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CR Bard Inc. (NYSE:BCR)

Q3 2010 Earnings Call

October 21, 2010 5:00 pm ET

Executives

Timothy Ring - Chairman & CEO

John DeFord - SVP - Science, Technology and Clinical Affairs

John Weiland - President & COO

Todd Schermerhorn - SVP & CFO

Analysts

Rick Wise - Leerink Swann

Mike Weinstein - JPMorgan

Bob Hopkins - Bank of America

Lawrence Keusch - Morgan Keegan

Matthew Dodds - Citigroup

David Roman - Goldman Sachs

Ben Andrew - William Blair

Joanne Wuensch - BMO Capital Markets

Douglas Tsao - Barclays Capital

Paul Choi - Caris & Company

Robert Goldman - CL King

Jayson Bedford - Raymond James

Brooks West - Craig-Hallum Capital

Bruce Jackson - Morgan Joseph

Operator

Ladies and gentlemen, thank you for standing by and welcome to the CR Bard, Incorporated third quarter 2010 earnings results conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions). As a reminder, this conference call is being recorded and will be available for future on-demand replay through the Bard website.

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

Today, Bard's management will discuss some forward-looking statements, the accuracy of which are necessarily subject to risks and uncertainties. Please refer to the cautionary statement regarding forward-looking information in Bard's June 30, 2010 10-Q, and the information under the caption Risk Factors and the company’s 2009 10-K and second quarter 10-Q, including disclosure of the factors that could cause actual results to differ materially from those expressed or implied.

During the call, references will be made to certain non-GAAP measures, which management believes provide an additional and meaningful assessment of the core operating performance of the company’s and its individual product franchises.

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

All information that is not historical is given only as of October 21, 2010, and the company undertakes no responsibility to update any information. Unless otherwise noted, all comparisons are to the prior year period.

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

Timothy Ring

Thanks Laurie. I’d like to welcome everybody to Bard’s third quarter 2010 earnings call. I thank all of you for taking the time to join us today. I would expect the presentation portion of the call to last about 35 minutes.

The discussion today will go as follows: I’ll begin with an overview of the results for the third quarter of 2010: John Weiland, our President and COO, will review third quarter product line revenue; Todd Schermerhorn, our Senior VP and CFO will review the third quarter income statement and balance sheet as well as our expectations for the fourth quarter; John DeFord, our Senior VP of Science, Technology and Clinical Affairs, will provide you an update on our product development pipeline, then we'll close finally with our Q&A.

Third quarter 2010 net sales totaled $678.4 million, that’s up 6% over Q3 of last year on an as reported basis and 8% on a constant currency basis. The impact of currency for the quarter versus the same quarter last year was unfavorable by 140 basis points.

Net income for the quarter was a $127.5 million and diluted earnings per share were $1.34, excluding items that affected the comparability of results between the periods which Todd will cover later. Third quarter 2010 net income and diluted earnings per share were $135.9 million and $1.43, up 5% and 9% respectively.

Looking at revenue growth geographically compared to the same quarter last year on a constant currency basis, net sales in the US increased 8%. Europe was flat and Japan grew 20%. As we’ve discussed in the past the results in Japan reflect odd sales into our joint venture there and in Q3 a portion of the growth was driven by an inventory build, an advance of several new product launches. Further we are likely seeing some inventory rebalancing as our sales into the JV in the first half of the year were flat.

Our other international businesses grew 13% including 24% growth in our emerging markets. While certainly healthy, this growth doesn’t reflect two demands of a period as our timing on revenue growth was negatively impacted in the third quarter by the vertical integration of a distribution partner there.

On the business development front beyond the SenoRx deal, during the quarter we closed two additional transactions, one was a smaller deal for coating technology that we plan to use in our specialty vascular access products. The other was the acquisition of a unique early stage product called the EZ Huber Safety Winged Infusion Set which is used for accessing implanted ports. This deal comes with related IP and a small base of existing sales which represents a nice addition to our market leading line of port access devices.

Looking ahead, we have a number of potential deals in the pipeline across all of our four major businesses. Now before I turn you over to John Weiland for a review of the product line revenue. I'd like to extend all of you an invitation to our annual analyst meeting where we'll discuss our strategy and tactics for 2011 and beyond. We'll also review our new product pipeline and provide financial guidance for 2011. The meeting will be at the Waldorf Astoria in New York City on December 13th continuing at 4:30. And for those of you that can’t attend the meeting will be webcast.

Let me turn it over to John.

John Weiland

Good afternoon, everyone. Before I start, let me note that I will be giving all percentage growth there in comparison to prior year periods on a constant currency basis unless otherwise noted.

So let’s begin with Vascular. Growth in this category for the quarter was 13%, total net sales were $190.7 million up 10% over the last year on an as reported basis.

Our United States business was up 20% for the quarter, internationally we grew 4%. Our Electrophysiology sales were down 8% this quarter. After four quarters of very strong EP Lab Systems growth, sales in this line were down 37% versus Q3 of last year. We don’t regard this as a market signal necessarily since historically it’s not been unusual to see these types of quarterly fluctuations in the product line.

Growth in steerable diagnostic catheters was 9% this quarter which was offset by declines in other disposable EP devices. Sales in our surgical graft category were down 2% in the third quarter. Our endovascular business which represented 74% of our vascular category increased 22% in the third quarter. Within endovascular our biopsy products were up 47%. We closed the SenoRx deal on July 6th, so the addition of the oncore device for stereotactic x-ray guided biopsy and related tissue markers along with the contour brachytherapy balloon catheters added roughly $10 million to our growth here.

The integration of these product lines and sales activities have gone very well. During the quarter we began to rationalize the SenoRx distribution network in Europe which negatively impacted our sales for the period.

Looking at our base biopsy business, the continued success of our core needle products, Finesse vacuum-assisted biopsy device and tissue marker lines drove a double digit increase in our biopsy business excluding SenoRx.

Sales in our peripheral PTA line increased 47%. Growth this quarter was led by our new small vessel PTA offering. Over the last several quarters, we've launched the VascuTrak UltraVerse.014 and 018 and CROSSER products which address the small vessel segment along with the rival catheter and our standard (inaudible) offering. We believe we have been executing well in this space in both our breadth of line and the cadence of new product introductions. As a result, we are seeing solid growth across the board in our peripheral PTA franchise.

Sales in our vena cava filter line were down 10% in Q3 versus the prior year period. The FDA's recent initial communication title removing retrievable inferior vena cava filters sets puts pressure on the market. Physicians are being more selective about placing implanted filters and the market is showing the effects. Our stint business grew 6% again in the third quarter.

