C. R. Bard's CEO Discusses Q1 2014 Results - Earnings Call Transcript

Apr.22.14 | About: C. R. (BCR)

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

Q1 2014 Results Earnings Conference Call

April 22, 2014, 05:00 PM ET

Executives

Timothy M. Ring - Chairman and CEO

John H. Weiland - President and COO

John A. DeFord - SVP of Science Technology and Clinical Affairs

Christopher S. Holland - CFO and SVP

Analysts

Michael N. Weinstein - JP Morgan Chase and Company

Brooks E. West - Piper Jaffray Companies

Robert A. Hopkins - BofA Merrill Lynch

David L. Turkaly - JMP Securities LLC

Matthew J. Dodds - Citigroup

Matthew O'Brien - William Blair & Company L.L.C.

Kristen M. Stewart - Deutsche Bank AG

Matthew Taylor - Barclays Capital

Rich Newitter - Leerink Partners.

David H. Roman - Goldman Sachs

David R. Lewis - Morgan Stanley

Anthony Petrone - Jefferies Group

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the C.R. Bard Inc. First Quarter 2014 Earnings Results Conference Call. At this time all participants are in a listen-only mode. Later we will be conducting a question-answer session. Instructions will be given at that time. (Operator Instructions). As a reminder this conference call is being recorded and will be available for future on-demand replay through the Bard website.

Today's presentation will be hosted by Timothy M. Ring, Chairman and Chief Executive Officer; along with John H. Weiland, President and Chief Operating Officer; Christopher S. Holland, Senior Vice President and Chief Financial Officer and John A. DeFord, Senior Vice President, Science, Technology and Clinical Affairs. Also in attendance today is Todd W. Garner, Vice President, Investor Relations.

Today Bard's management will discuss some forward-looking statements, the accuracy of which are necessarily subject to risks and uncertainties. Please refer to the cautionary statement regarding forward-looking information and the information under the caption risk factors each in Bard's 2013 10-K, including disclosures of the factors that could cause actual results to defer materially from those expressed or implied.

During the call references will be made to certain non-GAAP measures, which management believes provide an additional and meaningful assessment of the core operating performance for the company and its individual product franchise. Reconciliations of non-GAAP measures to the most comparable GAAP measures are provided in Bard's earnings press release and on the company's website at www.crbard.com. All information that is not historical is given only as of April 22, 2014, and the company undertakes no responsibility to update any information. Unless otherwise noted all comparisons are to the prior year period.

At this time I would like to turn the conference over to Mr. Timothy Ring. Please go ahead.

Timothy M. Ring

Thanks, Cice. Good afternoon, everybody. I'd like to welcome you to Bard's first quarter 2014 earnings call and thank all of you for taking the time to join us today. I would expect this presentation portion of the call to last about 25 minutes and we are going to try to keep the call to about an hour.

The discussion today will go as follows. I will begin with an overview of the results for the first quarter. John Weiland, our President and COO will review first quarter product line revenue. John DeFord, our Senior VP, Science, Technology and Clinical Affairs will give you an update on our product development pipeline, after which Chris Holland, our Senior VP and CFO will review the first quarter income statement and balance sheet as well as our projections for second quarter and then finally we will close with Q&A.

First quarter 2014 net sales totaled $799.3 million. That's up 8% over the first quarter last year on both on an as-reported and a constant-currency basis. Currency impact for the quarter was unfavorable by about 10 basis points. The quarterly royalty payment from Gore, which is included in revenue for the first time this quarter, was $37.6 million, which was an increase of 4% over the payment made to the court a year ago.

The net impact from acquisitions less the EP divestiture was a benefit of about 40 basis points to revenue in first quarter. Net income for the first quarter was $148.4 million and diluted earnings per share were $1.86, that's up 64% and 72% respectively.

Excluding certain items that affected the comparability results between periods which Chris will cover later Q1 net income was $134.9 million, up 12% and diluted adjusted earnings per share, which excludes amortization were $1.91, that's up 19%. This was above our expectations mostly due to the stronger revenue and represents a good start to what is an important year of execution for us.

Looking at revenue growth geographically compared to the same quarter in 2013; first quarter net sales in the U.S. grew 11% compared to a year ago. Excluding the royalty payment which is reported entirely in the U.S., U.S. sales were up 3%. On a constant currency basis in Europe, we were up 3%, Japan was down 3% and our other international businesses were up 6%.

We told you that divested EP sales had a higher mix in emerging markets than our newly acquired sales. While our emerging markets grew a healthy double-digits organically again this quarter they now represented about 7% of total sales in Q1 off this new baseline. As John Weiland takes you through the sales results you'll notice that each business performed well relative to the guidance ranges we provided for the full year.

The Vascular business benefitted from a higher than expected royalty payment from Gore. Remember that its royalty payments related to the product sales from the fourth quarter, which is typically their highest sales quarter of the year so you shouldn't extrapolate that level throughout 2014. We also saw a good initial performance from our 2013 acquisitions and we are pleased with the integration activities for each of those businesses. However, I would caution you against making any more of these results then a positive start to the New Year. We are sticking with our original guidance for 2014 as we believe our markets continue to experience uncertainty.

