Boston Scientific's CEO Discusses Q1 2011 Results - Earnings Call Transcript

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Boston Scientific (NYSE:BSX)

Q1 2011 Earnings Call

April 21, 2011 8:00 am ET

Executives

William Kucheman - Executive Vice President and President of Cardiology, Rhythm & Vascular Group

Sean Wirtjes - VP of Finance and Treasurer

Keith Dawkins - Senior Vice President and Chief Medical Officer for Boston Scientific's Cardiology Rhythm & Vascular Group

J. Elliott - Chief Executive Officer, President, Director and Member of Finance Committee

Ken Stein - Senior Vice President and Associate Chief Medical Officer of Cardiac Rhythm Management

Jeffrey Capello - Chief Financial Officer and Executive Vice President

Analysts

Matthew Taylor - Barclays Capital

David Roman - Goldman Sachs Group Inc.

Robert Hopkins - Lehman Brothers

Glenn Novarro - RBC Capital Markets, LLC

Derrick Sung - Sanford C. Bernstein & Co., Inc.

Larry Biegelsen - Wells Fargo Securities, LLC

Kristen Stewart - Deutsche Bank AG

David Lewis - Morgan Stanley

Frederick Wise - Leerink Swann LLC

Tao Levy - Collins Stewart LLC

Christopher Pasquale - JP Morgan Chase & Co

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Boston Scientific Q1 2011 Earnings Conference Call. [Operator Instructions] I'd like to now turn the conference over to our host, Mr. Sean Wirtjes. Please go ahead.

Sean Wirtjes

Thank you, Tamia. Good morning, everyone. Thanks for joining us. With me on the call today are Ray Elliott, President and Chief Executive Officer; and Jeff Capello, Executive Vice President and Chief Financial Officer.

We issued a press release yesterday announcing our first quarter 2011 results, which included key financials and reconciliations of the non-GAAP financial measures used in the release. We've posted a copy of that press release as well as reconciliations of the non-GAAP financial measures used in today's conference call and other supporting schedules to the Investor Relations section of our website under the heading Financial Information.

The agenda for this morning's call will include a review of the first quarter financial results as well as Q2 and updated full year 2011 guidance from Jeff and update in our business performance in the quarter from Ray, followed by his perspective on the quarter overall. We'll then open it up to questions.

We will also be joined during the question-and-answer session today by Sam Leno, Executive Vice President and Chief Operations Officer; Ken Pucel, Executive Vice President Global Operations and Technology; Mike Phalen, Executive Vice President and President International; Hank Kucheman, Executive Vice President and Group President of CRV; David Pierce, Senior Vice President and President of our Endoscopy business, John Pedersen, Senior Vice President and President of our Urology and Women's Health business; Joe Fitzgerald, Senior Vice President and President of our Endovascular Unit; Michael Onuscheck, Senior Vice President and President of our Neuromodulation business; Dr. Keith Dawkins, Chief Medical Officer for our CRV Group; and Dr. Ken Stein, Chief Medical Officer for CRM.

Before we begin, I'd like to remind everyone that this call contains forward-looking statements within the meaning of Federal Securities Laws, which may be identified by words like: anticipate, expect, project, believe, plan, estimate, intend and similar words. These forward-looking statements include, among other things, statements regarding our expected market share, growth projections, markets for our products, new product approvals, launches in sales, competitive offerings, clinical trials, the regulatory environment applicable to us and our products, our liquidity and financial position, the strength of our balance sheet and cash flows, our future financial performance, including expected net sales, margins, earnings and tax rates for the second quarter and full year 2011, our goodwill impairment charges, the timing and effect of our restructuring activities and power growth strategy, including our priority growth initiatives and our views on litigation. We caution you that actual results may differ materially from those discussed or implied in these forward-looking statements. Factors that may cause such differences include among other things, future economic competitive reimbursement and regulatory conditions, clinical trial results, intellectual property rights litigation, financial market conditions, future business decisions made by us and our competitors and the other factors described in the Risk Factors section in our most recent 10-K filed with the SEC, which we may update in our 10-Qs that we filed or will file hereafter. These forward-looking statements speak only as of the date hereof, and we disclaim any intention or obligation to update them. At this point, I'll now turn it over to Jeff for a review of the first quarter official results.

Jeffrey Capello

Thanks, Sean. Let me begin by providing some overall perspective on the quarter before getting into the details. We had a very good quarter, earning $0.22 of adjusted earnings per share, well above our guidance range of $0.07 to $0.10 and a street consensus of $0.11. Within the quarter, there were a number of unanticipated benefits, which I will describe in more detail in a few moments. Excluding those unanticipated items, we still had a very strong quarter, which exceeded our expectations, driven by a solid revenue performance in most businesses and a continued strong attention to cost control. We also did record the anticipated gain on the Neurovascular business, which generated a pretax gain of $759 million. The one area of disappointment in the quarter was a trend in the U.S. CRM market.

Actual U.S. defibrillator market data for the 4th quarter of 2010, which became available late in the first quarter of 2011, as well as the expected market trends in the first quarter point to a deterioration in the U.S herein defibrillator market growth rate to a negative mid-single digit number, including the impact of price. Based on our market checks, we believe there are a variety of temporary factors, including the recent JAMA article, DOJ investigations and audits, as well as physician alignment to hospitals, all contributed to putting short-term pressure on the defibrillator market.

Given the goodwill balance associated with the purchase of guidance, we are required to evaluate the recoverability of that goodwill whenever indicators exist that an impairment may have occurred. The recent pressures on the market forced us to perform an interim test of our U.S. CRM goodwill in Q1, primarily as a result of the drop in the market size and short-term market growth rate, we have lowered our assumptions for growth for our U.S. CRM defibrillator business, which resulted in an estimated goodwill impairment charge of $723 million in the first quarter. We expect the final charge including the $723 million to be in the range of $650 million to $800 million once we finished the remainder of the workaround assessment. As a reminder, this is a non-cash charge with no tax consequences and has no impact in our expected cash flows or our bank covenant ratios.

We will continue to monitor this and all of our goodwill balances potential impairments as required going forward.

We continue to make very strong progress on a number of fronts in executing our strategy. This progress is beginning to show in a number of areas. Let me now move to the detailed review of the operating results to discuss the quarter and highlight the progress being made.

Consolidated revenue for the quarter was $1,925,000,000 versus our guidance range of $1,825,000,000 to $1,925,000,000 and represents a decline of 2% on a reported basis and 3% in constant currency compared to the first quarter last year. Compared to the $10 million of favorable foreign exchange assumed in our first quarter guidance range, FX had a $33 million positive impact on our first quarter sales, which positively affected our reported revenue by $23 million.

In addition, the Neurovascular divestiture negatively impacted revenue growth by approximately 250 basis points or $53 million year-over-year, and we estimate that the defib ship hold and product removal actions in Q1 last year increased our revenue growth rate by approximately 240 basis points or $51 million from the quarter after considering the estimated share impact on Q1 of this year. We're able to provide a broader overview of our businesses by major product category, but I'll address our sales results for all of our businesses at a high level here.

Worldwide DES revenue came in at $379 million include the negative impact of a $10 million sales returns reserve relating to the U.S. launch of ION or TAXUS element. This exceeded our guidance range of $345 million to $375 million and represents a reported decrease of 7% at a constant currency decrease of 9% compared to the first quarter of 2010.

Our worldwide DES revenue includes $89 million for TAXUS and TAXUS Element, $193 million for PROMUS and $97 million for PROMUS Element. Our worldwide TAXUS, PROMUS, PROMUS Element split for the quarter was 24-51-25. We continue to sustain our worldwide DES leadership during the first quarter. Excluding the impact of a sales returns reserves in the U.S., we estimate that our global market share was 36%, which we estimate to be about 8 percentage points higher than our nearest competitor and flat last quarter.

U.S. DES revenue was $184 million near the mid-point of our guidance range of $175 million to $190 million and 13% lower than the first quarter of last year, driven primarily by pricing pressure. This includes $48 million of TAXUS and $136 million of PROMUS revenue, represents a 26-74 mix of TAXUS and PROMUS in the U.S. compared to a 38-62 mix a year ago.

Excluding the impact of the $10 million sales returns reserves for the ION/TAXUS element, we estimate that our U.S. DES share was 46% for the quarter with 14 share points of TAXUS and 32 share point of PROMUS. Our U.S. DES share has been stable now for the last 6 quarters, and we continue to maintain drug-eluting stent market share leadership in a competitive U.S. market with more than 15 more market share points than our nearest competitor, excluding the ION reserve. Based on our estimates of the U.S. market for the first quarter, we believe that Abbott's share was approximately 31% while J&J and Medtronic achieved approximately 10% and 13% respectively.

Given the success of our PROMUS Element platform in Europe, coupled with both our commercial strength, the challenges facing one of our competitors, we believe we are very well positioned to take share in the U.S. with the introduction of the ION stent. This will position us very well in the marketplace for our planned launch of PROMUS Element, which is on or ahead of schedule for a mid-2012 launch.

International DES sales of $195 million exceeded the high end of our guidance range of $178 million to $185 million by $10 million and represent a reported decrease of 1% and a decrease of 5% on a constant-currency basis. This includes $41 million in TAXUS, $57 million in PROMUS and $97 million in PROMUS Element sales and represents a 21-29-50 mix of TAXUS, PROMUS, PROMUS Element internationally.

We continue to run ahead of plan in Europe on the strength of continued strong adoption of the PROMUS Element platform. We estimate that our U.S. -- that our DES market share in EMEA for the first quarter was approximately 33%, which is up 1 share point compared to the prior quarter. TAXUS market share was approximately 7% with revenue of $17 million and PROMUS market share was approximately 1% with revenue of $2 million. PROMUS Element exited the quarter with market share of approximately 26% and revenue of $62 million. Together, this represents a TAXUS, PROMUS, PROMUS Element mix in EMEA of 21-2-77. We continue to be very pleased with the market acceptance of the element platform in EMEA. It now comprises 87% of our DES product mix in the region, driven by its market-leading alloy and stent design, which improves ease-of-use.

Through the success of PROMUS Element and the TAXUS platform, we have driven 98% of our DES product mix in EMEA back to self manufactured markets. It's important to note that we believe we continue to take share with PROMUS Element during the quarter despite not having the stent available in all countries, not being on all tenders, as well as not having the platinum primary endpoint data. With the recent introduction of TAXUS Element, the success of PROMUS Element coupled with the recent data and access to more accounts, we expect that our unique ability to deliver 2 different drugs via multiple stent platforms will allow us to expand our position further in that market.

Our DES share in Japan was an estimated 37%, down 700 basis points from the first quarter of 2010 with revenue of $56 million. On a sequential basis, our share was flat to Q4 2010. The decrease in share compared to the prior year was primarily driven by the number of accounts participating in the Abbott RESET trial during the middle of last year. TAXUS market share in Q1 2011 was approximately 6% with revenue of $8 million, and PROMUS market share was approximately 31% with revenue of $48 million. Together, this represents a TAXUS PROMUS mix in Japan of 14-86.

We estimate that Abbot's share is 42%, Medtronic's share at 9% and J&J's share at 12% during the quarter. In the short term, we expect to pay some incremental pressure on our share in Japan as a result of the anticipated launch of a local competitor stent in the coming months until we gain approval of PROMUS Element, which is anticipated in mid-2012.

We estimate our intercontinental DES share increase 200 basis points to about 23% during the first quarter with this year split 6% TAXUS, $60 million of revenue, 3% PROMUS with $7 million of revenue and 14% PROMUS Element with $35 million in revenue, or a TAXUS, PROMUS, PROMUS Element mix of 28-12-60.

The growth in this region is being driven by the rollout and strong acceptance of PROMUS Element in key focus countries such as India and Brazil. The global DES market share at 36%, we maintained 8 percentage points of share advantage over our nearest competitor. Our strong commercial team is focused on the only 2-drug platform in the industry. And when you couple that with a continued strong adoption of the PROMUS Element and TAXUS Element stents and the upcoming launch of ION in the U.S., we expect to increase our market share leadership going forward.