Within our bare metal stent line. LifeStent was up double digits for the 7th straight quarter on a global basis since we annualized the acquisition of the device. The addition of the CROSSER device to our bag is beginning to help drive incremental stent sales as physicians cross chronic total occlusions with the device and then frequently place a LifeStent to treat the underlying lesion. Further, the publication of the resilient trial in the journal circulation cardiovascular interventions is helping us broaden the audience for LifeStent with physicians that require clinical evidence to drive their treatment decisions.

Let’s now turn to Urology. Total net sales were $179.0 million up 2% versus Q3 of last year up 1% on a as reported basis. The United States business which represented 71% of the global Urology revenue was flat while internationally we were up 6%. The timing of US distributor shipments did not materially impact our results this quarter.

Our basic drainage business was up 4% in the third quarter with some of the benefit from the inventory rebound signature panned that Tim discussed. In the United States, basic drainage business was up 1% with IC always down 2%. The primary issue here continues to be reduced hospital patient volumes though as we noted on our last call, in the United States we're also seeing some pressure on Foley catheter utilization as part of a strategy to reduce urinary tract infections in hospitals. Overall, we continue to see stable market shares in Q3 but have yet to see any real signs of change in trajectory for this daily use product market.

Our continence business, which represent a 12% of our urological category was down 3% in the third quarter. Within continence, our DigniCare fecal management line was up over 31% in the third quarter. In Q4 the comps here start getting tougher, but as John DeFord will discuss, we plan to launch our next-generation DigniCare device before year end.

In slings we grew 12% this quarter, albeit against an easier comp. The adjust device continues to generate a lot of clinical interest. There were 10 clinical abstracts on adjust presented at the international continence site meeting in Toronto earlier this year. Follow-up ranged from three months to one year and all abstract showed strong clinical success defined as 85% to 90% cure with minimal complications. Overall, the devices unique characteristics for anchoring and adjustability are being well received.

Offsetting our performance in people management devices and slings, we continue to see a decline in our pelvic floor repair business. This in contrast with the success we are now having with our adjust sling is a good example of what technology leadership means in our dynamic competitive space.

Sales in urological specialties were down 9% versus the prior year quarter driven by a 20% decrease in brachytherapy. Our StatLock catheter stabilization line had a strong quarter with standalone sales of the product increasing 11%, including 25% growth outside of the United States.

Let's now review oncology. Total net sales in this category we $183.3 million, an increase of 7% over the third quarter last year on both the constant currency and an as reported basis. Net sales in the United States were up 6%. Outside the United States, sales were up 12%. Our outside the US performance was led by growth in our emerging markets.

Our port business was up 4% versus Q3 last year, and the United States we grew 4% which is around where we have been for the last few quarters. PICC revenue growth accelerated to 9% in Q3, driving this with some good sequential growth in Q2 on both the United States and our emerging markets.

In the United States we discussed the ongoing slowdown in the PICC unit market and the challenges in upselling in the current economy. Despite this, the value of the differentiated technology we offer is still driving customer upgrades though at a much lower rate than before the slowdown in the market. In Q3, the upgrades to our Sherlock tip tracking technology and Max Barrier Kits helped drive up our overall ASPs for PICCs.

Our vascular access ultrasound product line was up 20% this quarter. Growth accelerated here following the second quarter launch of our Site-Rite Vision System. With all the talk about hospital capital spending, it’s interesting to note that the capital component of this line grew 58% this quarter as a result of demand for disbursal of new product.

Our dialysis catheter business was up 10% in Q3. Our growth above market here continues to be driven by the success for our ecostream trialysis and spire catheters.

Let’s then conclude with our surgical specialities business. Local revenue growth in this category was 13% in the third quarter. Net sales were $104.6 million, up 12% on an as reported basis. The United States sales which represented 78% of our global surgical business increased 15%, while international sales were up 7%. Our soft tissue repair business grew 16% overall for the quarter.

Within soft tissue, our natural tissue products grew close to 90% despite a difficult comp. With our portfolio of allograft and xenograft implants we were able to meet the diverse needs of patients for complex abdominal wall repair and breast reconstruction following this (inaudible).

Our XenMatrix porcine patch launched in Q3 last year was up 19% sequentially in the United States from Q2 as clinicians continue to recognize its excellent strength and tissue in-growth characteristics for abdominal wall repairs.

Expanding our market opportunity we began selling AlloMax for breast reconstruction procedures in the third quarter last year. Our growing number of patients in the United States are choosing reconstructive surgery following breast cancer treatments and allografts such as AlloMax are (inaudible) procedures. AlloMax is the only such internally sterilized and virally inactivated product in the market today and it is gaining a loyal following with plastic surgeons performing these procedures.

We continue to do very well in this space with the US sales being up 40% sequentially over the second quarter. Moving to our synthetic hernia products, sales were down 2% versus the third quarter last year. Within this category we again saw growth in our inguinal and absorbable barrier ventral products. We anticipate getting our overall synthetic venture hernia line back into growth mode with a number of pending product launches in our pipeline. At the American College of Surgeons meeting earlier this month, we introduced our VENTRALIGHT ST which incorporates a lighter mesh and a separate film resorbable barrier for laparoscopic ventral hernia repairs.

We plan to launch the VENTRALIGHT ST from billable hernias along with the similarly configured Ventrio ST for abdominal hernia repairs around year end. At the ACS meeting we also introduced an entirely new approach to hernia repair procedures using our ECHO PS mesh positioning system, which we acquired in the fourth quarter last year. The device generated a significant amount of tension at the ACS meeting.

We expect to launch this highly innovative device in the first quarter of 2011 and believe it will be another real differentiator for us in the hernia marketplace. John DeFord will give you some more details on it shortly.

Our hernia fixation business grew 37% in the third quarter. Even after lapping the anniversary of our launch of our very successful SorbaFix device in Q2, we continue to see good growth in this business. Launched in Q1 this year, we are also seeing good sequential growth from the fixed device, although it’s in the slower growing permanent anchor segment of the fixation market.

Closing out the surgical category, our performance irrigation business increased 1% in Q3. And finally, our hemostasis business was up 9% this quarter. This concludes our product line record discussion. I will now turn you over to Todd Schermerhorn.

Todd Schermerhorn

Thanks John. Let me start by covering the items that affect the comparability of our results between periods. First we had acquisition related items of $10.2 million pre-tax, about $8 million of which related to the SenoRx purchase, including transaction costs, dealer separation costs, severance charge and illegal settlement. And then we got a small amount of milestone accretion relating to prior deals.

Second, we had a net increase to our income tax provision of $1.4 million due to the planned Q4 repatriation of roughly $60 million of foreign cash as a result of tax legislation that was enacted in the current quarter, and then the measurement of certain tax positions resulting from the pending resolution of the IRS appeal process for the 2003 and 2004 tax shares. As always, these items are detailed in the notes of the financial statements and the reconciliation accompanying our Q3 earnings press release.