The organic sales growth in the U.S. was close to flat in Q1 and our investment plan is not expected to start delivering accelerated sales growth in emerging markets until later on this year. So we've got a lot of work in front of us to achieve the objectives of our strategic investment plan. I can assure you the entire organization is focused on executing on the things we can control to accelerate the long term growth profile of the portfolio.

So with that let me turn you over to John Weiland for a review of the product line revenue.

John H. Weiland

Thanks, Tim. Good afternoon everyone. Before I start let me point out that I'll be giving all percentage growth data in comparison to the prior year period on a constant currency basis, unless noted otherwise.

We'll begin with Vascular. Total net sales were $219.2 million, up 8% from last year on both a constant currency basis and an as reported basis. Excluding the royalty payment from Gore and the impact from the divestiture of EP total Vascular sales were flat in Q1 with the United States business down 4% and internationally sales were up 5%.

Sales in our surgical graft category were down 1% this quarter. Excluding the royalty payment our Endovascular business was flat in the first quarter. Within Endovascular our biopsy products were up 5% driven by strength internationally. Sales in our peripheral PTA line increased 7% in Q1 with healthy double-digit growth outside of the United States driven by sales of our Lutonix drug-coated balloon.

Our vena cava filter line grew 5% in Q1. We told you that we expected continued significant price headwinds in our stent business and those sales declined 11% in the first quarter compared to the prior year. We expect to see this trend of significant price pressure here to continue.

Let’s now move to urology, total net sales were $201.4 million, up 7% versus Q1 of last year on both a constant currency and an as-reported basis. The United States business was up 5% and internationally we grew 12%. This growth was driven by a good quarter from the products acquired from the Rochester Medical. Without these products our global urology sales would have been flat in Q1. These products are spread throughout the urology category. Sales of vitamin and self-catheters are recorded in basic drainage. Male external catheters are recorded in continence and the fees collected from operating the dispense appliance contract in the UK are recorded in neurological specialties.

The third party sales sold through the DAC as well as other ancillary non-focused products are reported in our other category which of course are not included in the Urological sub totals. Our basic drainage business was up 7% in Q1 with about 500 basis points of growth from the acquired products. Our I.C. Foleys was flat globally and down 3% in the United States. Our continence business was up 25% in Q1, driven by the new male external catheter sales.

Our legacy continence product lines declined 14% this quarter within the range of recent experience. Sales in neurological specialties were up 6% in Q1 with our brachytherapy business down 8%. We are seeing continued growth in our targeted temperature management products and we remained encouraged by the long term prospects here. And finally standalone sales of our StatLock catheter stabilization line decreased 4% in Q1.

So next let’s move to Oncology. Total net sales in this category were $219 million, an increase of 6% over Q1 last year on both a constant currency and as-reported basis. Geographically net sales in the United Sales were up 5% and international sales were up 11%. Our port business grew over Q1 of last year and our PICC revenue was up 11%. The performance of our PICC business has really been outstanding for us over multiple years.

Even during the very challenging market conditions of the last five years our PICC revenue in first quarter 2014 was up over 50% compared to Q1, 2009 essentially all organic. Our team has done a nice job addressing unmet needs here and we're just getting started on what we think is a significant long term outside of the United States opportunity. And to close out the category our Vascular Access ultrasound product line was down 5% this quarter and our dialysis catheter product line was up 8%.

So let’s finish up with Surgical Specialties. Total net sales in this category were a $135.2 million, up 13% on a constant currency basis and 12% on a reported basis. U.S. sales were up 10% and international sales grew 20% in the quarter. About 1,000 basis points of the global growth was due to the sales of Arista acquired in Q4, 2013. We are very pleased with the formation and early success of our biosurgery business which has more than doubled compared to Q1 a year ago.

Our soft-tissue repair business grew 3% this quarter. Within soft tissue our synthetic hernia business grew double digits again this quarter while biologics were down 12%. We have the broadest portfolio in hernia repair across all types of products with an especially synthetic portfolio. We are working with physicians to identify the right product for the right patient and provide a full range of options to them. To the extent biologic devices remain under pressure in favor of synthetic or hybrid products we believe we're well positioned to address the needs of the market.

Our hernia fixation line declined 12% this quarter as we projected continued declines here and our performance irrigation line was down 6%. This concludes our product line revenue discussion. I will now turn you over to John DeFord.

John A. DeFord

Thanks John and good afternoon everyone. The first quarter of 2014 has certainly been very active but with our Analyst Day only a few weeks from now I'll just focus on some highlights today. I will start with our drug-coated balloon program. As I am sure all of you did we saw the impressive results presented by Medtronic at the Charring Cross.

At this point we know they have a stronger headline than we do as their 12 months results were better than our six month results and nobody should expect our primary patency, our Freedom from TLR numbers to increase from six to 12 months. We also know that our study design was more rigorous than theirs in reducing bias as LEVANT 2 blinded the physicians to both the duplex results and the treatment arm on follow-up.

We don't believe it's possible to fairly compare their results to ours without having a greater level of detail that typically comes out through the FDA process, which is likely months away for them. The key will be how closely their study populations represents the PAD patients that doctors see every day, what was the impact of bias and what is the comparable durability of results overtime. At the end of the day we believe both products will be effective in treating PAD without leaving a permanent implant behind. And doctors will choose the device they feel most comfortable with considering multiple factors, including the credibility of the evidence, the safety profile and the delivery and handling of the device.