I would like to provide you with some detail on the drug-eluting stent market dynamics during the quarter. We estimate that the worldwide DES market in Q1 had approximately $1,074,000,000, which is down 2% on a reported basis and 4% on a constant-currency basis versus Q1 2010. Our estimated worldwide market in the quarter includes a worldwide unit volume increase of approximately 8% driven by a 9% increase in PCI volume and a 1% increase in penetration, offset by a worldwide market decline in average selling prices of approximately 8% in the U.S. and a low double digit internationally.

The U.S. DES market estimated to be about $422 million for the first quarter representing a decrease of approximately 8% from the first quarter of last year. This consists of a slight unit volume increase, which includes a slight increase in PCI volume and slight decrease in penetration levels. This unit volume increase was offset by an approximately 8% decline in ASPs. During the quarter, we saw our U.S. DES ASPs fall slightly more than the aggregate market declines with TAXUS and PROMUS down about 12% and 9%, respectively, compared to the first quarter of 2010.

U.S. PCI volume in the quarter was approximately 260,000 procedures, up 1% compared to the first quarter of 2010. We estimate that the U.S. DES penetration of 76% was down 1 percentage point compared to the first quarter of 2010. Combined with stented procedure rates and stents per procedure, we estimate that the total market for U.S. stent from Q1 2011 was approximately 349,000 units, including the 267,000 units of DES. We estimate that international DES market at $652 million for the quarter, up about 3% on a reported basis, but essentially flat on a constant-currency basis.

Compared to the first quarter of last year, this consists of a unit volume increase of approximately 13%, which includes a 13% increase in PCI volume and a 2 percentage point increase in penetration. This unit volume increase was largely offset by decline in ASPs. Procedures were strong in the quarter with approximately 666,000 PCI procedures, including 369,000 procedures in EMEA, 59,000 procedures in Japan and 237,000 procedures in intercontinental. We estimate that international DES penetration of 63% was up 2 percentage points over the first quarter of 2010, including 58% in EMEA, 74% in Japan and 59% in the intercontinental region.

Worldwide CRM revenue was $559 million in the first quarter, representing a reported increase of 4% and a constant currency increase of 3% compared to the first quarter of 2010. We estimate that our worldwide CRM share was down 80 basis points sequentially at just under 20%. U.S. CRM revenue of $339 million represents a 4% increase from the prior year, principally due to the defib ship hold and product removal actions.

The year-over-year benefit of the ship hold was offset somewhat by lower than anticipated defibrillator growth as discussed earlier. International CRM sales of $220 million were up 4% on a reported basis and up 1% in constant currency compared to the prior quarter. Worldwide defibrillator sales of $417 million were in the lower half of our guidance range of $410 million to $440 million. This represents a reported increase of 7% and a constant currency increase of 6% from Q1 2010.

U.S. defib sales were $266 million, which was below our guidance of $270 million to $290 million and represents an 8% increase from last year impacted by the stop ship issue and the market softness. International defib sales of $151 million exceeded the high end of our guidance range of $140 million to $150 million representing a 5% reported increase from last year and up 3% in constant currency. The growth in international defib continues to be driven by very strong market acceptance of our COGNIS and TELIGEN devices and our new 4-SITE lead as we continue to advance these products in geographies around the world.

On a worldwide basis, our endoscopy business grew 8% at constant currency in the first quarter. Growth in the U.S. was 3% despite downward pressure from the softness and the lack of procedures and challenging comparables due to very strong product releases in Q1 of last year. Internationally, endoscopy sales grew 13% with broad-based strength across all geographies driven by new product introductions, expanded indications and strong sales execution.

Our Urology and Women's Health business grew 5% constant currency terms in the first quarter. Urology business delivered another solid quarter with 8% worldwide growth, while our Women's Health business declined 1% due to a relatively flat elective procedure environment and competitive new product trialing in our Pelvic Floor business, largely offset by very strong acceptance of our new Genesys HTA product. Internationally, Urology Women's Health experienced double-digit growth driven by new product introductions, increased sales investments and the penetration of new therapies into markets outside the United States.

Our worldwide Neuromodulation business grew 14% in the first quarter, driven by new product introductions and continued strong international growth. It was a very strong start to the year for Neuromodulation, supported by the launch of our unique clip mechanical anchor in the U.S., as well as continued robust reception of new technologies we've introduced last year.

In constant currency terms, our worldwide Peripheral Intervention business was up 4% in Q1 including international growth of 7%. On the strength of recently introduced new products such as our plastic self-expanding stent. Non-stent Interventional Cardiology was down 14% and Electrophysiology was down 4%. We have continued to see a lag in some of these businesses in recent quarters as a result of procedural softness, increased pricing pressures, delays in our new products, as well as competitive product launches.

Ray will talk more about some of these new product launches in these businesses in a few minutes.

Reported gross margin for the quarter was 57.2%. Adjusted gross profit margin for the quarter, excluding restructuring-related charges, was 67.8%, which was 90 basis points higher than the first quarter 2010. The 90 basis points relative increase from last year was primarily attributable to a positive impact of a $50 million true up relating to historical amounts paid under third-party supply arrangements for PROMUS and to a lesser extent foreign exchange and higher sales of PROMUS Element in EMEA. These factors were partially offset by the negative impact to the ship and DES mix from TAXUS to PROMUS, as well as lower volumes and margins related to divested Neurovascular business. While the impact of the supply arrangements true up drove Q1 gross margins above our previous guidance range of 65% to 66%. We expect gross margins for the remainder of the year to be more in line with this guidance.

Our reported SG&A expenses in the first quarter were $596 million. Adjusted SG&A expenses excluding restructuring related items were $592 million or 30.8% of sales. This compares to $627 million in the first quarter of 2010. The primary drivers of the decrease were the lower expenses through the divestiture of the Neurovascular business and the release of approximately $20 million in bad debt reserves related to fully reserved accounts receivable collected in Greece.

Given the challenges occurring in Greece, we've taken a conservative stand on both existing receivables and the timing of revenue recognition on these sales. During the quarter, we took advantage of an opportunity to liquidate receivables that resulted in a better outcome than expected. This is partially offset by higher spending on strategic growth initiatives, primarily in emerging markets, as well as cost related to recently acquired businesses in effect. Going forward, we expect our SG&A spend as a percentage of sales to be closer to our guidance range of 33% to 34% as we continue to ramp up our investment initiatives in key areas such as emerging markets, as well as the impact of acquisitions.

Both reported and adjusted research and development expenses were $212 million for the first quarter or 11% of sales. The reduction during the quarter related to lower expenses due to the divestiture of the Neurovascular business and the benefit of some of our restructuring efforts, as well as delays in some of our clinical trials. This was partially offset by cost related to recently acquired businesses. We expect R&D spending to increase as we progress through the year given the timing of our initiatives, ending the year closer to $1 billion annual run rate.

Royalty expense was $51 million or 2.6% of sales in both the first quarter of this year and Q1 a year ago. We reported GAAP pretax operating income of $296 million for the first quarter. On an adjusted basis, excluding the net credits relating to acquisition and divestiture activity, restructuring-related charges, amortization expense and the goodwill impairment charge, adjusted operating income for the quarter was $451 million and 23.4% of sales, up 400 basis points from Q1 2010. The increase reached at the prior quarter is primarily related to lower SG&A and R&D expense, as well as higher gross margins as discussed earlier. I'd like to highlight the GAAP to adjusted operating profit reconciling items in a little bit more detail for you.

We recorded a divestiture related gain of $759 million pretax or $530 million after-tax during the quarter. We recorded a $723 million goodwill impairment charge on both a pretax and after-tax basis related to our U.S. CRM business. We recorded $50 million pretax or $30 million after tax of restructuring-related charges in the quarter, which are primarily related to severance, product transfer expenses and certain other costs in connection with our previously announced plant ne2rk optimization and alignment to growth programs.

Total amortization expense was $132 million pretax or $140 million after tax. We recorded acquisition-related charges of $9 million on both the pretax and after-tax basis.

We recorded favorable discrete tax items with an after-tax impact of $4 million. The net cumulative effect of all these items was $155 million pretax and $354 million or $0.23 per share after tax. Let me now move on to other income expense. Interest expense was $75 million in the first quarter, which was $18 million lower in Q1 2010. The lower interest expense is primarily due to $1.1 billion of debt repayment during the last 4 months alone and a lower average interest rate as a result of fixed to floating swaps executed during the quarter.

Our average interest expense rate in Q1 2011 was 5.3% or 40 basis points lower than Q1 2010. Other net was $26 million of income in the first quarter compared to $4 million of income in Q1 2010. For the first quarter 2011, other net included $4 million of interest income and $22 million of other income, primarily related to gains on the remeasurement of pre-acquisition equity interest we held in certain companies required during the quarter, offset by the write down of certain investments.

Interest income from Q1 2011 was $4 million lower than Q1 2010, primarily due to lower collection of interest on past receivables in Spain. Our tax rate for the first quarter was 92% on a reported GAAP basis of 7.6% on adjusted basis. Our adjusted tax rate for the first quarter reflected a $23 million benefit from discrete tax items. These discrete benefits were primarily attributable to the relief evaluation allowances on both Puerto Rico R&D tax credits and Greece net operating losses. Excluding these discrete benefits, we had an operational tax rate for the first quarter of approximately 13.8%. This rate reflects our full year operational tax rate of 18%, reduced by timing items in the quarter, which we expect to reverse in Q2 to Q4, resulting in an expected tax rate of 18% in Q2 and closer to 20% in Q3 and Q4.

We recorded GAAP EPS for the first quarter of $0.01 per share compared to a loss of $1.05 per share in the first quarter of last year. GAAP results for Q1 this year included a previously discussed goodwill impairment charge, acquisition and divestiture-related net credits, restructuring-related charges, discrete tax items and amortization expense, as well as $38 million on both a pre- and after-tax basis or $0.02 a share in acquisition-related credits included in other income and expense.

Our adjusted EPS in the first quarter, which excludes these items, was 22% and was above the high end of our guidance range of $0.07 to $0.10 per share driven by favorable operating expenses due to operating discipline and timing of events, as well as several items I will discuss in more detail shortly.

Adjusted EPS for the first quarter of 2010 was $0.16 a share. As a reminder, adjusted EPS in the first quarter of 2010 excludes $1.25 per share of goodwill and intangible asset impairment charges, $0.14 per share of acquisition related net credits, $0.07 per share of amortization and $0.03 per share of restructuring-related charges. Stock compensation was $32 million and all per share calculations were computed using 1.5 billion shares outstanding.

DSO was 62 days, 2 days unfavorable to the first quarter of 2010. The year-over-year increase was primarily due to unfavorable FX, as well as a weakness in EMEA cash collections.

Days of inventory on hand were 119 days, down 4 days from prior year. These improvements were partially due to inventory reductions attributable to the Neurovascular divestiture. We continue to work on reducing our inventory levels despite the required investments to support our new product introductions and plant ne2rk optimization initiatives. Reported operating cash flow in the quarter was an outflow of $97 million compared to an outflow of $284 million in Q1 2010. Q1 2011 cash flow included a $296 million of Minnesota DOJ settlement, $31 million in tax audit settlements and $33 million of restructuring gains. Q1 2010 cash flow included $250 million receipt from Abbott related to the approval of design stent in Japan, $1 billion payment related to the settlement of certain patent disputes at J&J and $33 million of restructuring payments. Excluding these items, Q1 2011 operating cash flow was $262 million or $237 million lower than Q1 2010, primarily due to lower net tax refunds and the timing of the interest payments related to our December 2009 bond issuance, partially offset by higher adjusted operating profit. Capital expenditures were $72 million in the quarter, which were consistent with Q1 2010. Reported free cash flow was an outflow of $170 million in the quarter compared to an outflow of $353 million in Q1 2010. In January 2011, we received over $1.4 billion of the total $1.5 billion proceeds from the divestiture of the Neurovascular business to Stryker and used a portion of the proceeds to acquire Sadra Medical, Intelect Medical, ReVascular Therapeutics and Atritech. We used $500 million to repay our $250 million 4.25% senior notes at maturity and prepaid $250 million of our bank term loan, reducing our debt balance from $5.4 billion to $4.9 billion as of March 31. In April, we repaid another $250 million of the bank term loan further reducing our debt balance to $4.7 billion. The sale of our Neurovascular business and our continued debt repayment provide us with increased flexibility to fund our priority growth initiatives, accelerate revenue growth, improve our leverage and enhance our credit profile. We are committed to de-levering and achieving our total debt target of around $4 billion by the end of the year due to our expected strong free cash flow generation.