So now let’s go to the statement of income for the quarter. Gross profit was $426.5 million or 62.9% of sales for Q3. On an adjusted basis it was just slightly better at 63.0% of sales, up 80 basis points over the prior year.

New amortization of intangibles related to transactions closed in the last 12 months, processed about 80 basis points year-over-year this quarter, obviously dominated by the SenoRx transaction.

So, our recent success in business development has obscured our progress somewhat, but on an organic basis we see an exceptional improvement in gross margin. As product mix and manufacturing cost improvements continue to drive leverage first.

SG&A expenses were $185.9 million for the quarter, 27.4% of sales. On an adjusted basis they were $184.0 million or 27.1% of sales. 130 basis point increase over the prior year period. Again, our business development activities account for the majority of this increase.

R&D expenditures totaled $47.5 million for the third quarter, 7% of sales a 10% increase over the prior year and the first time we've have seen organic R&D at the 7% level. As you folks know we intend to continue to ramp our investment in R&D and while a part of the quarter results can be a little choppy, the regression line here clearly slopes upward. You can expect to hear us talk a lot more about this at the December analyst meeting.

Interest expense was $3.2 million for the third quarter in the range of our historical results; other income was $6.7 million of expense for the third quarter. On adjusted basis there was a million of income again consistent with our historical patterns.

Effective tax rate was $30.4, on adjusted basis it was $29.7. We repurchased 890,000 shares of our stock in Q3. We'll continue to be biased of our stock as our cash flow and market conditions permit. The balance sheet at September 30 reflects cash and short term investments of $662.2 million versus $605.5 million in June 30. The quarter accounts receivable days were up 1.5 days and inventory days were up $10.8 days both foreign exchange and the SEnerex acquisition adversely affected our asset metrics this period. CapEx, capital expenditures totaled $13.0 million for the quarter and liability side total debt was $365.8 million at September 30 versus $179.8 million at June 30. Debt to total cap at the end of the third quarter was about 14% and total shareholder investment was $2.23 billion. Moving on to financial guidance

Moving on to financial guidance for Q4, we're expecting constant currency sales growth of 7% and 9%, and from an EPS standpoint we see the fourth quarter EPS in the range of 144 to 148, excluding items affecting comparability if any.

I'll now turn you over to John DeFord.

John DeFord

With the analyst meeting not too far off, I'm just going to hit the highlights this afternoon starting with out atrial fibrillation activities where we're making good progress on the new HD Mesh Catheter and energy delivery system. We've had several meaningful discussions with FDA in Q3 and are on track with both our development and our previously discussed plans to start a clinical study in the first half of 2011 with market launch in Europe in Q3 of next year. In EP Lab Systems we're on schedule with our preparations for launch, around the end of the month of several upgrades and enhancements.

Now moving to stents, the last quarter we reported the EU launch of several LifeStent platform enhancements, including 200 millimeter lengths, a new tri-axle delivery system and the addition of radio-opaque markers on all sizes. We also reported the initiation of a European multi-center clinical study to support FDA approval for these product enhancements. And I'm pleased to announce that we've completed enrollment in that study.

Our current plans call for patient follow-up through Q4, and filing of the PMA supplement in Q2 of next year with US launch anticipated in Q4. In Stent grafts, we just submitted our IDE to FDA, seeking approval to conduct a clinical study to support expansion of the sizes and indications for our FLUENCY Plus family.

We anticipate patient enrollment to begin around the end of the year, and we expect US launch little late in 2012 are early 2013. Our next generation stent graft built upon the LifeStent platform and our proprietary graft technologies is targeted for treatment of SFA disease.

We continue to plan for a second half 2011 launch in Europe and a late 2013 US launch following competition of a clinical study with one year follow-up. And in filters in late Q3 we submitted our 510(k) for our Meridian vena cava filters. Our next generation device built on our ECLIPSE platform. The Meridian vena cava filter incorporates enhanced anchoring technology and a new delivery system for both femoral and jugular placement. We're prepared to launch Meridian upon FDA concurrence. Then following Meridian, our next generation filter system development is right on track. We anticipate completing all the engineering aspects of the product before the end of the year. However, as we discuss last quarter, we've learned from FDA that they will required clinical data for both the permanent and retrievable indications.

In Q3 we provided FDA a revised clinical study design for their review and we await their feedback. With this expansion of the requirements, a number of key questions are still outstanding so I am not in a position today to share an estimated launch date.

Now turning to urology in continents, we supplied FDA European clinical data to support the expanded (inaudible) suspension indication for our light pelvic floor repair mesh and anticipate launching the product on schedule around year end.

Also in Q3 we received FDA's request for clinical data to support concurrence of our (inaudible) family of interior and posterior public pelvic floor repair kits. This change in the regulatory path will delay our launch which was anticipated for this quarter by at least a year. We anticipate submitting our study design to FDA this quarter.

Within our basic drainage business, we anticipate introducing our new COREVIEW automated urine output and temperature monitoring system late this quarter. COREVIEW combines highly accurate fluid volume measurement, data trending for much easier and enhanced analysis and intuitive graphical user interface and the ability to track other key physiologic parameters including core body temperature.

Also later this quarter we anticipate the launch of our next-generation fecal management system we’ve named DIGNISHIELD. DIGNISHIELD built upon the existing DigniCare design promoting skin and lower valve integrity to our patent pending cuff system with a number of enhanced features for patient management, diagnosis and therapy.

And moving to oncology, in Q3 we began the launch of our Sherlock 3CG system with it’s current indications and are preparing for the start of our pivotal clinical study of the device to expand our current claims to remove the need for imaging confirmation of catheter replacement. We now expect enrollment to start really next year and continue to anticipate, expanding our marketing claims in the second half of 2011 once approved by the FDA.

We have a couple of other important innovations in the PICC pipeline and anticipate launching at least one new platform in Q4, and then additional launches in the first and second half of 2011. Due to the competitive nature of this space I’m going to hold back the details until launch.

And turning to ports, we continue our interactions with FDA, seeking concurrence on our new anti-microbial PowerPort family. We anticipate launching the titanium version first, followed approximately one quarter later by our MRI versions both of which incorporate our new and recently launched PowerPort View design. The PowerPort View is designed to enhance and simplify placement and reduce the discomfort they can sometimes be associated with the hard surfaces commonly found in other port designs.

And finally moving to surgery and fixation, we're on schedule with our plan to launch and enhance delivery system for both PermaFix and SorbaFix in early 2011. As John Weiland mentioned, we anticipate launching several new mesh products in the coming months that expand the use of our Sepra resorbable barrier technology. We are starting with the [VentraLite ST] a light weight mesh designed specifically for laparoscopic ventral hernia repair late this quarter.

