Inc.

Let me start with Portico if I could. I don't think – I’m not sure if I missed it, but any updates on the U.S. IDE trial and the trial started, when I was at ACC my impression is that the trial still hadn't started, maybe just some perspective on the timing of what's going on and some of the factors or what gets it underway and any color there?

Daniel J. Starks

Sure, Rick I'm thinking that you missed it, and I’m thinking you may not have been on the call when Kristen asked her question. She asked really the same question Eric…

Rick Wise – Stifel, Nicolaus & Co., Inc.

Sorry about that. Okay.

Daniel J. Starks

Now, that’s all right. That’s all right.

Rick Wise – Stifel, Nicolaus & Co., Inc.

But let me move along there, I just missed that sorry. EuroPCR is coming up Eric anything there we should pay attention to, and I will just – my second question is on the – with the J&J Thermocool SmartTouch approved and launching, maybe just talk a little broadly about the kind of contribution that TactiCath, it seems like we are opening up a whole new area in AF. What kind of contribution could TactiCath actually make?

Daniel J. Starks

Okay, sure. Let’s start with your EuroPCR and I’ll turn the call over to Eric to answer regarding any interesting events for EuroPCR that are on his radar screen.

Eric S. Fain

Rick, we also have a good program at EuroPCR, so we’ll have longer term follow-up, 24 months follow-up in our first-in-man renal denervation study in EnligHTN I, we’ll also have six months results from our EnligHTN III trial which shows our second generation system. We will also have updates on Portico and the clinical performance there as well as on our ACP LA closure system. There is also presentations on clinical utility and patents of use for FFR in patients referred for angiography and then there will also be presentations focused on the OCT area as well. So we’ll have a complete good strong program at EuroPCR going across all those product areas.

Daniel J. Starks

And on the topic of Thermocool SmartTouch in our TactiCath, so generally the topic is the role of contact force sensing ablation catheters going forward and what comes to mind for me Rick is to refer to the comments that a key opinion leader made at the Boston AF conference earlier this year and so it was Dr. Packer from the Mayo Clinic. When he took the podium at one of the late stages of the conference, there had been a lot of discussion of controversial issues during the conference as there always are and there apparently Dr. Packer got some feedback that some audience members were confused by, okay, so we are going back to our practices next week and so what are we supposed to do?

And so that was the context of Dr. Packer’s comments and he said – and I can’t quote him verbatim and hopefully he’ll forgive me for having some of my words wrong here, but my recollection is he got up to the podium and said what’s you need here is what you need to focus on here is what’s important in your practice and it was a shortlist of items and one of them was contact force sensing ablation catheters.

And so if – so take his word for it, not mine, but his comments and the comments of others who would be similarly situated to Dr. Packer and would fall into the key opinion leader category and would be among the most expert in this field. I think that group posses the question of whether contact force sensing ablation technology ought to become the standard to care. I think that’s alive understood the gist of this comments and that’s the kind of feedback that I hear from other key opinion leaders that contact force sensing is important enough, that it may very well deserve to become the standard of care.

So I think that’s the question, is that is going of play out that way or not? And no one of course knows, but we think back to data from some of the Endosense clinical trials, there was the efficacy one and two and the [Toccata] (ph) study and the data that Dr. Mahapatra showed at the investor conference earlier, at our annual investor conference earlier this year, remember there were some data about the impact of contact force zero to 10 grams, 10 grams to 20 grams, 20 to higher and the percent of lesions that were effective and durable with less than 10 grams of force was 0% of lesions effective and durable between 10 and 20 grams was more or less 50/50.

And then there were something like 80% effective durable lesions with contact force above 20 grams. And so if that is generally true and data says that it is, then you have to start to think about all of the cases that have been done where the electrogram shows good – shows contact, but doesn’t show force and where people scratch their heads and wonder why the patient comes back for a redo and why there are gaps, it may be that the information from contact force sensing ablation catheters is one significant key to helping reduce the level of redos and improve the level of efficacy of AF ablations.

So if that’s the case then a person could see have contact force sensing would become a got to have in the ablation catheter arena and we are one of two companies that have it in international markets and we’ll soon be one of two companies that have it here in the U.S.

Rick Wise – Stifel, Nicolaus & Co., Inc.

Sounds great. Thanks again.

Daniel J. Starks

You’re welcome.

Operator

Your next question comes from David Lewis with Morgan Stanley. Please go ahead.