At the end of Q1 2011, our credit facility covenant debt-to-EBITDA ratio was 1.7x, well below the maximum permitted level of 3.85x, representing over $1.6 billion of EBITDA safety margin. At March 31, we had access to significantly liquidity of approximately $3 billion, including close to $600 million of cash and $2.4 billion of credit facilities.

Before we get into the guidance, let me highlight some specific items that benefited our Q1 performance and provide some perspective on our outlook for the rest of the year. The items impacting Q1 performance included roughly $0.04 of combined benefit from third-party supply arrangements true up and the Greece recoveries, roughly $0.02 positive impact from discrete tax benefits, approximately $0.03 positive impact related to the timing of certain operating expenses and approximately $0.01 positive benefit from our Q1 performance in Japan. Without these items, we still would have exceeded both our guidance range and consensus for the quarter. Looking out over the remainder of 2011, we do expect some operating leverage favorability to carry through from Q1 and are also pursuing additional opportunities to further reduce OpEx. However, we are facing headwinds in some of our markets, most noticeably CRM as discussed. As a result, we are being conservative in our assumptions regarding actual realization of benefits, operational cost savings opportunities until we see more of the year play out. Let me now walk you through our guidance for the second quarter, as well as revised guidance for the full year.

We expect Q2 consolidated revenues to be in the range of $1,920,000,000 to $2 billion, which is flat to up 4% from the $1,928,000,000 recorded in the second quarter of 2010. If current foreign exchange rates hold constant through the second quarter, a tailwind from FX should be approximately $76 million or 4% related to Q2 2010.

On a constant-currency basis and excluding the impact of the 2010 ship hold and the Neurovascular divestiture, consolidated sales should be in the range of flat to down 4%. For DES, we are targeting worldwide revenue to be in the range of $385 million to $410 million with U.S. revenue of $195 million to $210 million and OUS revenue of $190 million to $200 million. For our Defibrillator business, we expect revenues of $405 million to $425 million worldwide, $255 million to $270 million U.S. and $150 million to $155 million outside the U.S. For the second quarter, adjusted EPS excluding charges related to acquisitions, restructuring and amortization expense are expected to be in a range of $0.12 to $0.15 per share. GAAP EPS for the second quarter of 2011 is expected to be in the range of $0.05 to $0.08 per share. Included in our GAAP EPS estimate is approximately $0.01 per share of acquisition-related charges, $0.01 per share of restructuring-related charges and $0.05 per share of amortization expense.

For the full year, the company now estimates sales will be approximately $7.6 billion to $7.9 billion versus our previous guidance of $7.5 billion to $7.9 billion. Assuming that current foreign exchange rates hold constant, we expect the tailwind from FX impact to be approximately $169 million. On a constant-currency basis and excluding the impact of the ship hold and the Neurovascular divestiture, consolidated 2011 sales should be in the range of flat to down 3%. Adjusted EPS for the full year is now expected to be in the range of $0.58 to $0.68 per share versus our previous guidance of $0.50 to $0.60 per share. On a GAAP basis, the company expects full year EPS in the range of $0.15 to $0.27 per share. This GAAP estimate includes a charge of $0.47 per share related to the Q1 goodwill impairment, approximately $0.05 to $0.06 per share of restructuring-related cost, amortization expense of $0.24 per share and a credit of $0.34 to $0.35 per share related to the after-tax gain on the Neurovascular divestiture. That's it for guidance. Now let me turn over to Ray for an overview of the businesses in the quarter, as well as our world thoughts. Ray?

J. Elliott

Great. Thanks, Jeff. Let me begin with a more qualitative review of our businesses, and then as usual, I'll share some brief thoughts on likes, dislikes and a few hot topics for the quarter overall.

Let's begin with our CRV group. Our CRV business is leading the industry in responding to the changes in the delivery of healthcare in positioning Boston Scientific as a company intensely focused on the care continuum for cardiovascular patients. Recently, a competitor announced they are following us in moving to the sales structure similar to CRV, including a team focused specifically on the economic customer. This further validates the rationale behind the formation of the CRV group and putting us at least a year ahead of the competition. Our CrossCare program has been well received by customers and has already produced significant wins. We have begun executing on the opportunities at institutions we identified earlier this year where we believe our unique value proposition will grow BSC's market share.

We continue to evolve our selling structure and strategies as part of the alignment for growth plan we announced in February of last year, including the execution of unique sales structured pilot models. These models are sensitive to economic buyers, ACOs and the future potential for episodic bundled care. Within CRV, we have real progress on multiple priority growth initiatives, including the acquisitions of Sadra Medical, Atritech, ReVascular Therapeutics and S.I. Therapies, as well as an active 18-month old internal program to control drug refractory hypertension through the application of medical devices.

Technologies from some of these initiatives are being or will be commercialized in 2011. They're integral to the execution of our power strategy, while playing key roles in the realignment of our portfolio and setting the stage for future growth. Percutaneous aortic valve replacement is 1 of the fastest-growing medical device markets. And through the Sadra acquisition, we now have the Lotus Valve, a truly differentiated repositionable and retrievable product that we believe may potentially solve many of the limitations of the existing devices including perivalvular leakage. It's our intention to initiate reprice the CE Mark trial for the Lotus Valve during the 4th quarter of this year.

The acquisition of Atritech, with its novel WATCHMAN Left Atrial Appendage Closure technology, strengthens our cardiovascular product offering for patients with atrial fibrillation who are at high risk for stroke. The WATCHMAN is a classic Boston Scientific CRV device. It's a technology that allows us to leverage both the IC and EP facets of the CRV infrastructure to bring WATCHMAN to more patients worldwide. Today, we are ahead of our planned integration of the Atritech team, and we are fully focused on commercialization efforts in the international markets. The WATCHMAN device has a CE Mark and regulatory approval in more than 20 countries with case volume growing month over month. In the U.S., we're on plan with patient enrollments in the PREVAIL confirmatory study.

As we mentioned at our Investor Day last November, we have an internal team focused on the interventional management of patients with drug refractory hypertension. This fast-track, dedicated team is focused on producing novel technologies for renal denervation using our proprietary catheter and energy device expertise. Since this question is often probed, I would emphasize the word proprietary. Extensive animal studies have been initiated or completed, and we are currently on track to commence our first-in-man trial in the second half of this year. We have demonstrated our commitment to realigning CRV for growth with the investments we've made so far. However, we are not done. These 4 are only a subset of the 7 CRV-related priority growth initiatives discussed in our Investor Day last November.

We continue to actively develop internal projects in nearly all of these areas, while also pursuing many external opportunities. The execution of the power strategy is a reality of CRV. Looking at CRM, worldwide defib revenue came in at the lower end of our guidance at $417 million. In the U.S. we came in slightly below our defib guidance. While a disappointment and reflected further in the CRM U.S. goodwill charge, we believe our share has essentially remained flat over the last few months. These estimates are based entirely on our own models and do not reflect the reporting of all of our competitors.

Japan delivered strong CRM growth during the first quarter compared to first quarter last year, driven by our 4-SITE COGNIS and TELIGEN products. In addition to these new products driving growth, we are poised for continued strength in Japan and growing our market share through our partnership with Fukuda Denshi. Fukuda Denshi will fully ramp up distribution of Boston Scientific CRM products in the second half of this year. Our technologies continue to prove their importance in the marketplace. COGNIS and TELIGEN, which is still the smallest, thinnest, high-energy devices in the world with excellent longevity, continue to be well received. We also can see very positive responses to our 4-SITE DF-4 lead system in international markets. This new lead system is build on our highly effective reliance defib lead platform and reduces the required implant area within the body, making COGNIS and TELIGEN even smaller. We remain committed to advancing our technologies and strengthening our CRM franchise. We expect to launch our next-generation INCEPTA, ENERGEN and PUNCTUA defibrillators in Europe this quarter and in the U.S. late this year depending upon final FDA requirements. These products enhance BSC's position in size, shape and longevity along with advanced algorithms to minimize right ventricular pacing, reducing appropriate shocks and apply new heart failure diagnostics in our ICDs. We also represent our first tiered CRM product offering giving physicians and their patients more options, while allowing Boston Scientific direct access to lower-priced tender segments.

Additionally, we expect to launch our next-generation INGENIO wireless pacemaker platform, both on the same platform as our existing high-voltage devices in Europe and the U.S. late this year or early next year, depending once again on final regulatory requirements. This new platform is intended to be the start of a series of low-voltage Brady launches and represents our first major new technology introduction in this category in many, many years.

Our worldwide EP business was down 4% in constant currency versus a year ago due principally to continued product availability constraints with our Chilli II catheter line. This situation has now been rectified, and we have resumed shipments in the U.S. this month. In addition, we have received CE Mark on our Blazer Open Irrigated Catheter. This product represents our entry into the rapidly growing open irrigated catheter market as the only system with total tip cooling design. This approval is a significant step in the execution of our global AFib strategy and 1 of the 6 internal-approved AFib-focused projects.

We expect these products plus the expansion and development of BSC's global EP salesforce and increasing market share of Blazer-based products to be drivers of growth for the future.

Now turning to cardiovascular. Worldwide DES revenue of $379 million exceeded the top end of our guidance, including continued strong performance from our PLATINUM chromium platform with almost $100 million in revenue for PROMUS Element. During the first quarter, we maintained our worldwide DES market share leadership with 8 percentage points more than the nearest competitor. In the U.S., DES revenue of $184 million was near the middle of our guidance range.

With recent other major milestone with the PLATINUM results off ACC earlier this month as our PROMUS Element stent met the target lesion failure primary endpoint of non-inferiority to the PROMUS Stent while showing remarkable low clinical event rates. We have filed our PROMUS Element PMA with the FDA and expect to complete our 2 drug strategy with the element platform in the U.S. on schedule in mid-2012. We also expect to launch ION in the near future. ION is our first U.S. introduction of the Element platform. We believe ION can grow Boston Scientific's DES share in the U.S. due to its acute performance advantages, broad-sized matrix and the proven performance of paclitaxel. Our market research indicates that around 80% of U.S. interventional cardiologists will try it. In addition, the PERSEUS-ATLAS case matched analysis presented ACC earlier this month further demonstrated the significant benefits of ION.

In EMEA, approximately 98% of our DES revenue was in self manufactured product in the first quarter, including more than 87% on the element platform. We expect to grow our DES market share in EMEA this year now that we have PROMUS Element in all countries and the PLATINUM primary endpoint results have been released. Last month, we also launched OMEGA, our new bare-metal stent on the platinum chromium element platform in European countries. We expect to take share with OMEGA and believe that this will happen more quickly than with DES products since there are fewer approvals required, and it is easier to get onto the tender processes. We expect to start the U.S. IDE trial for OMEGA during the third quarter.

Our evolved clinical trial, which is designed to assess the safety and performance of our 4th generation synergy stent completed enrollment 4 months early and is now in follow-up in Europe, Australia and New Zealand. We look forward to presenting the primary endpoint data from this trial at TCT in November. Our next steps will be to gain CE Mark approval for Synergy and start the U.S. pivotal trial. We are excited about Synergy's potential to reduce existing DAP tier regiments, and we plan to evaluate this in our future trial.

Turning to our other CV product lines, our worldwide non-stent IC core business was down 14% in constant currency in the first quarter, consistent with prior periods. This decline is largely attributable to share declines in IVUS and continued price erosion in PTCA balloons. We maintained our U.S. and worldwide PTCA balloon leadership positions in the first quarter with 54% and 36% share, respectively, and expect to see modest improvements to IVUS results due to technical improvements in the near future. In our Peripheral Interventions business, we continue to be pleased with our #1 worldwide market position. During the first quarter, we generated overall growth of 4% on a constant-currency basis, with 7% growth internationally and 2% growth in the U.S. Our worldwide PI stent franchise grew 7% and was driven by international growth of 13%. The increasing success of our epic soft expanding stent in international markets, the Carotid WALLSTENT launch in Japan and the Express LD vascular launch in the U.S. provide additional momentum.