We then anticipate launching new versions of both the Ventrio and Ventralex platforms with a Sepra technology in Q1 of 2011. These new configurations will offer clinicians the choice of either our current permanent adhesion reduction offerings for these new reservable barrier devices for ventral repairs. And this is a good place to give you some more details on our new mass positioning system that John discussed.

During a laparoscopic ventral hernia repair, the desired mesh implant is introduced into the abdomen in a role to compress state typically through a throw card. The surgeon must unroll the implant, position it over the defect and secure it to the abdominal wall using limited tools and access. This part of the procedure is often tedious and time consuming as the implant must be placed without folds or creases and large meshes can be especially difficult to position.

However with launch of Echo PS, the surgeon will be able to unfold or expand the implant using a low profile inflatable balloon that’s pre-attached to the mesh. The implant can be finally positioned over the defect and held in a fully expanded state until fixed to the abdominal wall. Echo PS is then deflated and easily removed through a (inaudible). We'll tell you more about our plans for this new positioning system at our December analyst meeting and finally in obesity we have received additional regulatory feedback from FDA and are partnered upon digesting their comments. I’m not prepared at this time to provide detailed guidance but anticipate sharing additional information in December. Thanks for your attention and I again extend to you an invitation to Bard’s annual analyst meeting. For those of you that can attend in person will be webcast in the presentation. Let me now turn you back to Tim Ring

Timothy Ring

Thanks John that does conclude the formal part of the presentation. I’ll now turn the call back to Laurie to facilitate the Q&A.

Question-and-Answer Session

Operator

Thank you then ladies and gentlemen we will now begin the question-and-answer session. (Operator Instructions). One moment for the first question. And our first question is from the line of Rick Wise with Leerink Swann. Please go ahead.

Rick Wise - Leerink Swann

Let me target EPS for the fourth quarter and for the year and sort of maybe back into some comments if you would about our gross margin R&D et cetera. I thought you were pretty clear about talking about flat year-over-year gross margin. You've clearly done a little better. It sounds like its going to be a little better. You talked about the R&D at 7%, sounds like its still going to be moving higher. Can you help us put that into context and because if I look at the low end of your fourth quarter guidance range $1.44 for the year that would be something like 8% year-over-year. Just help us think about some of these moving pieces. Thanks.

Timothy Ring

I'm not sure that's 8% for the year if you do that maths.

Rick Wise - Leerink Swann

Maybe I did it wrong.

Todd Schermerhorn

Yes, well obviously we are in investment mode and we continue to talk about that, we are trying to drive up the level of R&D investment and we are hoping to do more of that in the fourth quarter. And in addition we now grant our equity in the fourth quarter, Rick, which also affects the expense level for the fourth quarter. Other than that I don't think anything's changed, we're above, we started at 549 as of Q3, and we've delivered another $0.3. So I think we're at least at 552 and moving towards that 9%. We did actually have the $0.3 we talked about from the delusion of [Centrex]. And other than that I think things are pretty much right on track.

Rick Wise - Leerink Swann

Maybe if my second question a goal in a park area, maybe Tim, John just in general maybe give us some broader perspective on hospital (inaudible) procedures. I'm hearing a lot of puts and takes as you go through the pieces, do you think procedures are stabilizing? Did you see any improvement in September or in early October, any kind of rebound in some of the more challenged areas? Thanks a lot.

John Weiland

Rick I'll go back to kind of a guidance we gave in December where we said we didn't assume any improvements this year. And that I think has been the case. At least now for three quarters we see things fairly flat right now, having said that, it's very difficult to have exact insight on a quarter-to-quarter basis. Now all that hospitals have lags behind away.

So I think our assumption that so many things' going to improve this year still holds true.

Operator

And we have a question from the line of Mike Weinstein with JPMorgan. Please go ahead.

Mike Weinstein - JPMorgan

This is the starting point can you give us some of the puts and takes of you mentioned the inventory build in Japan helping the quarter and the offset maybe China disruptions and the integration there. Can you quantify that at all?

Todd Schermerhorn

I think that yes its small money Mike. The Japan issue you can look at for the quarter individually. I think over the full year we've only grown the inventory depend $3 million so there is some offsets to the prior periods. And they are trying ratio is only a million or $2 million something in that range (inaudible).

Mike Weinstein - JPMorgan

Has your math changed at all on the SenoRX dilution? Is that going up at all?

Todd Schermerhorn

No its not going up, its, we said $0.03 a quarter on and we dint (inaudible) so we got the full $0.03 this quarter and we will get it again next quarter. So now it's right on the bottom actually the dilution wise we are right on where we expect.

Mike Weinstein - JPMorgan

Okay. If I listen to the whole call and, you do a good job of updating us on these calls, of where your products are, in your pipeline and a lot of it is discussion with the FDA, it kind of feels like we sit on this call and every discussion with the FDA or just about it is they want more data,, they're causing some push out in the timeline they're raising the bar in general on your regulatory requirements. I assume that's going to be a lot of what you're going to talk about, when you talk about ramping R&D spending in December. Fair assumption?

John DeFord

Well, this is John that just jumping and a couple of things one clear FDA as you've picked up is extending the time lines they are asking for information they have not asked for before, they've in some cases changed their president that sometimes last in 25 or 30 years so the things are moving quite a bit there but when you look into Q4 and beyond its not just more testing and expense, just also more projects that we have got and so there is a mix there, would definitely feel like undue productivity is been reduced by some of these changes but we are also focused on investing.

Todd Schermerhorn

I think our view of that it's changing for everybody, we navigated pretty well so end of the day competitively I don't think its necessary (inaudible).

Mike Weinstein - JPMorgan

I'll let somebody else jump in. Thanks.

Operator

We have a question from the line of Bob Hopkins with Bank of America. Please go ahead.

Bob Hopkins - Bank of America

 

Hi thanks very much. Tim a question for you from SenoRX perspective, I just want to ask you about something in your filings, in your dispute, ongoing dispute with (inaudible) and noticed in the July filings that the (inaudible) over $0.5 billion in damages, in royalties and the July filings also said that (inaudible) may appeal and so I guess I would love an update on that situation and I will ask the question have they appealed at this point or is this potential for some kind of setup on here, sometime…

Timothy Ring

I think its an ongoing litigation case where they have got one more appeal less than not another one to the supreme court after that, the court had required them to post that royalty in the [national] account and that's what you been reading about so that's still ongoing litigation.

Bob Hopkins - Bank of America

Do you know they actually filed the appeal?

Todd Schermerhorn

Yeah they have. Bob look there is a long way to go here. From our perspective this uses, we don't get too focused on the damages on those numbers obviously this is necessary for us to disclose in our queue. From all of our perspectives this is just a long way to go.