But before we get there we both need to get through FDA, which is our immediate priority and a step we're not taking for granted. Our PMA for SFA in popliteal indications was submitted in November and is under interactive review with FDA. FDA has published the circulatory systems' panel date of June 12 and we're tentatively targeted for that meeting. However I caution you that this is still subject to change. Also the outcome or timing of FDA's decision is not in our control, but at this point we believe we're on track to hit our original target of an early 2015 launch.

In regards to the potential publication, LEVANT 2 investigators completed a draft to the manuscript several months ago. However FDA requested changes in the statistical analysis and the authors felt was best to wait until there was agreement on all key analyses. This caused the investigators to delay their submission. However it has been submitted and is under review. Again this process is not within our control, but if accepted we believe it's reasonable that the publication could come out in the coming months.

Beyond LEVANT 2 and its continued access registry, our LEVANT 2 Japan study is also rapidly enrolling and we continue to anticipate completing enrollment around mid-year. In our Below the Knee study we have most of the sites up and enrolling and we are making reasonable progress. They were bit slower than we had hoped. This study is in a much sicker patient population as we're treating critical limb ischemia, not claudicants. At this time we anticipate enrollment to continue well into 2015.

We also recently commenced enrollment in the U.S. IDE study for the treatment of SFA in proximal popliteal instent-restenosis. This randomized controlled study is slated to enroll about a 150 patients. And finally we're on track for the European launch of our Coronary DCB products later in Q2.

Moving to some of our other vascular developments on our last call we told you about our PMA filing for the Fluency Plus family for the AV Access Instent Restenosis indication. Launch is predicated on PMA approval currently estimated later this year. On our last call we told you about our new balloon expandable iliac stent graft program. Development and preclinical testing is going well and we remain on schedule for our IDE submission expected later this quarter and we anticipate our European launch in Q3.

Next within our urology business we launched our new SURESTEP Foley Tray in Q1 and anticipate the launch of our DIGNISHIELD with medicine delivery capabilities later this quarter. In our targeted temperature management portfolio we rolled out a new software configuration in Q1 and we're progressing well in our development efforts to further tailor the technology for using neonates and pediatric patients.

We continue to anticipate the start of studies of these new pads in Japan in the back half of the 2014. Finally we have a number of new endo-urology product initiatives underway including a new guide wire that we anticipate launching in early Q3.

Moving to oncology in Q1 we began the rollout of our new Site-Rite Vision II ultrasound platform. Vision II is our new high-end ultrasound system with full color Doppler and broad imaging capabilities. The Vision II includes an integrated Sherlock 3CG system with a large screen that allows the user to monitor catheter advancements and take confirmation simultaneously.

We plan to launch our freehand stereotactic system for vascular access, now called Pinpoint GT in Q3. This technology is designed to improve the success of first-attempt needlestick access across multiple clinical applications and is backwards compatible to the installed base of Site-Rite Six and Vision I products.

Next I am really excited to tell you of the launch earlier this month of our new Sherlock 3CG Diamond product. We kept this new 3CG enhancement in stealth mode over the last couple of years to keep the competition in the dark. Diamond utilizes a proprietary signal processing technology to identify the P-wave for the clinician and along with the P-wave displays a green diamond on the screen upon reaching the desired catheter tip location. The Diamond will be available for upgrade for all our existing 3CG users around the world. We believe this new technology will further simplify the training and use of this popular product and remove some of the barriers that may have existed due to the scale or training required to interpret an ECG.

In PICC we are tracking toward regulatory filings in 2014 for both an antimicrobial PICC family and a broad thrombo-resistant PICC offering. Both are slated to launch upon FDA clearance, now estimated in the first half of 2015. We also continue to make steady progress on our second stealth PICC platform that we believe will be the foundation for several new product families. We anticipate launching our first product early next year. But for competitive reasons we're going to hold back further details at this point.

Moving to our PowerGlide Midline Catheter family, on the last call we told of our plans to launch 18 and 22 gauge devices. I am pleased to report that both are rolling out now and will expand the utilization of this important and successful platform. Our simplified insertion technique and all-in-one design has already made this product family a popular alternative to PIVs for patients who need venous access for up to 29 days, but don't require central access.

I'll close today with surgery, our biologics franchise is focused on two key technologies. First we anticipate launching additional sizes of our XENMATRIX porcine graft family later this quarter upon FDA clearance. These new sizes round out our XENMATRIX offering and should enable us to better serve the demands of our customers.

Second, we mentioned previously our activity on a new antibiotic-coated XENMATRIX product family. This first of a kind product will utilize our proprietary coating which is intended to preserve the integrity of the biologic graph and abdominal wall reconstruction procedures. The coating has demonstrated broad spectrum safety and efficacy against several typically encountered bacteria. The product is under FDA review and based on our experience across the company with combination products we're reluctant to estimate launch timing until we've had more feedback from the FDA.

Moving to our BioSurgery product family which includes Progel, Arista AH and Avitene we're pleased to communicate progress on several programs. First in our Progel sealant family, we completed enrollment in the video-assisted and robot-assisted thoracic surgery study in Q1 and we anticipate completing all follow up and monitoring visits this quarter. We expect to file our PMA for this new indication in Q3 with launch upon approval currently estimated in Q2 of next year.