David R. Lewis – Morgan Stanley & Co. LLC

Hi, good morning.

Daniel J. Starks

Good morning.

David R. Lewis – Morgan Stanley & Co. LLC

Dan I wanted to come back to Optisure for a second here, I know it’s early, but any feedback from the market would be helpful. And throughout the last six quarter or so you have been focused on this lead-to-port ratio moving from negative to stable there any sense whether Optisure can move that be the port ratio kind of post date or as to more positive territory?

Daniel J. Starks

David, let me refer your question to Mike Rousseau and ask Mike if – so the approval is just on March 24. And I don’t know if you have any color or commentary to offer Mike or not. Do you?

Michael T. Rousseau

Well, considering have early it is, we’re very, very early in the launch, but it’s been received positively in the market, and we suspected that this will help us with our overall lead-to-port ratio.

Daniel J. Starks

Yes I mean we just look at it as another choice David. On the topic of another choice we have to offer to customers. Another point on lead-to-port ratio goes back to the earlier question about the approval of another company’s ICD can without having leads go with it. If that company launches that product and puts any serious effort into that launch that’s another factor that can help us with our lead-to-port ratio. So we see upside here at we know we see good stability and we see a couple of different mechanism the could generate upside into lead-to-port ratio and opportunity to gain market share.

David R. Lewis – Morgan Stanley & Co. LLC

Okay, very helpful. Dan, I just want to come back to your comments on CardioMEMS. If you think about the timing of approval this year, you sort of mentioned measured launch but obviously more bullish on what that product could do in 2015 and beyond. Is there a time this year where the approval slips past where your guidance of the implied guidance for CardioMEMS this year becomes less harder to achieve?

Daniel J. Starks

So I am just trying to decide for the double negative data then I mean

David R. Lewis – Morgan Stanley & Co. LLC

Sorry. That was a double negative. This is not grade school. Just in terms of the delay in the approval, at what point does it become hard to hit the guidance you provided to the Street?

Daniel J. Starks

Yes, we’re assuming approval by the beginning of the third quarter, we said mid-year so that mean just the beginning of the third quarter. So if we’re – if we start go into the third quarter and don’t have approval that will start to bring the upper end of our guidance into question.

David R. Lewis – Morgan Stanley & Co. LLC

Okay, thank you very much.

Daniel J. Starks

Welcome

Operator

Your next question comes from Matt Taylor with Barclays. Please go ahead.

Matt Taylor – Barclays Capital, Inc.

Hi, good morning. I just wanted to ask I guess a related question and then a conceptual one on renal denervation. So just in terms of the CardioMEMS launch, can you talk about how much stocking there would be initially with some of your customers and what impact that could have on margins? And then I know you don't want to talk a lot about renal denervation, but can you just comment in terms of you're talking about higher growth next year, if renal denervation, if the changes put that into question at all or whether you have enough growth drivers an outside of that to really hit those longer-term targets.

Daniel J. Starks

Sure Matt, let me start with the renal denervation question and let me put your CardioMEMS question over to Eric. So what we meant to communicate with our prepared remarks about renal denervation when we said that we no longer consider to be a growth driver for 2014, what I should have said that be may be a little bit clear is that we would encourage investors to take renal denervation revenue out of your models for St. Jude Medical purposes until further notice.

So we are not counting on renal denervation at all in our positioning for 2015 and as we talk about our goal of mid to upper single-digit sales growth not guidance but our goal of exiting the year prepared to be able to get that kind of sales growth in 2015. So if there is some if renal denervation turns into a restore it self as a growth driver that would be up side to any expectation that we’re communicating. And on the topic of CardioMEMS, I'm guessing it's – I don't know how much you want say about CardioMEMS Eric what you want to say about.

Eric S. Fain

I mean I would say that the company’s preparing as you would expect to have product available for launch and so but I wouldn't make any other specific comments on stocking but there will be prepared.

Daniel J. Starks

Yes, Matt if I think the best way to think about it is a at the point where the approval is issued and at the point where we’ve acquired the company and it’s a point where we if we done to launch the product if and then we would started to talk about the impact that it has in our sales result, I think that would be time for us to make sure that if sales that we’re reporting have been influenced in a meaningful way by stocking orders, we’ll work to make that visible to people so everybody has some – everybody has – everybody's appropriately calibrated.

Matt Taylor – Barclays Capital, Inc.

Okay, thanks a lot for the color.