Bob Hopkins - Bank of America

Sure (inaudible) then the other way I would think…

Todd Schermerhorn

Of course, of course but we are not commenting on that

Bob Hopkins - Bank of America

So a follow up Todd, just about you guys from the fourth quarter just to clarify that 79% of the top line, is there a constant currency number and with that include roughly a 2 point contribution from M&A.

Todd Schermerhorn

Well yes 79 is constant currency I think the contribution from SenoRX was about 170 basis points and be similar to that and of course we may have some currency headwind in the fourth quarter probably a 150 basis point or so.

Bob Hopkins - Bank of America

And then the impact of FX on gross margins this quarter, could you just kind of work through that and how we should be thinking about that in the fourth quarter.

Todd Schermerhorn

How many questions was that Bob? If we go through the make up of the margin foreign exchange was actually favorable 30 to 50 basis point. It's hard to imagine but we have the math done pretty good, this is very timing. Mix is 40 to 50 basis point favorable doing quite well there and price impact on gross margin is 20 basis point unfavorable. 40 basis points on price and 20 on gross margins so it's a little bit of a acceleration but certainly not what others are seeing. And then cost is around 90 basis points favorable and then finally new amortization as we said was 80 points unfavorable and I think 90 if you include the step up of inventory and that should get you somewhere around the 80.

Operator

And we have a question from the line of Lawrence Keusch with Morgan Keegan

Lawrence Keusch - Morgan Keegan

First well just on 3CG, its sounds like the clinical trial for the indication without the x-ray confirmation is lift at least a quarter. Is that again just the FDA asking for more information, are you guys thinking about things differently as you get this trial going.

John DeFord

It's really two pieces there, one as we step back and really looked at the kind of claims we wanted, we decided that we wanted to adjust the protocol a little more and of course we certainly had discussions with FDA so it's a little bit about there, you noticed that our start time has slipped a little bit but our launch time, anticipated launch with claims really hasn't changed we are still looking at late next year for that or second half of next year for that. You are right, we want to make sure when we do this, we do it right and we come through it pretty quickly and efficiently and meet all the needs that FDA is going to have.

Lawrence Keusch - Morgan Keegan

Okay, terrific. And then Tim, I think one thing that the organization is targeting again is much more focused on the emerging markets, you guys obviously are seeing very nice growth in those regions and I think part of this strategy was to sort of move recourses perhaps from slower growth areas and continue to staff up the faster growth areas. Is that ongoing, I just wanted to sort of get a status so kind of where that is?

John Weiland

I would say, generally you run the business, you do that all the time whether that's to emerging markets that (inaudible) divisions that within the US, so I wouldn't say there is anything special going on there but you kind of clearly want to feed the (inaudible) and we are kind of doing that all the time. So, I guess the bottom line is you would expect to see us invest more into those high growth emerging markets.

Timothy Ring

And I will just say that this was focus strategy that we started almost four years ago, we don't talk about it very often but I think we are starting to see the results of some of those investments.

Operator

Now we have a question from the line of Matthew Dodds with Citigroup. Please go ahead.

Matthew Dodds - Citigroup

Couple of questions on some of the higher growth businesses. For PTA, is it almost entirely driven that growth by small vessel or is the kind of standard [non-small] vessel or large vessel business growing nicely as well?

Timothy Ring

It definitely is. The base business is growing double digits here too Matt.

Matthew Dodds - Citigroup

Is this really market expansion from these products, or are you taking share?

Timothy Ring

I think we're taking share. A good example is the results we're having with the crosser catheter where we're crossing a chronic total occlusion that some of those may have not have been able to cross before and the procedure would be over. We're crossing those, and often times have the ability to use other balloons of ours and at the same time place a lifestent or a number of lifestents.

So I think it's been a nice continuum across the board Matt.

Todd Schermerhorn

The only thing I would add Matt is, I think it's fairly well understood. The whole treatment of peripheral arteries disease is very low at the moment, Edward say's total insulin. And I think as better products come out that enables doctors to better treat those commissions you're going to start to see expansion in the market as well.

Matthew Dodds - Citigroup

On the tissue biologics, is the allograft getting close to XenMatrix, or XenMatrix is still far in a way the driver right now of the growth?

John Weiland

They're both significant drivers of the growth, both XenMatrix and the Allograft.

Operator

We have a question from the line of David Roman with Goldman Sachs. Please go ahead.

David Roman - Goldman Sachs

Wanted to follow-up actually on Rick's first question regarding the earnings guidance. I too get to the place that $1.44 in the fourth quarter would be 8% earnings growth for the full year. Just looking at the mid point in general, looks like it does assume that both discretionary spending, SG&A and R&D ticks higher as a percentage of revenue, and gross margins moved down sequentially, can you maybe, I guess first, give me some sense whether that is correct and help us sort of understand what the drivers of that would be?

Todd Schermerhorn

Okay, well just reset the (inaudible) here we were 549 last quarter, and we started at 555 which is 9% growth and we said there are going to be $0.06 dilution from the SenoRX deal. We repeated it gets you to 549, we repeated that emphasis for the last period so from my map, I think we were up $0.03 for the year. It does seems like everyone else sees as down $0.03 so, I guess it depends on where you are set. But okay, from the standpoint of the individual pieces of the P&L, we were a little higher then we expected in GP this period at 63 its been very solid, I told you guys to expect high 62 as it is a little bit better then that. I would say that we are planning on high 62's for the fourth quarter. Other then that as I said direct we continued to be in investment mode so we got focused in on 549, we did a little bit better and still we will do a little bit better then 549 for the year but we continued to be in invested modes looking for opportunities and that's been talked about many times.

David Roman - Goldman Sachs

I was hoping you could elaborate on your comments on EP Lapse systems which you called out as being down 37% in the quarter, I think you said there was obviously some quarter-to-quarter fluctuations there. But could you help us understand whether that was end user market weakness share and when should we expect that to turn around?

Timothy Ring

Alright I think this quarter normally we are up about 18% year-to-date on the EP systems including the third quarter so we are at very strong percept. That business by its nature is a lumpy so we don't think its any special competitive dynamic, I think its just happens to be a quarter that we did not have this major system sold.

Todd Schermerhorn

If the selling cycle for the last systems between six and nine months almost everywhere, just cant timing so they, it's not like (inaudible) because of the capital (inaudible).

David Roman - Goldman Sachs

All right, that's helpful. Lastly, just to reconfirm this, the tax rate guidance, earnings guidance for the year didn't assume the renewal of the R&D tax credit?

Todd Schermerhorn

That is correct

Operator

And we have a question from the line of Ben Andrew with William Blair. Please go ahead.

Ben Andrew - William Blair

It's Matt in for Ben. Just wanted to talk about the operating margin side of things. If I do my math, it looks like the adjusted number was closer to 30% this quarter. Given what's going on with your spending and R&D and on the gross margin side, do you think the 30% level is sustainable? You don't want to get into guidance going forward in 2011, but do you think this level's relatively sustainable?