Next we continue to actively enroll patients in our vascular sealant pivotal IDE study. This study should expand our indications beyond thoracic surgery to include vascular applications of Progel. We expect enrollment to continue through 2014 with patient follow up into early next year. Current plans anticipate our PMA submission in the second half of 2015 and launch following approvals likely in the back half of 2016. We are also working on additional expansion of this platform technology along with the new hemostasis platform that I’ll hold the details until we near our next IDE submission.

In mesh fixation we are continuing to advance on three products. The first is the spring-loaded resorbable tech device named OPTIFIX, which remains on track for its expected launch in the first half of 2015. This is a highly competitive space so I am going to hold further details on the other projects until we get closer to launch.

With the breadth of our portfolio although it seems like I’ve been a talking a while I’ve only really been able to hit a few of the highlights today. We’ve got some exciting technologies we are leveraging in to new products and I look forward to sharing more information in June.

So before I turn you over to Christ I’d like to again extend to you an invitation to our annual analyst meeting. This meeting will be at the New York Palace Hotel on June beginning at 4:30 PM. For those that can attend in person the meeting will be available by webcast. Thanks for your attention now here is Chris.

Christopher S. Holland

Thanks, John. Let me start by covering certain items that affect the comparability of our result between periods. We had acquisition-related items of $3.1 million pretax, a pretax gain on the sale of an investment of $7.1 million and reversal of tax accruals of $10.9 million related to the completion of IRS examinations for the year 2008 through 2010. The P&L impact of these items is detailed in the notes to the financial statements and in the reconciliation accompanying our Q1 earnings press release.

Now let’s go through the statement of income for the quarter. Gross profit was $489.8 million or 61.3% of sales for Q1. On an adjusted basis GP was $490.4 million or 61.4% of sales, up 100 basis points from the prior year quarter. This was a little ahead of our expectations and reflects a solid start to the year. The benefit from the Gore royalties was a 190 basis points in the quarter and our cost improvements drove a 130 basis points of improvement. This metric can be lumpy and for the full year we still expect to deliver cost improvements in line with our original guidance.

New amortization of intangibles related to transactions closed in the last 12 months cost us about 80 basis points year-over-year this quarter, and FX was a headwind of about 50 basis points in Q1 in GP due primarily to the cost of our hedging contracts. Pricing pressure was unfavorable by 120 basis points on the revenue line and about 40 basis points in GP this quarter in line with our expectations. The impact from mix which I will remind you includes the temporary headwinds of the EP divestiture and the initial lower GPs from the Rochester products was about 50 basis points of headwinds in Q1. As we look to Q2 we expect gross margins to be at a similar level to the prior year second quarter.

SG&A expenses were $236.8 million for the quarter or 29.6% of sales, an increase of $0.40 on both the reported and adjusted basis. We expect Q2 to be at a similar percentage. We are on track with our annual guidance of improvement for the full year as SG&A expenses increased over the force of 2013 and we expect improving P&L leverage as we move through 2014.

R&D expenditures totaled $64.3 million for the first quarter or 8% of sales on both a reported and adjusted basis, the same percentage as Q1 a year ago but on 8% higher sales. We expect R&D expense in Q2 to be over 8% of sales consistent with our full year guidance and our investment plan.

Interest expense was $11.1 million for the first quarter. Other income and expense was $6 million of income for the first quarter as reported and $900,000 of income on an adjusted basis. The effective tax rate for the quarter was 19.2% on a reported basis and 24.9% on an adjusted basis as the mix of income came in somewhat stronger in higher tax jurisdictions like the royalty payment in the U.S. for example. I'll remind you that our full year guidance assumes the removal of the R&D tax credit but that will not be included in the reported number until it is renewed.

Diluted shares for the period were $78.5 million as we repurchased 1.8 million shares in the first quarter. Our commitment to return half of the after tax proceeds of the Gore bolus to shareholders through repurchases has now been fulfilled and we had roughly $300 million left on our existing repurchase authorization at March 31. The net results is adjusted EPS of $1.91 a share which was above our expectations for the quarter as Tim said.

The balance sheet as of March 31 reflects cash, restricted cash and short-term investments of approximately $1 billion versus $1.1 billion at December 31. For the quarter, accounts receivable days were down 3.5 days and inventory days were up 1.1 days. Capital expenditures totaled $22.7 million for the quarter. On the liability side total debt was $1.4 billion as of March 31, no change from December 31st.

Debt-to-total cap at the end of the first quarter was about 41% and total shareholder investment was $2.1 billion at March 31, 2014. In looking at Q2 we're expecting constant currency sales growth between 6% and 8%. From an adjusted EPS standpoint excluding items affecting comparability we see the second quarter in the range of $1.98 to $2.02 per share, consistent with our expectation of improvement as we move through the year.

We remained focused on delivering adjusted EPS between $8.20 and $8.30 for the full year. And with that I will hand the call back to Tim.

Timothy M. Ring

Yeah, thanks Chris. That does conclude the presentation. I'll now return the call back over to moderator to facilitate Q&A and I would ask to accommodate the number of investors on the call we would request you limit yourself to one question only.