In our core PI franchise, which includes PTA and vascular access, we grew sales 3% in the first quarter with 11% growth in vascular access. The 2010 launches of our Sterling SL and cryo [ph] PTA products provided share stabilization in our PTA franchise. Our Interventional Oncology franchise produced 5% worldwide growth on a constant-currency basis driven by 10% growth in the U.S. We're pleased to see the strengthening of growth trends in all 3 PI segments on a global level in the first quarter and expect to see continued progress through 2011.

Our performance was clearly boosted by the new product launches in multiple geographies mentioned earlier. We have made very good progress with our PI pipeline over the last quarter. Our next-generation SFA stent INNOVA received full IDE approval, and we completed our first patient in the U.S. double trial SuperNOVA during the quarter. We also received CE Mark for INNOVA in late March and began the launch in CE Mark countries in early April. In our core franchise, our Mustang workhorse 0.035 PTA platform is on track to launch in the second quarter. We also believe we're on track for a late second half launch of our Panther workhorse 0.014 PTA platform.

We're making excellent progress with our 2 acquisitions focused on chronic total inclusions, our revascular therapeutic CTO device, now called TRUEPATH, received 510(k) clearance in the first quarter and is on track for a midyear launch. Our S.I. Therapies CTO device, now called OFFROAD, is on track for an OUS launch in the 4th quarter. Recent feedback from the FDA indicates that we will need to conduct a clinical trial to support our 510(k) filing. We expect to begin that clinical trial in early 2012.

In our Interventional Oncology franchise, our Renegade/Fathom System launch occurred in the first quarter as planned, our Interlock .035 coil received 510(k) clearance in the first quarter, and we began our limited launch in mid-April in both the U.S. and EMEA. Early feedback on Interlock's performance has been outstanding. We are now beginning to see the results of our PI rejuvenation strategy and expect continued strength driven by our robust PI pipeline and the substantial number of new product launches. Now moving to our Endoscopy business, the Endo business continued a solid growth in the first quarter, posting an 8% increase worldwide with a 3% growth in the U.S. and 13% growth internationally. During the first quarter, the metal stent franchise gained strong result, recording a 10% increase internationally. This performance was led by our WallFlex Biliary RX fully covered stent, which received CE Mark approval for the treatment of benign biliary strictures, as well as the strong adoption of our WallFlex Duodenal Stent in Japan. Worldwide growth of 7% was also recorded in our biliary device franchise supported by growth in our broad portfolio and driven by the recent launches of both the Advanix biliary plastic stent and the Expect Endoscopic Ultrasound Aspiration Needle. We plan to launch additional devices in our U.S. F&A platform this quarter.

The Hemostasis franchise delivered strong double-digit growth of 15% on the continued adoption and utilization of our current and next-generation resolution clip technology. We are pleased with the progress of the integration of our Asthmatx acquisition and the success we have had with the first full quarter of commercialization of the Alair Bronchial Thermoplasty System. Let me now move on to Urology and Women's Health business, which delivered 5% constant currency growth in the quarter. Our International business continued to gain momentum with double-digit growth in all 4 regions. Our Urology business continued to expand its leadership position and delivered worldwide growth of 8%.

Our Women's Health business was down 1% in the first quarter as procedures remained relatively flat compared to last year, particularly in the U.S. The persistently high U.S. employment rate and increasing employee insurance deductibles and cost-sharing continue to put pressure on several of these elective procedures.

Additionally, competitive new product launches in both slings and pelvic floor repair impacted our growth as hospitals initiated new product evaluations. The U.S. rollout of our next-generation Genesys HTA System for the treatment of abnormal uterine bleeding exceeded our expectations for the first quarter. We continue to believe that the significantly enhanced user interface and ease of operations will enable the business to grow its share of the $400 million worldwide endometrial ablation market. In Neuromodulation, our Spinal Cord Stimulation franchise achieved an excellent 14% constant currency growth in the first quarter, with 14% growth in U.S. markets and 19% growth in the small underpenetrated international market.

We were excited to announce the launch of the Clik Anchor in the first quarter continue our momentum in new product introductions. In fact, in the last 12 months, we've launched a total of 6 new products in Neuromod. Our latest innovation provides a quick, simple and secure solution to the problem of lead migration. Together with the splitters widely launched last year, we're driving growth and market share gains in Spinal Cord Stimulation by offering best-in-class solutions to physicians and pain patients. Furthermore, we continue to see the benefits from our targeted sales force expansion in the second half of 2010, which has allowed us to grow revenue faster than the overall market and gain market share. We expect further market share gains during the year as the Clik Anchor launch progresses and builds on the momentum we've seen today.

As usual, I'll finish with some overall perspective on the quarter: what we liked, what we didn't like and some hot topics for takeaways. I'll start with what we liked. Number one, we liked the continued progress in our priority growth initiatives. In the quarter, we completed our previously announced acquisitions of Sadra and Atritech providing important new platforms in structural heart and atrial fibrillation. We expect to get enrollment and reprise the CE Mark trial for Sadra [indiscernible] in 4 countries late this year. For Atritech, enrollment in the U.S. PREVAIL trial is on schedule. These randomized multicenter study compares WATCHMAN to long-term warfarin therapy and will be used together with the protect trial to support FDA approval. Also in the quarter, we acquired an important Neuromodulation technology from Intelect Medical to support our Vercise Deep Brain Stimulation System. Enrollment in the VANTAGE trial to study the Vercise DBS implant is progressing well. We also added 2 new technology platforms from S.I. Therapies and ReVascular Therapeutics to treat peripheral chronic total occlusions. Both of these acquisitions complement our world-class portfolio of devices for lower extremity peripheral artery disease.

Finally as mentioned previously, the commercialization of Asthmatx is progressing well. In approved markets, including the U.S., the Alair Bronchial Thermoplasty System continues to gain awareness and acceptance as a long-term treatment option for severe asthma sufferers. We launched in Alair in Canada during the first quarter and plan to launch in the U.K. this quarter, with several other country rollouts planned this year. These developments, coupled with a sale of our Neurovascular business, showed the strides we've taken over the past 6 months in realigning our portfolio for future growth. We also like how we have structured these deals with an average of less than 50% upfront and a series of primarily sales-related milestones that, given their target thresholds, we would be thrilled to pay in full.

Our acquisition criteria are consistent and sound. We will continue to buy or build products we understand, sell them through sales forces we already have. These products will be released or less invasive cost or comparably effective and where possible reduce or eliminate refractory drug regimens. Number one, we like the excellent clinical data presented at the recent ACC conference and the continued momentum for our PLATINUM chromium stent platform. ACC 2011 was the most positive cardiology conference we've had in recent years, with several clinical presentations supporting the excellent performance of our Element platform. Most importantly, we met the primary end port of our Platinum Workhorse trial, moving us closer to approval for PROMUS Element and the return to self manufacture PROMUS margins in the U.S. and Japan in mid-2012. Enhanced, secured performance characteristics and including reduced geographic mix and bailout spending confirms the relevance of improve pace of the PLATINUM that is only available with Element.

The results presented at ACC also included a propensity matched analysis of patient level data from the PERSEUS and ATLAS trials that demonstrates significantly lower event rates for the TAXUS Element ION stent compared to TAXUS. These data reinforce the clinical benefits of the Element stent that we have seen in our physician experience in Europe and demonstrate the successful transfer of both everolimus and paclitaxel to the platinum chromium alloy. Number 3, we like the pace of new product approvals achieved this past quarter, which span across multiple businesses and geographies. our Omega bare metal stent was approved and launched in CE Mark countries representing the third offering in our PLATINUM Chromium portfolio. Initial response has been very favorable, and we believe the acute performance benefits of PLATINUM chromium on our bare metal platform will continue to be well received, particularly in the European market where bare metal stents still play a larger role. In India, we launched PROMUS Element to be closely followed by TAXUS Element this quarter, bringing our third-generation PLATINUM chromium technology to an important emerging growth market. The feedback has been extremely positive to date. This quarter, we also announced the availability of Renegade Hi-Flo Fathom Preloaded System used in peripheral embolization procedures, that offers gastro and interventional radiologist an excellent deliverability and torque to provide efficient access and tortuous vessels. Also in our PI business, we received CE Mark and began the European launch of next-generation INNOVA stent for SFA and PPA lesions. The first INNOVA patient in the U.S. was enrolled in the pivotal SuperNOVA trial to support FDA approval, showing continued progress for our internal PI pipeline. In Neuromodulation, we launched the Clik Anchor Position Plus Spinal Cord Stimulator. It's designed to improve the speed and consistency of anchoring procedures. Our 6 acquisitions have made headlines, we have also nearly doubled the number internal pipeline projects to more than 150 in less than 2 years while making both clinical stent and R&D productivity significantly better.

We expect to continue this momentum with a number of critical new product introductions in the second quarter including the U.S. launch of the IM PLATINUM chromium stent, as well as full European launch of our next-generation INCEPTA, ENERGEN and PUNCTUA defibrillators. Number 4, we'd like to continue the improvement in the strength of our balance sheet. Including the prepayment of another $250 million this week. We have now reduced our gross step balance to $4.70 billion, which is currently within range of our target of $4 billion. We are also ever closer to achieving our leverage goal of 1.5x to 2x debt to EBITDA, which is consistent with a strong investment rate credit rating. Our increased financial flexibility has enabled us to act on several strategic goals including targeted priority growth acquisitions, R&D spending, reallocation and investments in emerging markets. Continuing discipline will help us achieve our prior strategy and fulfill our profit goals to restoring profitable growth and increasing shareholder value.

Number five, we liked our continued progress in emerging markets. Revenues and operating income in our 2 most important markets, China and India, were well above plan in the first quarter. Our investment there in people and infrastructure is proceeding rapidly, and we're on target to meet our ambitious hiring goals for the year, including almost 100 employees hired and roles filled in the first quarter alone. We are actively involved in physician training, customer outreach events in Cardiology Congresses that are building brand strength in key opinion leader confidence. One prominent interventional cardiologist said that the India Live, which is India's largest IC Congress, should have been renamed BSC live with our 2011 return to prominence. We are sustaining a strong cadence of new product approvals and launches, including COGNIS, TELIGEN and PROMUS Element in India and our Altrua pacemaker in China. We're also investing some $4 million of India and China-based clinical trials to support product approvals and indication expansion. We have strong enrollment in the PLATINUM China trials to support approval of PROMUS Element in that country. In India, the 1,800 patient tuxedo trial will begin later this year comparing TAXUS Element to XIENCE PRIME head-to-head in diabetic patients. Because more than 40 million Indians have diabetes, we feel the advantages of paclitaxel and the PLATINUM chromium platform could be a real success story, but will reverse the diminished view and market share, not only in India, but in many countries. If the trial proves to be positive, the TAXUS comeback could be the stuff of legends and stories of its death are not only premature but simply wrong. We're also awaiting approval to begin enrollment in an all commerce registry to evaluate the safety and performance of the PROMUS Element stent in India.

Under dislikes. The #1 and really only serious dislike is the disappointing growth in the U.S. CRM market. As mentioned earlier, we now expect this market to decline in mid-single digits in the near term, but return to flattish growth medium-term. Pricing pressure continues to be a challenge, but we are now also seeing evidence of weakening in plant volumes in the U.S. We believe physician reaction to JAMA study results in early January and the DOJ and local inquiries into ICD implant appropriateness of use is contributing but, we don't believe they will be long-lasting. Our U.S. CRM share remains stable sequentially, U.S. market is down mid-single digit compared to the first quarter of last year. We have taken U.S. CRM goodwill write-down predominantly as a result of our future view of the market in its entirety, including all the various players. Let me finish with some hot topics that I'd like to cover before we move on to Q&A.

First I'd like to address the ongoing crisis in Japan. We were all shocked 5 weeks ago to hear the news of the devastating earthquake and tsunami that struck northern Japan. Coupled with the ensuing aftershocks and nuclear fallout, this has been a tragedy of unprecedented scale. On behalf of the entire company, we wish to express our sincere condolences to the people of Japan who cope during this difficult time.