Timothy Ring

Relatively yes, I mean its not going to be exact but relatively anyway get 288 to this period math.

Ben Andrew - William Blair

Okay and then secondly can you talk a little bit about the soft tissue side of your business what percentage or what portion of the growth in the 16% in the quarter was from the breast recon side of things?

John Weiland

It was certainly contributed that's for sure. I don't think we normally give the (inaudible) we are not in that

Ben Andrew - William Blair

Okay do you have any sense for what you are at in terms of market share of some of this products?

Todd Schermerhorn

Yeah I would say an overall on the biologic's market we consider we are about 16 share points in that

Ben Andrew - William Blair

Okay and is that an accelerating or is that an just gradually improving

Todd Schermerhorn

We have been growing 90% a quarter in that, its – the market isn't growing 90% a quarter

Operator

We have a question from the line of Joanne Wuensch with BMO Capital Markets. Please go ahead.

Joanne Wuensch - BMO Capital Markets

Good afternoon, thanks for taking the questions. Help me out here just for a second. Gross margins are going up nicely, but at the same time you're spending more on SG&A and R&D. Are you managing for sort of operating margin line or give me idea where you goals when you think about spending. And is it possible that some of the dilutions SenoRX is asking some of the progress we are making in other pieces that I can't quite tell.

Todd Schermerhorn

Well I would tell you this, our objective goes to our guidance and plan discussion. In December our objective was 9% EPS growth this year. It's that simple we did diminish a little bit fraction for the SenoRX acquisition but when we think about our plan and we think about level of investment and what we have to invest. We sort of start at that at that EPS commitment and work backwards representing

Timothy Ring

I think it goes back to we are trying to invest for future growth in the business, we've got the flexibility to be able to do that. We think last December obviously we made a fairly significant move in terms of guidance from where we have been in previous years but it was all about investment mode not that we had to squeeze every last penny out to get to 9% and that continues to be the case

Unidentified Company Speaker

The good news for us Joe is that the first quarter were above 7% we are trying to drive the level of investment to match the difficult in this business

Joanne Wuensch - BMO Capital Markets

My second question, if I'm allowed, is brachytherapy revenues were down 20%, is that anything in particular we should be looking at or just sort of random quarterly events?

Timothy Ring

I think it's the continued loss of brachytherapy share, we are talking prosthetic brachytherapy. Prosthetic brachytherapy share to other modalities such as robotically assisted radical prostatectomy and IMRT procedures.

Joanne Wuensch - BMO Capital Markets

Very helpful, Thank you. See you in December

Operator

And we have a question from the line of Kristen Stewart with Deutsche Bank. Please go ahead.

Kristen Stewart - Deutsche Bank

Todd, could you just go over again what the expectation is for OpEx? I missed it before for the fourth quarter.

Todd Schermerhorn

Yeah, probably about 150 basis points a headwind then the top line.

Kristen Stewart - Deutsche Bank

Okay. And then just kind of looking at again going back to that constant currency revenue growth, you said that SenoRX was probably going to be that 170 basis points. You had mentioned that you made some acquisitions and some of them included some sales. Can you help us get a full kind of acquisition impact considering to purchase a couple of other companies earlier in the year. Is it (inaudible) say its like all in a little more than 200 basis points, I was just going to ask this earlier.

Todd Schermerhorn

Its probably all in around 200 basis points, I think we might have always stated the case a little bit for our sales run rate on that one acquisition, its very small single million dollars, I think. So, a nearly other one of any consequence we have talked about the (inaudible) deal brought it about $10 million of run rate for the full year, so 2.5 million a quarter.

Kristen Stewart - Deutsche Bank

Okay, and then so, just as I'm looking at that, then basically implying I guess 5% to 7% and do you think that that's kind of a reasonable growth rate to expect? Just kind of looking at given what we see in the markets overall, just kind of a normalized level for you guys, or do you think kind of getting back up to that higher single-digit is excluding acquisitions, of course, is still the target?

Todd Schermerhorn

I think relative to the rest in that (inaudible) it looks pretty good to me and I don't know what's noble at this point and we will collect that thoughts as an organization and we'll talk to you in December.

Timothy Ring

Yes, Kristen (inaudible). I would just add, we came out if you remember coming out of '08 portfolio of '08 we grew our constant currency revenue 12%, first quarter of '09 we were 6, when we told you 10. So clearly didn't see that coming. So I'm not sure we're in a real great position to tell you when it's going to turn around the other way. There's just an awful lot of uncertainty out there right now. We kind of like how we're managing that uncertainty. But it's a tough question for anybody to answer at this point in time I think.

Kristen Stewart - Deutsche Bank

And there's nothing with a comparable issue with the fourth quarter last year because I remember growth then was pretty slow and I think that just might have been speaking to 2010 in the fourth quarter of 2008 where you had that dealer stocking.

Todd Schermerhorn

That's right Kristen, I think the impact was 24 months ago, not 12.

Kristen Stewart - Deutsche Bank

So it's not like you had easy comps in the fourth quarter 2009, easy comps, it's just a more normalized rate.

Todd Schermerhorn

I don't think so, number

Operator

We have a question from the line of Douglas Tsao with Barclays Capital. Please go ahead.

Douglas Tsao - Barclays Capital

I was just wondering if you could provide some sense of with the incremental spending in R&D, how that would break out between higher requirements from, the FDA in terms of data versus spending on new projects that you want to pursue in the context of, you noted in the past, the pipeline in terms of number of ongoing products has sort of come down in recent years and you want to get that back up. If you could provide directional color there.

John DeFord

To be honest we don't really break it out to try to give a specific gee what change from the first quarter to last quarter. But I can tell you we have a lot more fun in trials ongoing today. So we have roughly 34, 35 clinical trials that were either in the midst of or starting up right now, on a comparative basis you look back even a couple of three years, we were certainly much less than half that, sort of in the 10 to 12..

John DeFord

A lot of those clinical trials are necessarily for regulatory approval, that's all part of our strategy to be able to provide more clinical data when we launched these products. So you know that’s one indicator and there are certainly a lot of others.

Timothy Ring

It’s a tough question that gives, we go at our R&D project and an opportunity at the time, so it’s not really sorted with $50 million a quarter - in R&D. So it’s not sorted that way for us to give you a nice concise answer.

Douglas Tsao - Barclays Capital

No, no, fair enough.

John DeFord

I can tell you though that just over the last couple of quarters we've began to see a pretty significant shift in FDA that's been something that we have seen really begin to materialize this year.

Douglas Tsao - Barclays Capital

Is that worse than your expectations? I mean because you certainly highlighted that in December. Has it become even a little bit more dramatic than you expected?