Question-and-Answer Session

Operator

Ladies and gentlemen we will now begin the question-and-answer session. (Operator Instructions). And our first question does come from Mike Weinstein from JPMorgan. Please go ahead.

Michael N. Weinstein - JP Morgan Chase and Company

Thank you. Maybe I can start with John Deford. John I wanted to maybe ask you a couple of quick questions on Lutonix. First, just a commentary about the submission and the FDA requesting changes in its analysis and when you -- when the offers were submitted, could you just talk a bit about that request? And then second, I know that there was a registry that was being done post the initial randomization period. Will that registry be presented at the FDA panel on the 12th and I'd assume that will be the first time we'll see it? Thanks.

John A. DeFord

Sure, so Mike two things, one, the statistical analysis, our original plan we thought was more conservative and it turned out to be more conservative than what FDA wanted. So they came back and suggested a different analysis for one of our primary endpoints. It's not a big deal. It didn't change our number materially but it did change them a little bit. And so of course we informed the authors of this change FDA had suggested and they felt that it didn't make sense to have two sets of numbers out into the public. So they held back until all of those analysis were completed and FDA was comfortable with it and then they submitted.

The registry data was the additional 657 patients. We will anticipate presenting a significant amount of that, especially from a safety perspective which was the idea behind the additional registry that FDA had asked for. So we would expect that, that information would be presented at panel.

Michael N. Weinstein - JP Morgan Chase and Company

Okay and Tim just one bigger picture question on just on the growth acceleration story? The first quarter looks like it is pretty similar to the fourth quarter, it's like -- growth of about 2.5%, the acquisitions will be doing well but those don't get into the numbers, the new guidance for the second quarter implies somewhat similar range. So is it your expectation that as we go into the back half of the year that we could see some pick-up in the top line before we get to Lutonix and some of the other new products you will be talking about in 2015?

Timothy M. Ring

Yeah, I think I’ll even mentioned a word I said anyway that we would expect some of the investments in the emerging markets to pick up towards the end of the year and you should start to see that.

Michael N. Weinstein - JP Morgan Chase and Company

Okay all right well I’ll circle in let others ask some questions I’ll jump in later thanks.

Operator

Thank you. Our next question comes from Brooks West from Piper Jaffray. Please go ahead.

Brooks E. West - Piper Jaffray Companies

Hi guys, thanks for taking the question. John DeFord I want to circle back again on your comments on expectations around Lutonix. I want to make sure that I understand that correctly. Did you say that nobody should expect an increase in TLR rates or primary patency from 6 to 12 months and I want to think about that in terms of the benefits or the control to make sure that we all understand kind of what you are guiding us to there in terms of the data that we are going to see?

John A. DeFord

So what I said was you wouldn’t expect to see an increase in primary patency rights over our six month numbers nor would you expect to see an increase in freedom from TLR over our six months number. So the 12 months result you would expect would be less in both instances than the six month.

Brooks E. West - Piper Jaffray Companies

Okay and so obviously we are all concerned about those TLR lines that appear to be coming together at six months. Is there any read through from your commentary in terms of what that might look like at 12 months?

John A. DeFord

I wasn't intending to give you a read through; at this stage we are trying to maintain at the request of the authors the details of the twelve month data. But if that June 12 date holds you should see their publication or the June 12 date the information will be out there.

Brooks E. West - Piper Jaffray Companies

Okay, fair enough I’ll stick to the one question request and jump back in line.

John A. DeFord

Thanks Brooks.

Operator

And next I have the question of Robert Hopkins from Bank of America. Please go ahead.

Robert A. Hopkins - BofA Merrill Lynch

Hi, thanks. Can you hear me okay?

Timothy M. Ring

Yeah, we can.

Robert A. Hopkins - BofA Merrill Lynch

Hey so I just wanted to follow up on that. John is there any message here on whether or not the TLR curves are separating at 12 months? I mean obviously they didn’t at six or is that now what you are intending to communicate here. I am just -- the key question for us is did those TLR curves separate in a significant way at one year or any other time frame. Are you making a comment on whether or not those curves are separating or no?

John A. DeFord

No, I really wasn’t intending to make a comment on it; I was just trying to put our numbers in perspective based on what Medtronic presented.

Robert A. Hopkins - BofA Merrill Lynch

Okay. So no comment here on capital market separation or not.

John A. DeFord

No.

Robert A. Hopkins - BofA Merrill Lynch

Okay. And then back on the submission, I was wondering if you could maybe just walk us through a time line of things that have gone on since the one year follow up was completed, because that completed in July of 2013 if I recollect correctly. Just sort of what’s gone on between that time and today and I understand you submitted, but any further color on the statistical change and just walk us through the timeline events. Because you know nine months is quite a long period of time and I am just want to make sure I have an understanding of why it's taken this long and what’s going on and just a little more color on this statistical analysis that you commented on.

John A. DeFord

Okay. So from the timeline perspective the last patient received their follow up visit, well it was technically August before they would have completed their final 30 day window. And so then we had had monitoring visits and all of that closed out, and so it really wasn’t until the early November time frame that you could say we had all of the data together and as we said we submitted the PMA module the clinical module at the end of November.