We're grateful that all of our employees in Japan have been accounted for and that none were killed or injured. The safety of our employees and their families remains our top concern, and we continue to focus on addressing their needs and those of the physicians and patients we support. Our employees and the Japanese people have shown remarkable bravery, resilience and fortitude in dealing with the stress and uncertainty of the disaster. For example, shortly after the earthquake, 2 of our employees drove into the hard hit area of Sendai to deliver emergency food, water and medical supplies to many of their stranded coworkers. They were able to move some of the affected families and offer much-needed assistance and comfort to others in need. In addition, they provided a first-hand damage assessment and helped determine how best to set up temporary office space. We're truly grateful for such incredible efforts and proud that they're part of our global family. Our team in Japan has shared dozens of other stories of employees interrupting their daily routines asked to perform tasks well outside of their areas of responsibility or expertise. Clearly all our Japan team has proved that our supply chain is best-in-class by continuing to deliver much-needed products with minimal disruptions. We're proud of what they have done and how they continue to persevere through this crisis. Our focus remains with our people, but Japan's first quarter sales were nothing short of remarkable given the circumstances. We remain optimistic and hopeful for their continued recovery.

Second hot topic relates to reason development in the GPO contracting. While we are aware of GPO contract cancellations by our CRM competitors, these actions have not impacted our overall strategy. First of all, we are not aware of the circumstances that drove our competitor’s decisions with regards to GPOs. Contract negotiations between product suppliers and GPOs are complex by nature, due partly to issues of contract compliance, pricing issues, fees and recent demands for greater price transparency. Through candid discussions, we've always found ample common ground and value to reach agreements with the majority of our GPOs. Regardless, the GPO business model is increasingly being challenged by its own members.

Discussions we've always found ample common ground and value to reach agreements with the majority of our GPOs. Regardless, the GPO business model is increasingly being challenged by its own members who require the ability to negotiate locally, especially for physician-preference items, which include many of our products. Based upon our recent analysis, Boston Scientific deduce the benefit from positive long-term relationship with our GPO customers.

Third hot topic is the recent CMS proposal to establish new rules for accountable care organizations or ACOs. Under health reform enacted last year, Congress established the shared services program to approve the formation of ACOs. Through participation in them, healthcare providers would be incentivized to work collaboratively to improve the quality of care for Medicare of patients while reducing overall spending. In return, ACOs will be eligible to receive a portion of the realized savings, encouraging providers to optimize care and resources.

The proposal details that ACOs may be created, operated and organized. As expected the rule allows ACOs to share savings they generate for a specific stenting target set by CMS for each ACO. However, CMS has also proposed the new ACOs to be accountable for downside risk, forcing them to repay Medicare for a portion of the losses for spending above the set target.

The new rules will also have implications for manufacturers like Boston Scientific. Under an ACO, the intent to control cost could lead to increased pressure on price, pricing and service terms for medical devices. On the other hand, if the intended policy objectives are realized, ACOs will facilitate greater coordination of care between primary care physicians and specialists. Improved coordination could increase screenings and referrals, leading to an increase in procedures.

Incentives to improve quality outcomes and avoid remissions may become stronger, potentially providing leverage to how lighter technologies and services would help achieve this quality metrics. We believe our ability to address bundled episodic care with a single payment, the execution of CrossCare and our new sales models, as well as 24 #1 or #2 product segment market share positions will provide us with a unique edge in this brave new world.

As the last hot topic, I'd like to address St. Jude's new quadripolar lead. It's designed to work with their CRT devices to reduce phrenic nerve stimulation or PNS, which is a common complication of CRT therapy.

It was recently introduced rightly so with much attention and fanfare. Unfortunately, there appears to be a number of misconceptions regarding its capabilities and performance, particularly compared to our current Boston Scientific bipolar LV lead.

First, let's look at the facts. In the published election trial data, we see the Boston Scientific Bipolar LB leads and devices, which feature electronic repositioning and 3 proprietary pacing configurations, have the same if not less PNS than St. Jude's quadripolar LV lead system when compared to their own published data. Patients with our leads and devices successfully avoided PNS more than 95% of the time. In contrast, according to St. Jude's own data, they were successful with the quadripolar lead between 89% and 95% of the time.

In terms of dislodgement rates, current Boston Scientific bipolar LV leads have an acute dislodgment rate of less the 1% based on real world performance data. In comparison, St. Jude's quadripolar lead, according to one polar study, had dislodgement rate of 3.7%. Furthermore, the quadripolar data to date shows that physicians essentially programmed the product as a bipolar lead 96% of the time anyway, bringing in the question of real value of this technology for physicians in the first place, particularly at any sort of premium price.

In addition, there is no published data to suggest that having a quadripolar lead will improve hemodynamic outcomes. As mentioned earlier, the same 2 poles that are available in our bipolar leads are used for pacing 96% of the time. Given this and the fact that St. Jude has no system for interoperative optimization, it will be implausible to suggest their system achieves better hemodynamics at this point. This completely negates the unsubstantiated claims that quadripolar leads improve CRT efficacy by reducing the rate of nonresponders.

Furthermore, with BSE system, a patient can benefit from a market leading 10 heart failure diagnostics versus only 3 with the quadripole and 0 physiologic measurements or heart failure alarm. Our diagnostics include 2 physiologic measures, weight and blood pressure monitoring, that are clinically proven, physician reimbursable and lined with guidelines.

Finally, we've been hearing claims that the quadripolar lead simplifies the implant procedure. In St. Jude's own published data, there is no significant differences in implant time, fluoroscopy time or LV lead implant time between their quadripolar and bipolar LV lead cases, once again putting the rest of these claims of the so called simplified procedure.

Physicians consider an entire system when choosing which device to implant. Boston Scientific is the smallest for this device in the market with excellent longevity by about 1.5 years versus quadripolar and the most reliable leads. We have a remote modeling system that is both reimbursable and has published clinical evidence that demonstrates improved patient outcomes. Physicians also carefully consider relationship of service and pricing when making overall implant decisions.

While we expect many physicians to try this lead, we believe that it is very unlikely to result in major market share shifts, especially when given time to consider the misconceptions outlined above. LV lead implantation is one of the most challenging parts of the device implant, requiring physicians to have many tools and options. We believe quadripolar LV leads may complement but certainly not replace the portfolio of other available options. In fairness, some of the quadripolar hype does provide real marketing and curb appeal initially, but the facts are very different. The discussion reminds me of a friend of mine on a golf course when I asked him if my the remaining 2-foot putt was good; he said it was nice. Quadripolar is nice. A simple 1-page chart summarizing my comments is posted on our website for your ease of reference.

The Boston Scientific turnaround has begun to show its pace. Leadership changes are mostly complete, the power strategic plan is being executed along with the priority growth initiatives both internal and external that support it. Compliance, litigation and warning letter enterprise risk mitigation is improved and in place. Debt and operating expenses are down and will come down further. Our Investor Day aspiration of double digit EPS growth in the near term and 6% to 7% sales growth in the medium term remains intact. R&D is more efficient and will be more so. Internal R&D projects nearly doubled to 150 while almost $300 million has been shifted to growth. We have integrated Guidant to form CRV, targeted new sales models for changing marketplace and an emerging markets team for a changing world. The turnaround heavy listing will be complete by year end 2011 and much to everyone's surprise, excluding us, BSC will be back stronger than ever. With that, I'll turn it back to Sean who will moderate the Q&A.

Sean Wirtjes

Tamia, let's open it up to questions. In order to enable us to take as many questions as possible with the time we have left, please limit yourself to 1 question and a related follow-up. Again, I remind you that Ray and Jeff will be joined here in the Q&A session by Sam and our business presidents, as well as Doctor Dawkins and Doctor Stein. Tamia, please go ahead.

Question-and-Answer Session

Operator

[Operator Instructions] And we will begin with the line of Kristen Stewart with Deutsche Bank.

Kristen Stewart - Deutsche Bank AG

Thanks for taking my question. I was just wondering if you could just go back over the goodwill impairment charge just in terms of commenting on what specific growth you are expecting within the CRM market. It seems that obviously something is significantly changing your mind and you talked a little bit about JAMA and the DOJ is being more transitory but yet the goodwill impairment suggests there might be something more permanent. Can you just walk through any additional details there?

Jeffrey Capello

Sure, Kristen, this is Jeff. So as I mentioned in kind of my introductory comments on the charge, as we received the competitors' data for the 4th quarter, which happened kind of late in February, early March, the electronic release is later, and looked at kind of the rate of implants particularly within the defibrillator business in the U.S., and as we watched the quarter unfold and this market checks, we saw a softening of the rate of implants that had us go back and kind of look at our assumptions that we've done a year ago. And we believe that as a result of some of these, which we believe are temporary pressures whether it's the JAMA article or the DOJ or the RAC audits or whatever have you, that those are putting some temporary pressure. So we reduced our expectations for the next couple of years relative to CRM growth. After which point, we believe that these temporary pressures will leave based on the fact that the technologies underpenetrated the market and they come back to more normal growth. So the CRM market in the U.S. will kind of come back to kind of flattish to slightly positive, which is not far off what we assumed originally. So it's really kind of a temporary blip the next couple of years followed by a return to more normal environment as we expected before.

J. Elliott

And Kristen, it's Ray. I think it's worth commenting too, if you look at the impairment modeling system that's based on a 20-year database, you don't have to tweak the first 2 or 3 years very much in order to cause a fairly substantial step 2 requirement in the impairment process, so I wouldn't over read it because of the nature of the kind of model that you're using, which is a requirement.

Kristen Stewart - Deutsche Bank AG

Okay. So for the next couple of years, you guys are expecting CRM market growth to be negative, is that correct?

J. Elliott

U.S., yes.

Kristen Stewart - Deutsche Bank AG

And so how should we take that in terms of the contracts of your kind of longer-term or even medium-term growth rates that you provided at the Analyst Meeting last fall? It seems that since then you've had more negative pricing pressures within stent business and non-stent IC. This is an incremental negative. Do you still feel a high level of conviction on maybe some of the pipeline that it can overcome? What seems to be more negative emerging in the last 4, 5 months?

Jeffrey Capello

Kristen, it's Jeff. So I think it's important to note that we're talking about the U.S. CRM market, right? And so if you look at kind of our U.S. CRM business as a percentage of the total, and you reduced that growth rate by the numbers we're talking about, you're talking about an impact of the total company's growth rate of approximately 50 basis points. So our assumptions for the next couple of years are that we're a low, single digit growth company in all of the factors we discussed previously. So certainly, in the short term, that provides a bit of headwind in terms of our assumptions. However, as we've outlined today, our DES business is extremely strong; stronger than we anticipated it was going to be. We certainly have taken more share with PROMUS Element in Europe, we'll take this further upside. But some of the challenges that our competitors are going through in the U.S. provides us confidence to say we think we'll take more share when TAXUS Element comes out. And we think that PROMUS Element is on or ahead of schedule. So if you look at kind of all those factors, there's a number of positive factors that were not reflected in our estimates when we did the Investor Day presentation. So these things are going both ways.

J. Elliott

And also, Kristen, I mean, if you think about what we said at the Investor Day, and by the way nothing has changed from Investor Day. I said it many times, I'll say it again, nothing has changed. To just point, it's low single digits. We're not 50 basis points smart, we're not even 100 points smart for start, so there's no implication there. In the early years, as you recall, from being at Investor Day, first couple of years, our focus on getting the double-digit EPS growth and expense control and productivity in R&D and growth initiatives and so on, and of course the sales growth comes later, so the simple answer to this is the 50 basis points here, although nobody likes taking goodwill write-downs, has absolutely no change in what we've told you and nor do we see anything that would cause us to change it.

Kristen Stewart - Deutsche Bank AG

Okay, great. And just real quick, Jeff, that positive $0.01 from Japan what exactly was that that you've called out?

Jeffrey Capello

Yes, we had the benefit in Japan of 2 things happening. One, some of our competitors within the endoscopy space manufacture in Japan, so those competitors were off the market for a quarter. So we had 1 term at it in terms of we were called upon, we're happy to supply their customers with product, and hopefully that will continue going forward. But we're assuming that that doesn't continue. The other benefit we have relative to that expectations is the local competitor that's coming out with the new stent, was delayed a couple of quarters. Therefore, we did not have negative the negative headwinds with that. Excuse me, couple of months.

J. Elliott

Not 2 quarters, 2 months.

Jeffrey Capello

2 months, sorry.

Kristen Stewart - Deutsche Bank AG

Okay. Thank you very much.

Operator

And next, we will go to the line of Bob Hopkins with Bank of America.