Timothy Ring

Yeah, I would tell you, I have been, including just today, coming back from industry associations. It’s a big topic of discussion, the topic of discussion that we are having at the senior most levels of the FDA as an industry. So, I think it’s a little bit worse than everybody anticipated it would be, some of it is resource driven, or lack of resources within the agency. There are a lot of different reasons for it. But I think generally I would tell you the turnover within the industry is, it slowed down a little bit more than anybody expected.

Douglas Tsao - Barclays Capital

And the FDA, are they trying to drive home a need for greater safety data, efficacy data, cost effectiveness, I mean is there a…

John DeFord

I don’t really have that.

Douglas Tsao - Barclays Capital

And then, just one other question in terms of thinking about the peripheral stent business, a competitor recently announced some results that were very strong with the drug-eluting stent platform. I was just curious to hear your perspectives on how that might affect the market, especially relative to the success that you've had with LifeStent and whether you had an interest in a drug-eluting platform for the peripheral space?

John DeFord

Well a couple of pieces here: one, you are certainly aware of the Zilver PTX study and congratulate Cook on a pretty interesting study. We think it’s a clearly demonstrated benefit as Zilver PTX and short FA lesions of one year. We believe the study points out the strength of the LifeStent as well when you compare the Zilver bare metal stent to our device and you compare where we ended up with our one year data and we ended up one with year data, it’s pretty similar and ours doesn’t include a drug. So, I think that that’s one piece. We had two-year data that’s out there, so it will be interesting to see how their results hold up over two years.

On the positive side regardless we believe there is room in this marketplace for a number of competitors with on label stents. We welcome other companies joining us in the development of this market, we think that’s overall a good thing and it’s really too early to tell what the impact might be in the marketplace and specifically to us, there is a lot of unanswered questions. You look at the Zilver device, for example, they have 80 millimeter lengths, that’s all. We don’t really know what FDA may require of them. It’s not on the market yet, we don’t know what the antiplatelet therapy regimen might be, we don’t know what the economic story will be for Zilver and how that will compare to LifeStent. So, it’s pretty hard to box all of that and come up with some potential impact, but overall we think having more competitors on label is a good thing to help us grow in the market and help us in the market development.

Douglas Tsao - Barclays Capital

Have you considered or looked at the development of the drug-eluting platform, especially given the impressive numbers from LifeStent just as bare metal stent?

Timothy Ring

We are not sitting on our hands, we are not get into exactly what we’ve designed or haven’t, but we are certainly active in trying to advance a treatment in that arena on multiple fronts.

Operator

And we have a question from the line of Paul Choi with Caris. Please go ahead.

Paul Choi - Caris & Company

For the past few quarters here, you guys have posted some nice gross margin gains, even adjusted for the SenoRx amortization. Tim or Todd, I'll put the question to both of you. How are you guys potentially thinking of future manufacturing overseas as a potential sort of next step for the gross margin improvement?

John Weiland

This is John Weiland, I’d say that this is a constant issue for us and it has been for the last seven or eight years, and that each year we try to ensure we have the right combination of cost savings programs in our plants and potential tax savings by moving into advantageous arenas. So, it’s a ongoing issue that we were always focused on. You are seeing some of the results of that in our GP margin this year, and we will continue to work hard on that in the years to come.

Paul Choi - Caris & Company

Then, just turn back to the soft tissue repair for a moment. You guys have been out with the breast repair calling point for roughly a year. Would you say in terms of yours penetration of potential accounts, where you guys stand, are you in early or middle innings? Are there still plenty of accounts where you feel like you still have got an access but are potential opportunities? You can sort of characterize that, that'd be useful for all of us.

John Weiland

We like where we are at, we like the growth that we are realizing right now, but we are very early in terms of our share position in our minds.

Operator

And we have a question from the line of Robert Goldman with CL King. Please go ahead.

Robert Goldman - CL King

Two questions, the first is very simple, but I confess I'm a little bit confused based on some of the Q&A on the actual earnings guidance for the year. Last quarter, Todd, you gave out a singular number of $5.49, what was the number again that you gave out now for 2010?

Todd Schermerhorn

Next quarter would be $1.44 to $1.48 in that range.

Robert Goldman - CL King

And the second question is on R&D and perhaps for John, clearly you guys are spending more money on R&D, and the nature of the R&D is more intense because demands from the FDA seem to be getting more intense. John, can you give us a sense of how Bard is, if it is, changing its R&D infrastructure? And outside of just spending more money, can you offer metrics or give us a sense of where the money is being spent, perhaps the number of research people or the nature of the research people or even the percent of the programs that are out placed versus done in-house?

John DeFord

Sure, Bob, I can try to help you with some of that. I mean first off, as we began starting last December talking about this investment, we specifically invested in infrastructure that is teams in a number of our core businesses. We have structured ourselves in more of a franchise structure where we're really focused on projects and we have fully integrated teams, everybody from quality and regulatory operations, R&D, marketing, be in metric and benefiting or not benefiting based on how that franchise does. And so, we've changed a little bit of our structure. We always are working on improving our R&D process. We have a number of key metrics of R&D performance, we're always refining those.

And so, I think from an investment perspective we've also stepped up the number of active projects. So just this year, we've had an uptick in the number of projects in the pipeline, some of that is a function of having the infrastructure to take on more projects. And we'll continue to investment in that as the opportunities present themselves.

Timothy Ring

Bob, I would also add, this is Tim, some of these acquisitions we've made we were very pleased with some of the R&D talent that came with that. And when we do these acquisitions for the majority of the cases we look at that as a new platform. So that’s a whole another base for us to build R&D off once we take it inside here, so kind of a combination of all those things.

Robert Goldman - CL King

Can I just ask for clarification or something or have I used up all my questions.

Timothy Ring

We’ll let you know after you ask the question, Rob.

Robert Goldman - CL King

On the R&D and I know the numbers of individuals are certainly not the end all, cure all, and not to look at it from a simpleton sense, but could you give us an idea of the number of R&D scientists/engineers today versus perhaps a couple of years ago?

John DeFord

In broad percentages we are probably in the last 24 months, we've increased by well over 10% a year. So I don’t really want to give numbers to the size of our organization, but we’ve been growing our team much faster than we've been growing, commensurate with our growth in R&D, you look at our investment have been growing 10% sort of year-over-year or more, that’s kind of what we are doing.

Operator

And we have a question from the line of Jayson Bedford with Raymond James. Please go ahead.

Jayson Bedford - Raymond James

Just a couple of quick ones. Looking at flat revenue in Europe, it seemed like you were building infrastructure, not an overly tough comp, can you maybe speak to the selling environment in Europe specifically?