So that was the kind of time frame that the authors began working on a manuscript. As I said they had completed that manuscript several months ago and then during FDA’s review they came back and said well we really think you are overly conservative in the way you had pre-specified one of your analysis and we think it's more appropriate to do it in a different way.

So we immediately of course informed the authors and our understanding was that they were literally days away from pressing the send button for submission. So they decided to hold off and again once that was complete then they changed the minor changes that were associated with those numbers and then submitted.

So in the meantime there has been a lot of activity, obviously back and forth with FDA. So it may seem like a long time for us. It seems like it's been pretty short from November when we handed the data over an access to the data really because an outside statistical group did analysis for the authors. By the time we handed that over to them it was late November.

Robert A. Hopkins - BofA Merrill Lynch

Okay, that's helpful. Thank you. I'll leave it at that.

Operator

We have a question from Dave Turkaly, JMP Securities. Please go ahead.

David L. Turkaly - JMP Securities LLC

Thanks, I guess you reiterated the guidance for the year I was just curious as we look at the submission and everything you talk about returning some like $100 million in 2015 still a best guess at this point?

Christopher S. Holland

Well I think what we've said is that we felt that the market would be $100 million in the first year relative to the opportunity to the extent there are multiple competitors in the market at first year to the extent that the market doesn't increase by having multiple players in the market I would presume that, a portion of that would be shared between the competitors.

That was our view of the market and our view was that first year we would be the only one on the market which is where the $100 million came from.

David L. Turkaly - JMP Securities LLC

Thanks a lot.

Operator

And the next question is from Mathew Dodds from Citigroup. Please go ahead.

Matthew J. Dodds - Citigroup

Hey good afternoon. Just quickly on the cost side Chris 130 basis points in gross margin, is that across the board or is there any division that's benefiting more in that increase.

Christopher S. Holland

It's really across the board Matt, I mean we've done a lot of consolidating of our manufacturing footprint over time and so there is -- we have sort of eight or nine very large plans that are manufacturing across divisions in many cases. So I would not look to any particular divisions being impacted more than others.

Matthew J. Dodds - Citigroup

The quick one for John Weiland the stent grafts they are down 11%, is that mostly price, do you think it was in share or the volume slowed in that market?

John H. Weiland

It's mostly price but we did see a little volume in reduction as well this quarter. Up to this quarter was almost entirely priced but we saw a little bit of it both into this quarter.

Matthew J. Dodds - Citigroup

Thanks John, thanks Chris.

Operator

And we have a question from Matthew O'Brien with William Blair. Please go ahead.

Matthew O'Brien - William Blair & Company L.L.C.

Good evening, thanks for taking the question. Just curious when I look through the entire portfolio, the performance in the newly acquired areas is quite strong but then in the other segments within a lot of your businesses it seems fairly weak. Is that just a function of somewhat distracted sales force at this point as they get up to curve on the newer products and then when do you think their focus may shift back to some of the more legacy type products?

John H. Weiland

Matt, this is John, I wouldn't agree with the premise, in fact if you look at some of our legacy products like PICCs where we had 11% growth in the quarter, that was an extremely strong quarter for us, ports were very strong. I would say there probably was a little bit more pressure in the vascular business obviously than in the other businesses. And neurology was a little weaker than what we had seen through a couple of running quarters last year but I don't agree with the premise that the legacy products are suffering.

The United States business as we mentioned, we did not see a lot of organic growth in the United States business but I don't think that's anything to do with sales force distractions at all.

Matthew O'Brien - William Blair & Company L.L.C.

Okay, can I just take in one more quick one with the new 3CG product I think uptick there has been pretty good. We haven't gotten a lot of detail recently. But I think historically you had said you expected that part to be kind of a home run for Bard. I mean do you think this is the new feature set that you need to really accelerate uptick of that going forward or is this more of an incremental addition.

Christopher S. Holland

No, I think as we've said we've been delighted with the uptick in our 3CG product and as I've said before I think we're only in the fifth inning in the United States in terms of the growth potential for that with really the whole ex-U.S. opportunity still in front of us to take advantage of. We think this is -- allows it to be even simplified further for clinicians, reduces the amount of training potentially necessary and we think provides another opportunity within that whole line for us.

Matthew O'Brien - William Blair & Company L.L.C.

Fair enough, thank you.

Timothy M. Ring

Sure.

Operator

And we have a question from Kristen Stewart from Deutsche Bank. Please go ahead.

Kristen M. Stewart - Deutsche Bank AG

Hi, thanks for taking the question. I just want to go back to the Lutonix question just on the outlook and make sure I understood it correctly. So the $100 million that you guys have been saying that was your goal for 2015 was more of a view of the market and that you felt Medtronic was unable to get in during calendar year 2015, is that correct?

Christopher S. Holland

That's right.

Kristen M. Stewart - Deutsche Bank AG

Okay. And then I guess given and the June 12 date that is just goal or has the FDA communicated to you that that's good panel meeting that you should expect to have that?

Timothy M. Ring

So at this time FDA has publically notified that there is a -- they are holding that date as a panel. They have informed us that their expectation is that we would go to panel on that date. Now that said, it could change and has been known to change in the past and it's typically a month before or so sort of in the May 12 time frame that they solidify and say, yes, we're going to convene a panel. And they'll announce at that point publically that it would be Bard that would be involved with that panel, the Lutonix product.