Robert Hopkins - Lehman Brothers

2 things. One, a question on top line growth and then a question on just understanding the moving parts and margins a little bit. First of all, on top line growth, you guys have just talked about being a low, single digit growth company and that's the aspiration here and in the near term. Right now, you're not there, right now you're shrinking in the low single digits. You've been excluding the divestitures. So from here, can you talk about what gets better because your non-stent, non-ICD businesses are doing well. But what is it in your view that really gets better that gets you from where you are right now to low single digit growth?

J. Elliott

Well, it's 2 big things, Bob. One is in the near term, one is DES and where we believe we will fare much better given all the circumstances going on that we've described. And the other is simply the rafts of new products coming out that are going to allow us to perform at a higher level. So if you look across every division, I don't see a non-IC core. Other than some return to prominence of IDs [ph] because we have some technical problems. I don't see that situation changing dramatically. It won't be there. But DES -- CRM in the sense of new product launches in Europe and the products mentioned, and then virtually every other division with new products. If you look at what we just outlined in PI as an example, I haven't written that much material in PI since I've been here and I doubt if Jim did before that because there simply wasn't products to talk about. So if we execute the plan on DES, it was deliver the new products, we'll be there but a couple of areas or 1 area for sure like IC. I just -- with PTCA Balloon price monetized [ph], I can see how that area comes back in anytime in the near future.

Jeffrey Capello

I think, the other, Bob, the other dimension is geographic, right? I mean, we announced when we did our guidance thing in Europe, putting in a substantial investment, $30 million to $40 million in emerging markets, as well as putting people into some of the more mature geographies, put feet on the street. A lot of those resources are in place and as I'm sure you can appreciate, there's a training and orientation period that occurs after which you get the benefits. So as Ray had mentioned in his opening comments, we've made a lot of progress in places like India and China, but a lot of those people are just kind of come through the door and are in training. So we have yet to see the benefit of that. We'll start to see that as we hit the back half of the year. And then next year will be a much bigger year for emerging markets as we have significantly more feet on the street. The clinical trials that have been done, PROMUS Element has been approved in India. We expect to get approval in China. With a number of things that are happening, we are expected to drive up the growth rate internationally.

J. Elliott

Yes, it's a good point. The aspirational goal for -- I think we've mentioned this number before, for India and China in terms of sales reps is about 225 people, and we've got more than 100 in-house now. So I mean, once you get that filled up and rolling with markets that are growing at 15% and then add to that to the comments I made previously, we should be there and consistent with what we've advised you.

Robert Hopkins - Lehman Brothers

And then on the operating margin side, can you just -- thinking about the adjusted margins for this quarter, and you mentioned there are a few one-timers in their including that $50 million true up and such, can you talk about what the gross margin and operating margin would be this quarter, excluding those one-time items?

Jeffrey Capello

Yes, so let's just walk through the P&L. So if you look at the -- let's start with the gross margin line, it's on my page here. We had 67.8% gross margins for the quarter. If you exclude the $50 million benefit, from the supply arrangements, from that you come back down to 65%, not far off kind of what we did kind of mentioned and guided to. So not really any surprise. The surprise was that the cost of manufacture of that product for kind of the ramp-up period was lower than we anticipated. So that one wasn't far off. Then I see step through kind of the other elements of the P&L, SG&A was lower. SG&A came in at 30.8% versus our guidance of 33% to 34%. So couple of 200, 300 basis points, call that $50 million difference, right? Of that $60 million, $20 million was Greece. So the situation in Greece, we've been watching for 3 years now, carefully. And we took a very conservative posture based on cash was not coming in. Receivables were getting longer and longer. We made I think a prudent and conservative decision to reserve some of those receivables and deal with that business on a cash basis. What's transpired here is we had a window where the government of Greece offered to buy back receivables at roughly 25 -- $0.75 on the dollar. And we made a decision to go ahead and liquidate our receivables, which I think will prove to be a pretty good decision. So that was about a $20 million benefit, 1/3 of kind of let's say the delta. The other 2 pieces: 1 piece is due to the -- in the first quarter we typically have lower expenses due to kind of when merit kicks in and then there's this timing of trade shows and other expenses, acquisitions and other things that come through. And the other -- so that's roughly $20 million. A lot of pieces in there. And the other $20 million is we managed our cost base better. And so as we look going forward, if you kind of compare our beat, let's say the $0.12 beat relative to high end of our guidance, the $0.22 versus the $0.10, it's a $0.12 excess, we think roughly $0.10 of that, which I walked through my comments, wouldn't necessarily carryforward, $0.02 might. So you can multiply that $0.02 by 3 and get $0.06. If you get to the midpoint of our range, we're giving our selves credit for $0.01 on the basis or $0.03. $0.01 a quarter, 1/2 of that in the event that there's more of a challenge on the top line or some of those costs are more difficult that kind of keep out of the P&L going forward. So I think we're being a little conservative on the OpEx side.

J. Elliott

Yes, I think, Bob, I think Jeff just hit on it. I was just going to say the same thing. Internally, we don't view this -- the $0.22 is great from a cash point of view. So we shouldn't ignore it completely. But we don't view it internally as a $0.22 quarter as you might imagine. We view it as a $0.12 quarter or $0.01 beat against The Street and $0.02 over the top of our own on a decent sales quarter. That's internally how we not only would discuss, it's how we do discuss the quarter. And I think that's very fair to view it as a good sales quarter, notwithstanding the top CRM in the U.S. It's still a good quarter overall in sales relative to guidance and a $0.01 beat of the street, it's how we look at it.

Robert Hopkins - Lehman Brothers

Great. Thank you very much.

Jeffrey Capello

And then, Bob, the final component is R&D. Let me finish with that. It's important. So R&D was $212 million for the quarter. In my comments, I mentioned, well, by the end of the year, we expect to be close to the $1 billion run rate. So that was just a step up over the next 3 quarters, up to kind of a $240 million, $250 million number as we exit the year. We have a number of programs which we terminated due to our focus on higher growth. So it's benefit in the 4th quarter, a little more benefit in the first quarter. We have a number of new initiatives that we're kind of kicking in. We have the acquisitions that we did. We've done 6 acquisitions. Some of those from a clinical trial perspective. We expected to start a little earlier in the first quarter. We're going to ramp up in the second quarter, but we still feel good about those. So there's a bit of a timing issue where that -- you'll see that $212 million kind of creep up throughout the year closer to kind of the $240-ish million range as we end the year. And we've got that by project, and kind of the people are eager to kind of going on those projects. So there could be some favorable in R&D but I don't think a lot of favorables because we got a number of things we're working on.

Robert Hopkins - Lehman Brothers

Great. I appreciate color.

Jeffrey Capello

Okay.

Operator

Our next question comes from Mike Weinstein from JPMorgan.

Christopher Pasquale - JP Morgan Chase & Co

Chris Pasquale here for Mike. First question in the CRM business, did you have any benefit in the quarter from inventory stocking related to the [indiscernible] distribution agreement in Japan?

Jeffrey Capello

No.

J. Elliott

No, none.

Christopher Pasquale - JP Morgan Chase & Co

Okay. Do you expect any as that ramps up or is that just going to be just a wash?

Jeffrey Capello

We expect some as they kind of set up their ne2rk and their distribution centers and their sales force. But I think as one of our competitors pointed out, I think it had negative impact on their business. We think that relationship is going to be a great relationship for us. That significantly increases our reach in the Japanese market in terms of feet on the street with a very established player and very respected distribution partner. So we'll see some ramp up as we work our way through the year, but we watch our inventory levels pretty carefully from an accounting perspective. So we don't let kind of inappropriate stocking influence our results unnecessarily.

J. Elliott

Yes, I think, too, Chris. It's very -- we would take strong consideration to deferring the revenue if it's over 30 days anyway. So you wouldn't see a load up that exceeded that from an accounting point of view.

Christopher Pasquale - JP Morgan Chase & Co

Okay. And then the U.S. pricing seems to be getting incrementally worse over the past couple of quarters. Do you think that we'll see any moderation in that trend as next-gen products launch in the U.S? And if not, how does that impact your ability to grow gross profit in that business over the next few years even as you get the positive benefit of the PROMUS Element transition?

J. Elliott

Yes, I don't know that it's getting that much worse and I'll ask Hank to comment on this as well. It may be getting a little bit worse but I think we do believe obviously the ability to differentiate products and other competitors are in a very different position right now and they're shifting sands. Hank, did you want to add some comments there?

William Kucheman

Yes, Chris, as I said at the ACC meeting, I believe that it will continue at pretty much the rates we're experiencing today. One of the things that I continue to believe in, is that the geography aspects of what we talked about earlier, specifically India, initially are going to help us in terms of increased share. And I believe that with the launches of ION, I hear in the States, here in the near term, that's also are going to help us in terms of share capture. So if you look at all those things, there's some pluses and there's some minuses, puts and takes. But I think the net-net of that hopefully will be positive.

Jeffrey Capello

And the other thing I'd add, Chris, is that when we put together the Investor Day materials, we assumed that the pricing environment would stay pretty challenging in DES, both domestically and internationally, at least for the next couple of years. So I don't think anything we're seeing yet is really causing as much angst on the pricing front. The vast majority of that was priced into our assumptions.

Christopher Pasquale - JP Morgan Chase & Co

Okay, thanks.

Operator

Our next question comes from Rick Wise from Leerink Swann.

Frederick Wise - Leerink Swann LLC

Let me start with the balance sheet. Ray, you and Jeff are both emphasizing the significant progress, the dramatic debt reduction just in these last few months alone and where you're going to end up. Can you help us think about when you might get back to investment grade and the opportunities that might present in terms of -- I mean, is there an opportunity to refinance debt and get interest expense down further? Could that be some upside as we look over the next few quarters?

Jeffrey Capello

Yes, Rick, this is Jeff. So we are riveted on getting back to investment grade. And we spent quite a bit of time in the rating agencies over the past 6 to 9 months. And I would say obviously S&P agrees with us for our investment grade. The 2 ones that are behind we think are Fitch and Moody's. Having said that, Fitch has us on positive outlook, which means that they feel pretty comfortable that we're going to be investment grade short order. And I don't think Moody's is far behind. So I would anticipate that we would get back to investment grade by -- I would go out and let me say, by the end of this year, I think is a realistic assumption perhaps earlier. We are significantly ahead of where we thought we would be or at least we committed to be from the delevering perspective to the point that by the of the this year we expect to be down at $4.1 billion of debt. So on our $4 billion target, which would put us at roughly 2.3x debt to EBITDA by the end of the year, which is clearly, it's not the first notch above investment grade. It's probably 2 or 3 notches, it's BBB+, there where those statistics kind of lying in. And as you go through the statistics across most of the rating agency parameters, we're there already, and I don't think there is any debate on that. I think they're waiting to see kind of some stability in the cash flows in terms of revenue for this year. And I think there's no disagreement that we're not investment grade and won't be investment grade in the short term. In terms of refinancing the debt, I would say that once we get down to the $4.1 billion of debt outstanding with a 5.6% average interest rate, that's a pretty good rate. And the cost of buying out the debt in terms of the new debt you could put in place, I'm not sure that equation would work out that favorably for us. So I would say that we'll get done with $4 billion worth of debt, we start to pile up cash, we look for opportunistic bolt-on acquisitions and I think the topic of the share repurchase program comes back on the table with the board.

Frederick Wise - Leerink Swann LLC

Okay. And that was sort of where I was kind of go next, you answered the share repurchase possibility, Ray, maybe you could just update us on your latest thoughts about the portfolio evolution from here as the balance sheet gets better, should we expect another year of acquisitions the way we saw in the last 12 months? And are you basically done with divestitures at this point? Just your latest thoughts. Thanks.

J. Elliott

Well, on the acquisition side, no, we're not done but the scale and size hasn't changed on the scoping that I've already provided. First of all, that's the size of acquisitions that happened to be in the areas we want to be in. They're just -- there isn't big, big stuff out there. I always sort of disclaim that one because it isn't really out there for us, that aligns with our growth initiatives. So we will continue to make the sort of $100 million to $400 million-type acquisitions certainly in fulfilling out the 12 growth initiatives. So far, we're virtually 6 for 6. I don't know that we're going to win them all necessarily either. But we're in good shape right now. In terms of the divestitures, I wouldn't comment on that. I mean, we're always looking at opportunities within product lines certainly to monetize things that you may see as part of product lines or monetize some things as the opportunity comes up. But we'll continue to move forward. We're not done, Rick, if that's what the question is.