Daniel J. Starks

Okay, we’ll just take one more question.

Operator

And your final question comes from the line of Derrick Sung with Sanford Bernstein. Please go ahead.

Derrick Sung – Sanford C. Bernstein & Co. LLC

Hi. Thank you for fitting me in.

Daniel J. Starks

You’re welcome.

Derrick Sung – Sanford C. Bernstein & Co. LLC

I had one question on low-voltage and then a follow-up on LAA closure. So in pacemakers, was wondering if you could kind of put the low-voltage opportunity that you have in front of you in the U.S. kind of in the context of the strength that you're seeing outside the U.S.

And in particular, kind of outside the U.S., I didn't hear you talk too much about the MRI safe launch in Japan. So maybe how's that going and how much of that is contributing to the extraordinary growth that you're seeing out there? And then how much of the growth is maybe coming from the Allure Quadra CRT-P opportunity and maybe bring that over to the opportunity for that product in the U.S. that you're launching?

Daniel J. Starks

Sure. I won’t dissect it with granularity for you, Derrick. But you're right that Accent MRI in Japan is definitely a material factor in our international sales growth rate in. In my prepared remarks I was careful to indicate that the Endurity, Assurity, and Allure Quadra CRT-P that the difference in sales growth rate was due in part to the benefit of Endurity, Assurity, and Allure Quadra CRT-P there. It also is available in part to the benefit of vaccine MRI in Japan, no question about it.

So and as far as putting a percent on the – on those two, I’m not prepared to do it here this morning. But I – but we did say that the Endurity, Assurity, and Allure Quadra CRT-P have enjoyed strong and supported strong market share capture in CE Mark country.

So they’re clearly independent drivers of meaningful difference in sales growth rate even without considering of the benefit of vaccine MRI in Japan. And so and we’re not going to be more specific with the numbers we report than that, but by way of just verifying that it does make a difference in our sales growth rate internationally, and that we therefore have a well-supported reason to think that it will make a difference here in the United States now that the products have started to become available to us that’s directionally appropriate.

And then but we’re not going to – the rest of it I’ll just say that the upside impact is included in the guidance that we’ve given and we’re not going to start to give as you’d appreciate, we’re not going to start to give separate guidance for low-voltage U.S.

Derrick Sung – Sanford C. Bernstein & Co. LLC

Okay, sure. That is helpful, thanks. And on LAA closure, maybe if you could just give us a little bit of color on sort of how the launch is going or how the dynamics are in Europe, maybe how the market dynamics are, what the competitive dynamics look like between your product and the launch been. And then any update you can give us on the U.S. clinical study and where you are there, that would be helpful.

Daniel J. Starks

Sure. In Europe the market is still small. And so the percentage growth rates that we mentioned are – have to be taken in that light that the market is still small. But LAA closure as a person talks with the – particularly with the electrophysiology community and to an extent with non-electro physiology portions of the broader cardiology community, LAA closures an interesting space and it is still a little bit controversial on who are the patients that are appropriately indicated of LAA closure, but the majority view and the feedback that gets to my attention directly or indirectly with other members of the organization is that this is a hot topic in the EP community and there is role for LAA closure and now it’s a question of just continuing to create the clinical evidence to further define the extent of role and the limits of that role, but its definitely a hot topic in a small but fast growing space.

And so the real question is what’s the ultimate size of the market is going to be and we have an internal model for that but it’s – there is – it’s really a little bit speculative, so on exactly how big this market opportunity is going to get and how many years will it take to do it, but we are off to a good start. So it’s worth at least having on the radar screen and our Structural Heart business is small enough business in total that LAA closure even though its still a small number does have a visible impact and we expect it to have an increasingly visible impact as we continue to help develop the market in Europe.

On the United State side that we haven’t begun enrollment in clinical trial and we don’t have a timeline to offer to you yet, but we would hope to be in the position to offer an update on our timeline some time later this year.

Derrick Sung – Sanford C. Bernstein & Co. LLC

Okay, great thank you very much.

Daniel J. Starks

You are welcome and with that I would like to thank you everybody for joining us and I’ll turn to the moderator Jonathan for your prepared closing remarks.

Operator

Thank you. Ladies and Gentlemen today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern standard time. The dial-in numbers are 855 859 2056; and 404 537 3406. Please enter PIN number 1928 4898. Thank you. And this does conclude today's teleconference. Please disconnect your lines at this time.

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