They have informed us that, that's the date right now and we've gotten some questions about it, because some people have noticed that FDA updated their website to list that date for the cardiovascular group and we wanted to make sure that we were clear today that at least right now, we've been notified by FDA that, that is there expectation, we'll go to panel on that date, but it could change.

Kristen M. Stewart - Deutsche Bank AG

Okay, and then I guess just thinking about -- I guess now the competitive landscape you did mention Medtronics data is looking pretty strong and I guess can you offer I guess some insights in terms of I guess A, whether or not it's your expectations that Medtronics may be able to go to a panel at the same time as you and then assuming that they are in the market, at least their communicated timeline at this stage is mid-2015. What sort of market share I guess would you expect to have and how has that changed relative to seeing the data earlier this month?

John H. Weiland

Let me answer a piece of that and then I'll let Tim or John to answer the other piece. So Medtronic publically stated that they anticipated submitting their final modules by the end of May. So I think it's physically impossible for them to submit in May and go to panel two weeks later. FDA wouldn't have had the time to review that. So I think as far as the panel goes, we wouldn't expect them to be at the June 12 panel date as a presenter. As far as market share and those things go, I will defer to Tim or John.

Timothy M. Ring

Yeah, I think that what's important here is that this is a new technology for a very important patient unmet need right now. And I think what we've seen by at least preliminary results is both products seem to work. So I view that as a way kind of a rising tide and I think it will make them, hopefully make the market certainly aware, more awareness and potentially increase the growth rate of the market faster. So that's the way I would look at that.

Relative to share, that's very difficult to project in the U.S. All I can tell you is what we've seen in Europe and we've been making good progress relative to market share within Europe. So that's the only data point we really have for that comparison at this point.

Kristen M. Stewart - Deutsche Bank AG

And where would you estimate your market share to be today in Europe or maybe in just the markets in which the product has been launched?

Timothy M. Ring

I think the market right now is estimated to be in the $50 million to $70 million range, $50 million to $60 million range there. We're not the market leader there, but we're making very good progress in even our quarter-over-quarter growth rates so…

Kristen M. Stewart - Deutsche Bank AG

Okay, thanks very much. I will get back in queue.

Operator

Thank you. And we have a question from Matthew Taylor with Barclays. Please go ahead.

Matthew Taylor - Barclays Capital

Hi, thanks for taking the question. I guess just related to the data seems that's really the kind of focus here. Can you talk about your view of the Medtronic results and what points of the LEVANT 2 trials aside from I guess blinding you think are key to highlight in terms of the differences that could drive results going into your presentation?

John A. DeFord

Well it's certainly difficult to talk a great length. We certainly saw their results at Charring Cross. It's really hard to compare directly the two studies because they are very different, the blinding was very different, pre-dilation was required in prior their study and not others.

The end points are a little bit different as far as the way they define safety, the lesions were a little different. We treated the full popliteal, they treated SFA and proximal popliteal. So we have P2 and P3 patients in our study so again there is just a lot of differences with some similarities of course as well.

Matthew Taylor - Barclays Capital

Do you expect the PMA results to have a big impact in Europe in the near term, have you seen anything since that data was published?

John A. DeFord

It's -- there's only a few weeks have gone by since that and we have not seen anything really.

Matthew Taylor - Barclays Capital

Okay, thanks a lot.

Operator

Thank you. (Operator Instructions). Our next question comes from Rich Newitter from Leerink Partners. Please go ahead.

Rich Newitter - Leerink Partners.

Thank you very much and thanks for taking the question. Just on Lutonix, on the last question I think may be just ask a different way and the read through to the U.S. as you kind of had discussions with customers post the Medtronic data being shown, can you tell us how you are positioning or talking to your customers to highlight the advantages of Lutonix to may be preempt any potential kind of market share shifts away in Europe and then may be that -- use that as a proxy for how you think you will position your product once you are in the U.S. and talk about it relative to Medtronic if the data looks better for Medtronic?

Timothy M. Ring

Yeah I will start -- this is Tim and I'll turn it over to John. Unless maybe there is a predicate for how doctors will look at this thing day-to-day, we've had doctors that have treated patients because again this isn't one treatment kind of modality and the patient doesn't come back. This is a progressive disease and many times same patient is seen over and over the same doctor. So we've had doctors that, customers of ours that have treated patients differently, started using Lutonix and the patient haven't come back at anyway near the same frequency that they came back prior to being treated with Lutonix product.

They like the product, they like the way it performs. There is a lot of physician preference relative to delivery, the amount of drug, what happens when you open the package, et cetera, et cetera. So there is lot of personal preference there in the extent that clinically the patients don't come back, certainly at the same rate they coming back prior to being treated with Lutonix and clinicians are very pleased with that. So that's kid of the anecdotal feedback that we are getting.

John A. DeFord

So I think the other piece of this to keep in mind is that Medtronic had this technology in the European market for six or seven years now. They have a number of other studies that have been published and presented. Most of them were smaller, randomized or registry studies. I have to say when you put it in the perspective that this study will actually be any of the registry studies that they've put out so far as far as results go.