Frederick Wise - Leerink Swann LLC

Yes, and just the combining of CRM and cardiology, are you pleased with how it's gone so far? And I'm just being curious to hear, whether you're getting the benefits you expected in terms of your dialogue with hospitals and your customers? Thanks.

J. Elliott

Well, I'll let Hank answer the second part of that. I'll answer the first part. It has been a tough slog getting it done and a lot of people putting a lot of effort into it. But the fact of the matter is Guidant should have been integrated, fully integrated, 4 years ago, whatever appropriate time frame. So it's not really a case of that. It's a case of we had to do it in order to extract value and we had to do it in order to reset ourselves up for the future in terms of the approaches Hank wants to take and what is a new environment. So Hank, maybe you want to give him just a real short update and your comments on it.

William Kucheman

Rick, I think there's a growing appreciation for the CRV value proposition. If you recall, we shared with you back in November, at the Analyst Day, we had about a 4:1, what I call competitive bid ratio, so a very, very competitive bid situation. We lost; we won 4. And that ratio, quite frankly, is continuing. And we're on track year-to-date to achieve our aspirational goal of doubling the number of our contracts, CrossCare contracts that we have. Having said that, I think when you get out and talk to various healthcare systems, and this kind of links back to Ray's comments about ACOs and value-based pricing, there's a growing recognition that the types of services, both clinically, economically and operationally, that we can offer a healthcare system, well a system, in that new world. That recognition, that awareness, varies by institution but it's increasing as time marches on.

Frederick Wise - Leerink Swann LLC

Thanks again.

Operator

Our next question comes from David Lewis with Morgan Stanley.

David Lewis - Morgan Stanley

Things for Ray or for Hank, outside the U.S., DES penetration was obviously much stronger than you're expecting it. It sounds like that is going to carry through the remainder of the year. You did sneak in a comment about local competition I believe in Japan, I wonder if you could talk about it. Is that the Nobori stent from Terumo? And I guess my real question is that stent had really nominal penetration in Europe and if you're seeing an effect in Japan, have you seen that broader outside of Japan?

J. Elliott

Hank, do you want to take that?

William Kucheman

Yes, that is the Nobori stent, David. And I believe in Japan, at least the way we handicap it, that if you're going to get some degree of what I call home field advantage impact, as it relates to other regions outside the world, I haven't seen any significant uptake.

David Lewis - Morgan Stanley

Okay, very helpful. And just 2 more quick ones. First of all, Ray, you talked about obviously the pressures in the U.S. ICD business and maybe some of those can get a little better. It sounds like the primary volume pressures coming from JAMA, down on the price side is where I want to spend more time, do you think new product introductions from yourselves and competitors begin to help that pricing environment? Do you think that there's been price discounting due to the lack of innovation? Any innovation should help improve ASPs in the next 18 months?

J. Elliott

Dave, I wouldn't say any innovation because for the reasons Hank just described with the prior answer relative to changing environment, I think the pressure will be on your ability to take a premium depending upon your ability to improve the quality of outcomes in a proven way, in a comparatively effectively way, advanced patient outcomes, reduced rehospitalization. I mean, there's a long list of things there that I covered in my remarks and Hank just referred to. I don't think it's going to be as simple as -- and I don't want to be flippant about it -- but adding a bell and a whistle and suddenly expecting you're going to knock out a couple of 3 or 4 points of negative price where you can get a positive premium. I just don't get where that world is ever going to return. There was a time when that was true maybe not so long ago. I'd like to tell you, I thought it was going to come back. I just don't believe it. I think you're going have to have substantial innovation that's measurable and provable at the patient and hospital and economics level.

David Lewis - Morgan Stanley

Okay. And maybe just one last one for Jeff. Thank you for these comments. Jeff, just emerging markets obviously significant investment discussion at the Analyst Day and heading into '11 guidance, didn't hear a lot of talk today about that investment. Could you just help us understand the investment in EM [emerging markets] across the quarters this year? Is it stronger back half and first half, was there a significant EM investment this quarter?

Jeffrey Capello

So Dave, we talked a little bit about this already, but just to go over it. We have significantly ramped up our position in India and China. It did happen part of the way through quarter. And as you hire people, we didn't get them all in the first day of the quarter. So it started, the ramp started. Some of the clinical trial programs have now been kind of cemented, if you will, in terms of locations, number of patients, so we'll start to kind of see that ramp up. So the pieces have started and we're starting to see some revenue benefit. But in Q2 you'll see a much fuller impact within SG&A of the impact of that, and then the back half of the year you'll start to see some real as it relates to the commercial piece in terms of feet on the street more of a revenue benefit. It will be back-end loaded in terms of the SG&A.

David Lewis - Morgan Stanley

Okay. It's very helpful. Thank you.

Operator

Our next question comes from Larry Biegelsen from Wells Fargo.

Larry Biegelsen - Wells Fargo Securities, LLC

Thanks for taking the questions. One quick clarification, the ship hold, if I remember correctly, I thought it was the $72 million impact in Q1 of 2010. Today, I think you said $51 million. Was there a change?

Jeffrey Capello

No, I think it was $72 million. I think the $51 million is the net differential because we are off the market for the number of days in the first quarter and then we assumed we'd lose a couple of 100 basis points of share. And so I think the $51 million is the net of the being off the market in the first quarter of last year versus the, let's say, permanent share we feel we've lost. So it's the net of those 2, Larry.

Larry Biegelsen - Wells Fargo Securities, LLC

And Japan, the impact from -- I'm sorry, did I interrupt?

Jeffrey Capello

No, go ahead.

Larry Biegelsen - Wells Fargo Securities, LLC

The impact from Japan, one of your competitors called that out, the impact from the earthquake and tsunami, are you guys assuming that it has a negative impact on your business in 2011?

Jeffrey Capello

Well, as we mentioned, we actually had a beneficial impact in the first quarter as we were called upon within the endoscopy business to help a couple of competitors to supply products because they manufacture in the country. So we were more than happy to do that and we would be happy to do that going forward. They won't be very happy about that, so we'll see how that plays out. So we're not assuming that a lot of that favorably continues. What does happen though we think is in the tsunami region plus the Tokyo area, we are seeing a lower level of implants for a variety of reasons. Therefore, we're assuming that continues. And that's one of the reasons why we don't continue to see a benefit relative to what we saw in the first quarter for the rest of the year for Japan, it's a slight negative for us. But we don't manufacture there. So from an exposure perspective, I think we've done better than most. And as Ray have said, organization has done a tremendous job responding to a very difficult situation, so we're very thankful to them for that.

Larry Biegelsen - Wells Fargo Securities, LLC

Last question on the U.S. ICD market, I think this negative 5% or so for the market in Q1 is not too far off from where most people expected it to be, but do you -- how confident are you it doesn't get a little bit worse from here? Thanks.

Jeffrey Capello

Well, I think that plays into our -- I guess the first part of your comment, certainly, that negative single digit performance in the first quarter is different than we expected and I think perhaps our competitors expected and some of them still expect. Having said that, there is still some risk in terms of the environment, some of the factors that we've identified, and that's why we'll be a little bit more conservative about letting too much of the OpEx favorability flow through until we see how that plays out. But we think we've done a reasonable job based on I think we know of assessing what we think the impact is.

Larry Biegelsen - Wells Fargo Securities, LLC

Thanks for taking my question.

Operator

Our next question comes Glenn Novarro from RBC Capital Markets.

Glenn Novarro - RBC Capital Markets, LLC

Thanks, 2 questions. Ray, appreciate your commentary on the quadpolar lead, but you also have Medtronic out now with Protecta on the ICD side. So my first question how does your sales force market against the launch of Protecta, what are the features in COGNIS and TELIGEN that may be an offset? And then the second question is on your new ICD line. So obviously St. Jude will be out their marketing the quadpolar, Medtronic's out-- going to be marketing Protecta for unnecessary shocks. Are there any marketing angles that you can play with your next generation ICD systems?

J. Elliott

Thanks, Glenn, I'm glad you appreciated my comments because I guarantee half of the Twin Cities won't have appreciated it. It's good that you did. But I'm going to let Ken Stein come in. It's not so much how COGNIS and TELIGEN plays against Protecta because we know what the benefits of COGNIS and TELIGEN are. It's more a case of the reality of how Protecta really will serve in an MRI environment. So maybe, Ken, if you want to pass a few comments on that?

Ken Stein

Yes, thanks, Ray. I think the thing to emphasize about Protecta offering, with some ways affect the quadpole story. I think St. Jude quadpole lead is better than their previous leads, and it starts to catch them up to where we are right now. And I think our feeling is the same thing as to with Protecta. Protecta helps with some problems that Medtronic has experienced with some of their prior devices. We think it catches them up to get close to where we are right now in terms of inappropriate shocks. We have published -- we have clinical trial data from the altitude study that shows that with optimal programming, our inappropriate shock rate is as low as 2% of our patients per year. And I think obviously, we'd like to be able to do better than that. From where we're on, we're working on some things to accomplish that. But we'll hold that up against anyone's added device. And right now, with COGNIS and TELIGEN, we still have some of the best battery longevity. With PUNCTUA, ENERGEN and INCEPTA, we feel we can improve on that platform.

Glenn Novarro - RBC Capital Markets, LLC

Just as 1 follow-up, do you assume you’re in your modeling going forward some share loss to Medtronic because the Protecta, or some share loss to St. Jude because of the quadpolar?

Jeffrey Capello

No, not really. Probably minimal. We do -- I shouldn't say no, not really. That's not quite right. Minimal share loss in both cases. The answer is yes, but minimal, minimal share loss. Nothing like sort of what's in the conversations have been.

Glenn Novarro - RBC Capital Markets, LLC

So maybe 1 point or 2 points of share loss in the U.S.?

Jeffrey Capello

Well, minimal.

Glenn Novarro - RBC Capital Markets, LLC

Okay. Thank you for take taking my question.

Operator

Next question comes from Tao Levy from Collins Stewart.

Tao Levy - Collins Stewart LLC

So I was wondering if you could maybe talk a little bit about if you look at the expenses in the quarter and you said $20 million seem to be potentially ongoing in terms of savings on the SG&A line, could that accelerate going forward? I know you got several restructuring programs going on and maybe you're thinking about additional programs. Is that a number that we should be thinking, 20 plus?

J. Elliott

Yes, Jeff correctly described the current situation. But what you have to take into consideration, they're down, some of that is real, some of it will be picked up later in the year. So Jeff's characterization was quite accurate. However, the big however is, our current expenses do not include the effects of project transformation, which is a $200 million cost reduction program relative to R&D efficiency and productivity. It does not include the effects of a major 0-based budget program that Sam is running that will have multimillions of dollars of reduction effect on our cost structure. It does not include any of the effects of our emerging markets initiative that we're deeply into now in terms of labor arbitrage and changing the cost structure and format of many of our transactional work that we do, and it does not include the residual effects of any of the remaining features of alignment for growth. So I said from the beginning, the expenses in the company are high. I've had people, peers of yours, argue with me that we can get much lower. I disagree completely. There is a tremendous amount of dollars here that need to come out and will come out and are not currently included in the trends because those programs are just relatively early stages of execution.

Tao Levy - Collins Stewart LLC

Okay. And in terms of the European drug-eluting stent market with PROMUS Element, is there sort of a percent that you can provide as to the number of sort of accounts and markets were you still feel like you're not in because of tenders or other reasons?

J. Elliott

Yes, there is a rough number that our marketing folks use but it's the combination of everything. I wouldn't know how to break it out. But there's tenders, are very important. There was countries or partially missing countries and/or areas within countries that haven't yet provided reimbursement. And then there is the -- kind of missing, just loss it there for a second -- sorry, data. Thank you. There's a number of people in Europe that simply will not use a product that doesn't have sufficient published clinical data. When you add all that together, my understanding it's high single digit to as much as 10% of the marketplace that we absolutely were not in at all.