Timothy Ring

Well, we really were building additional heads in Europe overall, but here's what we're seeing in Europe, it's pretty similar to what we talked about last quarter. We see some of the smaller markets, good example would be Greece, good example would be Spain, good example would Ireland that are having a particularly difficult economic time and we do have some 30 programs which we are hitting those. At the same point in time we see in some of the larger markets the effect of the reorganization that we did just about this time last year and we're seeing better growth rates in those. So it’s really a tale of two cities depending upon the geography you are looking at in Europe.

Jayson Bedford - Raymond James

And then just switching gears a little bit, you're putting up some nice growth in the surgical specialties segment, but just specifically on synthetic, down 2%, do you think you lost share in the quarter or does that growth rate reflect more of a market slowdown? Thanks.

Timothy Ring

Well, we think that the market overall in hernia is growing in the low single-digits and we have said all along that we think we are losing small amounts of share in this synthetic area and its really going to be dependent on a new product pipeline, to change that trajectory we’ve started with a number of launches over the last number of quarters and we have a number of important launches in the fourth quarter and early next year in that space. So, I think its all pipeline dependent.

Operator

(Operator Instructions). And we'll go next to the line of Brooks West with Craig-Hallum Capital. Please go ahead.

Brooks West - Craig-Hallum Capital

A question for John DeFord, on the pelvic floor prolapse product cadence, I missed your commentary. Alight, you said was launching by year end and then there was a product that was delayed by a year. What was the name of that product and can you kind of speak to the nature of the delay?

John DeFord

Sure, so two things. Alight we submitted in Q3, clinical data to FDA from Europe to support the launch of that product and so we're anticipating launch this quarter.

Brooks West - Craig-Hallum Capital

In Europe or the US?

John DeFord

In the US.

Brooks West - Craig-Hallum Capital

In US, okay.

John DeFord

Now the real product which is our new family pelvic floor repair interior, posterior pelvic floor repair products, we had anticipated launching our first version of that technology this quarter Q4, and then another technology later next year. FDA came back and asked for a clinical data, we thought that our first introduction in this was a pretty modest change, but as it is, they've asked for clinical data. So, it’s moved just back a year because we got to run a clinical trial for that and so frankly we're going to focus on the next generation of technology that’s a little bit more advanced and just include that in the study.

Timothy Ring

Brooks, that’s what we call [Web TO] I think a year ago.

John DeFord

I don’t know that we ever gave it a name externally, but we will name it probably (inaudible).

Brooks West - Craig-Hallum Capital

And then, Tim or John, a kind of a macro question on price. Looking out over the next couple of years, as you look at structural change in Europe and US and maybe thinking about some stricter loss ratios that might be being imposed on US payers, do you feel like pricing is going become more and more of an headwind or do you think it’s just more kind of business as usual?

Todd Schermerhorn

I’ll start and I’ll let John jump in. We’ve both been in the business almost 30 years, pricing has always been up. It’s a little more challenging now, obviously there is a lot of pressure on hospitals and governments because of healthcare costs. We do have contracts in the US locked in for most of time multiple years, so it’s an issue that as I tell our management team, they are going to be dealing with pricing issues for the rest of their careers just like John and I have deal with them our entire careers. It’s like ebb and flow a little bit depending on things, but that’s why we believe we’ve got to have product leadership that’s so important. You’ve got to have better technologies and data to be able to justify what you are going to charge people for it.

John Weiland

I think it’s all price points. I mean the reality is when you have a strategy of product leadership you also have to have a strategy of clinical proof that goes along with it side by side. It was really what we are trying to articulate to a degree last December when we rolled our increased expansion in our R&D requirements downstream. So I think that while that’s always got to be tough on pricing in this business, we think we have the right strategy on how to handle that in the future.

Todd Schermerhorn

It’s interesting how we held up when you listen to some of other company's present in some of the issues with price. I mean we are talking about 20 and 30 basis points of same-store price for Bards. It's a tough environment but it is very interesting that we haven't really been hit quite as high and maybe that is a [tennis] point about being number one or number two in 80% of our sales, I mean that certainly helps us. But we don’t seem to have been hit as hard as somebody of the others.

Operator

And we have a question from the line of Bruce Jackson with Morgan Joseph. Please go ahead.

Bruce Jackson - Morgan Joseph

It's about infection control products in general. You said initially you had pretty good uptick and then it slowed down. I just wondered, has the demand for infection control products, started to reaccelerate, and is there any potential margin impact from improved mix?

John Weiland

We think there is quite frankly through all of this, we have seen the continued interest in infection control in some of our products. We think that healthcare reform gives that even a greater emphasis for the years to come. From our perspective overall there has been a slight pick up primarily in the Foley catheter area where one of the ways you can control infections is that are catheter associated during a retracting session is to not put a catheter in at all. We think people tried to implement that strategy in some places, but at the same point in time we continued to sell more infection control to new customers. So, we think the interest will continue to be there, we think it’s the right strategy and I don’t think that there is a major issue to have in your mind in terms of gross margin expansion as it relates to infection control. I think the key is infection control drives market share potentially long term.

Operator

And we have question from the line of Amy Sullivan with Piper Jaffray. Please go ahead.

Amy Sullivan - Piper Jaffray

We talked a lot about R&D investment on this call so far. I wanted to switch gears a little bit and could you give us some color on where you're at as far as your planned investment in the sales force. I think last summer you talked about adding maybe an additional 70 or something like that?

John Weiland

We're well down our way in terms of our expansions this year. We made some critical investments in a number of our US divisions; probably the most noteworthy was the various significant expansion of almost 35% in our surgical specialties business, and some very significant expansions in our sales force in the emerging markets.

I think our attitude has and will continue to be that our approach is really to drive growth of be it business development via our sales force expansion and expansion of our R&D capabilities and I think you'll see us focused on that in the future as well.

Amy Sullivan - Piper Jaffray

And then just one quick second one, you mentioned with regards to SenoRx some rationalization this quarter and having a negative impact for Europe. Was that just a short-term thing or is that something, can you quantify it, that Q3 impact, and then is that something you expect to continue into Q4?

John Weiland

It's in the single millions of dollars range, I mean it’s not a significant number, and it’s really just us cleaning up the distribution channels in Europe and getting prepared for our sales forces just to be selling this on a direct basis.

Operator

Thank you. And there are no additional questions, and this concludes our Q&A session. I would like to turn the call back over to Bard's management for closing or additional comments.

Timothy Ring

First of all, I'd like to take a moment to thank our employees around the world for their efforts and commitment. This is only another very solid quarter here for us, and we'll continue to focus on execution as we finish 2010. I’d also like to thank all of you for hanging in there with us tonight and hope all of you can join us in New York in December.

Operator

Thank you ladies and gentlemen. That does conclude our conference call for today and thank you for your participation and for using AT&T Executive Teleconference service and you may now disconnect.

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