But again this isn't new news to European marketplace. They've had this product for many, many years and are certainly very familiar with the Medtronic technology. And they've had the Lutonix product for less time, just a year and half or so. So I think it's something that should that's not a big surprise and when we had the limited interaction I've had with European physicians they are quite familiar with the products.

Timothy M. Ring

Cici anymore questions?

Operator

Yes we have a question from David Roman from Goldman Sachs. Please go ahead.

David H. Roman - Goldman Sachs

Hi, good evening. Sorry about that. I want just a quick question on emerging market because that was an area you highlighted for and that could drive an acceleration top line growth before we start to see an impact from some of the pipeline in the 2015 plus time frame. May be you just give us a little bit more of the detail update on how your efforts progressing in those markets and what gives you the confidence that there can be a sufficient schedule at the total top line come in the back half of this year?

John H. Weiland

Well you may recall David, this is John Weiland, you may recall that last year we added 203 people to the emerging market portfolio that are selling those products in those markets that we thought had a biggest potential. It normally takes a sales rep a little while to get up to speed both in terms of proficiency on selling products and the clinical benefits of those as well as understanding within your territories where the largest potentials are. We added those throughout the year last year, heavily focused on the back half of 2013.

So we would think that they will be in a position near the latter part of this year to be able to contribute to our results from a revenue standpoint.

David H. Roman - Goldman Sachs

Okay, that’s helpful. May be just quick one on capital allocation. I understand that the prepared remarks that you talked about having completed the condiment you give 50% of the Gore after tax proceed back to shareholders but I think you had your $300 million left in the buyback. But maybe you could just talk about your thoughts around capital allocation from here, I mean last year you did you’ve done some pretty significant the past couple of years.

So we think about 2014 as sort of gestation period for some of those transactions and have a more stable capital allocation or do you think we would see another year of heavy M&A activity balance in summer additional returns to shareholders?

John H. Weiland

I think David It depends on whether or not we can find the right opportunities. And we are certainly every day we are looking to find them we haven’t change the way or the amount of efforts focused on M&A in ’14 versus ’13 because we did three transactions last year. So it’s purely based on us finding the right opportunities that makes strategic and financial sense for us. If we find them and we can make them happen we’ll make them happen. Putting that aside we’ll continue to be active in returning cash to shareholders subject to the M&A volume. So the priority is strategic. The second priority is share repurchases and the third priority is dividends and that hasn’t changed and the quantum’s that go in each of those buckets are really purely based on the amount of strategic opportunities that we can execute on.

David H. Roman - Goldman Sachs

Okay, thank you.

John H. Weiland

Sure.

Operator

And the next question comes from David Lewis from Morgan Stanley. Please go ahead.

David R. Lewis - Morgan Stanley

Hi thanks excuse me and just one quick on back on the clinical side on DCP may be for John DeFord. And John you mentioned that the change here was the FDA wanted to take a more conservative path to the statistical analysis on our primary endpoint. Any sense what drove their decision there and was there any effort by the agency to try to find a way of more accurately comparing your data set to Medtronic’s data set?

John A. DeFord

Well so I think you’ve got that backward. We actually our original analysis was more conservative than what FDA wanted ultimately. So we ended up having a much more conservative route initially and then did change the analysis as FDA requested.

Now as far as Medtronic goes I really can’t speculate I don’t have any idea whether FDA has -- I mean to best of our knowledge based on what Medtronic said publically I don’t believe FDA has had access to their results yet. So we certainly haven’t had questions trying to compare our results to theirs.

David R. Lewis - Morgan Stanley

Okay. Thank you very much.

John A. DeFord

Sure.

Operator

Thank you and our last question will come from Anthony Petrone from Jefferies Group. Please go ahead.

Anthony Petrone - Jefferies Group

All right, thanks. A follow up on the LEVANT 2 may be to ask you in another way. The changes the FDA requested that you make to LEVANT 2, does that make study more comparable to other drug-coated balloon studies or would you still clarify it as still being scientifically more bigger. And just follow-up on the coronary launch in Europe?

John A. DeFord

Yeah. It was a tiny, tiny change. It doesn’t change anyway that you would compare the results. It was one time point in the analysis that we thought more conservatively you would not include, FDA suggested we include it. As far as the coronary fees goes, as I said we anticipate launching the coronary products in Europe in this quarter.

Anthony Petrone - Jefferies Group

Yeah, and just a follow up there is it de novo lesions or instant restenosis and maybe give an update on how large you think those markets are and to what extent that’s baked into 2014 guidance? Thanks.

Timothy M. Ring

Our indications in Europe are for coronary access so you would expect primary use in de novo lesions but some used in instant restenosis.

John A. DeFord

Yeah and certainly our expectations is that opportunity which are not significant at this point are reflected in our guidance for the year.

Operator

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

Timothy M. Ring

Great, thanks Lucy. I’d like to take this opportunity to thank all of you for joining us for the call good afternoon and also to take the opportunity to thank Bard employees around the world for a very positive start to the year. And we look forward to updating you on our progress at the end of this quarter. Thanks.

Operator

Ladies and gentlemen, this does conclude your conference for today. Thank you for your participation for using AT&T Executive Teleconference Services. You may now disconnect.

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