Tao Levy - Collins Stewart LLC

Got you. Okay. And then just last question, on the Neurovascular side of the business, you kind of alluded that, why was that higher than what you guys have talked about in the prior quarter? I think it was like $25 million a quarter. And is that -- is the increase still the 0 margin business for you guys?

J. Elliott

I'll give out the phone to Steve McMillan if you really mean Neurovascular. I'm assuming you mean Neuromod?

Tao Levy - Collins Stewart LLC

No, I didn't. The divested business that you still have that you're recording in the...

J. Elliott

You mean in terms of the incoming revenues from Neurovascular?

Tao Levy - Collins Stewart LLC

Yes, exactly.

J. Elliott

I thought you meant Neuromod. I thought you just slipped on your wording. Yes, those are the effects of TSA programs, support programs, that we do with them and things that we've agreed to receive revenue for. So it's also distributor countries where we continue to do the distribution support on behalf of Stryker as well. So there's a number of things in there. The TSA's are not in the revenue line of distributor support is. So it's all about Stryker's timing and timing against their plans to get things done and move things forward as quickly as they can. But there's no magic to it. There's nothing to read into it.

Tao Levy - Collins Stewart LLC

Okay, great. Thanks.

Operator

Next question comes from Adam Feinstein from Barclays Capital.

Matthew Taylor - Barclays Capital

This is Matt for Adam. Thanks for taking my question. I just wanted to get some more color on your commentary on DRM. It seems like there's a little bit of a disconnect between your talking about some temporary pressures from JAMA versus competitors saying really no impact, and wanted to hear how you think it's impacting the market.

J. Elliott

Yes, Hank, do you want to start in on that?

William Kucheman

Well, I think I can't really say anything much different than what Ray and Jeff have shared with you earlier other than to say anecdotally, just to give you some color commentary. In a recent meeting with about 28 healthcare systems, EPs representing each of those 28 healthcare systems going around the room asking the individual representatives of those systems, what impact was JAMA, RAC audits, DOJ investigations, scrutiny of the industry having in your institutions. 80% of the hands in the room said it's having an impact. And I would say of about that 80%, roughly over 50% centers have said having some impact on the number of implants being done. Now if you couple that with the fact that you have growing alignment with EP implanters, as they become employees of institutions, there's a dynamic that happens. And it's on a case-by-case basis, institution-by-institution basis of where the implantation historical practices begin to modulate a bit. And so we picked up on that as well. So it's very mixed across United States right now. But there's enough signs there that have given us pause at.

J. Elliott

Okay. And Adams, it's Ray. I don't think there's only a near-term disconnect if you think about -- because we haven't heard from Medtronic. So if you think about specifically what St. Jude said, they have been saying 3 to 5% growth. They're now saying 2% globally. If you take a look, we can't send you our model but if I did send it to you, what you would see half the first couple of years is about 1.5 of growth in our model. So the disconnect on a global growth basis other than the near-term between ourselves and St. Jude is 0. And then we'll see what Medtronic has to say about things when they come out. But I don't really think there's a disconnect.

Matthew Taylor - Barclays Capital

Thanks, that's great color. And just to follow up on stents at ACC, you guys had nice results from PLATINUM. But I think maybe what was a little bit more surprising was Medtronic's resolute results were good and actually Marty Leone gave a plug and said that he thinks there's 3 good stents out there. So I was wondering if that surprised you at all and changed your thinking about how the U.S. DES market might play out in the future?

J. Elliott

Yes, I'll ask Dr. Dawkins to comment on that.

Keith Dawkins

Yes, I think it wasn't a surprise to us. Obviously we have the data from the European resolute study which showed the issue of early stent thrombosis. It was a narrow group of patients in the U.S. study. And we also saw the highlight loss of 0.3 with the resolute study. So I don't think it changed our view at all. We were very impressed with the PLATINUM data. As you know PLATINUM was a non-inferiority trial but some of the key performance characteristics, low geographic mix and the issue about low bailout stenting is important to both the patients and the health economy. So we were very impressed with the PLATINUM data and not surprised by the resolute data.

Matthew Taylor - Barclays Capital

Great, thank you. Thanks for all the color, guys.

Operator

And our next question comes from Derrick Sung from Sanford Bernstein.

Derrick Sung - Sanford C. Bernstein & Co., Inc.

Two questions, 1: on the CRM market and then another on guidance. First, just explain further that your belief that the CRM market has decelerated or is coming in a pressure in the near-term. Looking at your own growth rate and if we add back the I think $69 million impact that the ship hold had on your Q1 2010 ICD numbers, it looks like your CRM adjusted growth rate this quarter was down in the U.S. or your ICD adjusted growth rate in the U.S. was down 8% in the U.S. this quarter and that compares to a down 11% you saw in Q4 2011. So rationally thinking about it, it's sequential improvement here in your own growth rate. So can you kind of help reconcile that sequential improvement that you're seeing with your views that the market is kind of sequentially declining? And then also, can you just also reconfirm your global growth rate, your views of the global CRM market or ICD market again?

Jeffrey Capello

Derrick, this is Jeff. I have to go back and look at those numbers. Those are not necessarily consistent with -- mine was at, relative to the U.S. CRM performance, relative to our expectations. Clearly, there has been -- shows up in our numbers and there, the thing you need to be a little careful about is there are differences amongst kind of the replacement side and the de novo side, which we're not going to spend a lot of time on here. So I mean I have to go back and doublecheck the numbers on that front and get back to you on it. But we had seen -- the point that I made at the beginning was that we didn't have the data for the 4th quarter until really mid to the end of the first quarter. So the deceleration did start in the 4th quarter which created the angst, and we feel there as well as in the first quarter. So I'd have to go back and check those numbers. We can do that off-line but certainly...

Derrick Sung - Sanford C. Bernstein & Co., Inc.

Do you have an adjusted growth rate for your U.S. ICD business adjusting for the ship hold from your perspective?

Jeffrey Capello

Yes, we do. We do. And as we look at it, that's the number we're quoting. We think it's down mid-single digits. It will be down mid-single digits this year.

Derrick Sung - Sanford C. Bernstein & Co., Inc.

No, for your own sales in Q1 2011?

Jeffrey Capello

Yes, I think we've already given that to you. I think we've already given you what the results were and you can compare to it what they were a year ago.

Derrick Sung - Sanford C. Bernstein & Co., Inc.

Right. Okay, that's fine. That was what I thought I was doing, but we can take that off-line.

Jeffrey Capello

Okay.

J. Elliott

Yes, I think you have to be careful too of making sure you're accounting for pricing there as well because it's not a unit commentary, it's a dollar value commentary, so there maybe differences in price. Certainly there's one other thing. And then on your second part of your question was asking us to confirm what we believe the ongoing growth rates are? Did I hear you correctly?

Derrick Sung - Sanford C. Bernstein & Co., Inc.

Globally, I just want to confirm that.

J. Elliott

Well, that's the question that I think I just answered and that's that St. Jude is at 2%, we're at 1.5%. Once we get past the first year or 2. We may differ with them in a year or 2 because we think it's more negative perhaps. Maybe, I don't know, you have to ask them what they think with the next 2 years versus the 5 years after that. But in the years in our model, after the short-term effect of what we're talking about, we're at 1.5% growth and I believe their commentary was at 2%.

Derrick Sung - Sanford C. Bernstein & Co., Inc.

Okay, great. And if I could just sneak in a quick one on guidance here. Jeff, so if I look at your sales guidance, you beat the midpoint of your previous Q1 guidance by $50 million this quarter and you raised your overall midpoints for 2011 by $50 million. But when I think about what you guided that FX adds per your numbers, I think FX adds an additional $90 million to the remainder of the year. So from that perspective, and I appreciate that you've been conservative on your sales guidance, but from that perspective, would that actually imply that your viewing sales to be sort of on a constant currency basis more negative than your previously expecting? And then similarly, on earnings, on EPS, you beat by $0.13 this quarter only raised your midpoint by $0.08. So similarly, does that imply actually more than just conservatism but of sort of a more negative view on guidance looking forward?

Jeffrey Capello

So on the revenue said, yes. I mean foreign exchange is more favorable than we anticipated, and it's approximately $100 million. So that would push the range up. But as we've been talking about for 2 hours now, that we've seen some softness in our CRM business in the U.S., and therefore, our revenues are not going to be as high as we anticipated. So yes, we've taken down our expectations for CRM revenue growth.

J. Elliott

Yes, the affect overall, Derrick, is 50 basis points in terms of the CRM effect. And you already said it, and Jeff said it in his commentary, we're being purposely conservative because we're not comfortable at this point with some of the things we're seeing in CRM and we want to let the year play out a little further to allow us to update guidance one way or other. So I mean, there's nothing hidden here. If the answer is are we being conservative? The answer is yes. And same is true on the earnings because the flow-through impact of CRM given its margins to ROI was pretty substantial. So usually when you get in this conversation, people say you're being conservative, we all ignore that. We don't answer. We've answered it for you very blatantly, yes we are because we're uncomfortable with some very recent trends in CRM. It's just as simple as that. There's no hidden message here.

Derrick Sung - Sanford C. Bernstein & Co., Inc.

Okay, very helpful. Thank you.

Operator

Okay, our last question is going to come from David Roman from Goldman Sachs.

David Roman - Goldman Sachs Group Inc.

Thank you for squeezing me in here. I know it's been a long morning. But in a couple of your comments, you've referenced divestments in emerging markets. And while you did bring up the potential of that local competition in Japan from the Nobori stent launch, I was hoping you could comment on how you're seeing the competitive landscape on both of some of those emerging markets that you've had or keep growth drivers. Just sort of as an example, I think we all know that 75% of the drug-eluting stent market in China is dominated by local players, maybe you could sort of help us put in context the investments you're making versus the opportunity, versus local competitors?

J. Elliott

Well, we were focused on our efforts because of the reimbursement profile and a number of other business reasons. We'll focus our effort in multinational competition for the most part, not to say that we won't play with tiered product, David, to compete where we can. But there's a lot of issues that go beyond just being local and being reimbursed differently and viewed differently. So that's one aspect. But the key to this is we've got 3% share depending on what you're using as an emerging market and what you're using as our product lines. But at least in a number of published reports, and they're accurate, we got 3% market share in major product lines driven by DES in emerging markets, excluding Brazil, and particularly focused on China and India. So the opportunity for us and the demand referred from ICs and the registration of our products over there and the speed with which, that is the fastest registration anybody has ever seen of a major medical device in India. We have PROMUS Element registered in no time. So the opportunity for us is gigantic in part because we're so insignificant right now, as part of it. So there's lots of opportunity there. And if you recall back to the Investor Day, what I said on the emerging market slides that I presented is we anticipate being a sort of $400 million to $600 million sales player within the next 3 or 4 years. And I don't think that's a nonrealistic expectation given the quality of our products.

David Roman - Goldman Sachs Group Inc.

Okay. And maybe a follow-up to a question that Rick asked earlier on CrossCare, as you kind of look over the next 6 to 12 months, what is sort of the metric that you think we'll be able to use to define whether CrossCare has been successful or the degree of that success? Is it going to be your combined market share in CRM and Interventional Cardiology? Is it going to be improving margin? What is sort of the key tenants that we can look for to kind of assess that program from a reported numbers standpoint?

J. Elliott

I'm not so sure, I'm going to ask Hank to answer the question. Obviously from a reported numbers, we'll probably give you glimpses into it but I don't think we'll be breaking that out as a segment necessarily as opposed to just updating, so just to qualify you on that. Hank, did you want to make some comments?

William Kucheman

I think the way we look at it is what is our year-over-year growth in CrossCare accounts versus non-CrossCare accounts? That's 1 way we'll look at it. That coupled with how the aggregation of the various franchises, product franchises, are able to fare in terms of incremental market share gains because of the bundle.

David Roman - Goldman Sachs Group Inc.

Okay, that's very helpful. Thank you.

Sean Wirtjes

Okay. With that, we'll conclude today's call. Thank you for joining us. We appreciate your interest in Boston Scientific. Before you disconnect, Tamia will give you all the pertinent details for the replay.

Operator

Ladies and gentlemen, this conference will be available for replay after 1 p.m. today through May 5, 2011. You may access the AT&T Executive replay system at anytime by dialing (800)475-6701 and entering in access code 193699. And the international participants can dial (320)365-3844. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

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