CR Bard's CEO Discusses Q1 2011 Results - Earnings Call Transcript

Apr.22.11 | About: C. R. (BCR)

CR Bard (NYSE:BCR)

Q1 2011 Earnings Call

April 21, 2011 5:00 pm ET

Executives

John Weiland - President, Chief Operating Officer and Director

Timothy Ring - Chairman, Chief Executive Officer and Chairman of Executive Committee

Todd Schermerhorn - Chief Financial Officer and Senior Vice President

John DeFord - Senior Vice President of Science Technology & Clinical Affairs

Analysts

Joshua Jennings - Jefferies & Company, Inc.

Matthew Dodds - Citigroup Inc

Michael Matson - Mizuho Securities USA Inc.

Robert Hopkins

David Roman - Goldman Sachs Group Inc.

Michael Weinstein - JP Morgan Chase & Co

Bruce Jackson - Morgan Joseph TriArtisan LLC

Kristen Stewart - Deutsche Bank AG

Douglas Tsao - Barclays Capital

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

David Lewis - Morgan Stanley

Frederick Wise - Leerink Swann LLC

Thomas Gunderson - Piper Jaffray Companies

Paul Choi - Caris & Company

Lawrence Keusch - Morgan Keegan & Company, Inc.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the C.R. Bard, Inc. First Quarter 2011 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference will be recorded and will be available for future on-demand replays through the Bard website. Today's presentation will be hosted by Timothy M. Ring, Chairman and Chief Executive Officer; along with John H. Weiland, President and Chief Operating Officer; Todd C. Schermerhorn, Senior Vice President and Chief Financial Officer; and John A. DeFord, Senior Vice President, Science Technology and Clinical Affairs. Also in attendance today is Todd W. Garner, Vice President, Investor Relations.

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

During the call, references will be made to certain non-GAAP measures, which management believes provide an additional and meaningful assessment of the core operating performance of the company and its individual product franchise. Reconciliations of non-GAAP measures to the most comparable GAAP measures are provided in Bard's earnings press release and on the company's website at www.crbard.com. All information that is not historical is given only as of April 21, 2011, and the company undertakes no responsibility to update any information. Unless otherwise noted, all comparisons are to the prior year period.

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

Timothy Ring

Thanks, Chris. Good afternoon, everybody. I'd like to welcome you all to Bard's First Quarter 2011 Earnings Conference Call. We expect the presentation portion of this call to last about 35 minutes. The agenda today will go as follows: I'll begin with an overview of the results for the first quarter; John Weiland, our President and COO, will review first quarter product line revenue; Todd Schermerhorn, our Senior VP and CFO will review the first quarter income statement, balance sheet as well as our expectations for the second quarter; John DeFord, our Senior VP of Science Technology and Clinical Affairs will then provide an update on our product development pipeline and we'll finally close with Q&A.

First quarter 2011, net sales totaled $700.3 million. That's up 8% over Q1 of last year on both an as-reported basis and a constant currency basis. The currency impact for the quarter versus 2010 was unfavorable by about 20 basis points. Net income for the first quarter of '11 was $131.9 million. Diluted EPS were $1.49. Excluding items that affected the comparability of results between periods, which Todd will cover later, first quarter 2011 net income and diluted EPS were $133.7 million and $1.51, up 9% and 21% respectively, which exceeded our guidance range for the quarter. So obviously, a good start to the year. Todd will put this into perspective for you when he discusses the quarter's financial performance and our outlook for the second quarter.

Looking at our sales by business, growth in our Vascular category was above the range of guidance for the full year, but in line with our expectations for the quarter. As a reminder, the SenoRx acquisition occurred at the beginning of Q3 of last year, so it will be a downward pressure on the growth rate during the second half of the year. Our Oncology and Urology categories were within their full year guidance ranges. Surgery was in line with our expectations for the quarter, but below the full year guidance range as we expect our new product launches to accelerate growth as we go out through the year.

So if you just look at our sales results compared to the full year guidance ranges, you'll see one business above, one on the high side of the range, one on the low side and one below. And of course, every business has a detailed story behind it that John's going to take you through in a moment. But I just want to take a minute here using this quarter's performance to explain why we feel so strongly about the strategy.

First, our product portfolio is broad and well balanced. Then, within each of the businesses, our teams are relentlessly focused on product leadership and innovation, and at the corporate level, we work with the businesses to assess the opportunities, make sure the appropriate resources are applied in the right places across the company. Sounds fairly simple, but of course the key is execution at every contact point throughout the sales and marketing, operations, regulatory, R&D and business development functions.

With shifting trends and lots of activity across multiple markets, the results for a given product line or business are going to naturally ebb and flow over time and obviously, we don't win every battle. But when you add it all up and you measure the results over time, you get combined results that reflect the balanced risk of the model, the strength of the overall portfolio and the effectiveness of the strategy.

Looking at revenue growth from a geographic point of view compared to the first quarter of last year, net sales in the U.S. increased 7%; Europe, we're up 4% on a constant currency basis, driven by very strong execution on the SenoRx product line. Japan grew 15%, affected by uneven ordering patterns from our joint venture. Most of the fluctuation had occurred prior to the earthquake and the tsunami in March, and we saw very little impact in the quarter as the direct result of that catastrophe. We track the demand from our joint venture to customers in Japan, and Q1 2011 growth was in the mid-to high-single digits, which is in line with the average performance we've seen over the last couple of years.

Our other international businesses grew 17%, driven by 29% growth in our emerging markets. On the business development front, we made a relatively small acquisition this quarter of a technology in the PTA space. We're not going to be providing any further detail at this point for competitive reasons.

Looking ahead, we have a number of potential product and technology deals in our business development pipeline and our commitment to strategic acquisitions remains a very high priority.

Now let me turn the focus over to John Weiland for a review of our product line revenue.

John Weiland

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

Let's begin with Vascular. Growth in this category was 16% for the quarter, matching the growth rate in Q4. Total net sales were $198.3 million, up 15% over last year on an as-reported basis. Our U.S. business was up 20% for the quarter. Internationally, we grew at 11%. The SenoRx products are leading the charge here, both in the United States and internationally. Our Electrophysiology sales were down 1% for the quarter. EP Lab Systems were down 27%, demonstrating the volatility we often experience with the timing of these capital sales.

Revenue in our disposable EP product lines was up 4%, led by our Steerable Diagnostic Catheters, which were up 7%. Sales in our Surgical Grab category were flat in the first quarter. Our Endovascular business, which represents 74% of Vascular sales, increased 23% in the first quarter.

Within Endovascular, our Biopsy products were up 62%, fueled by the SenoRx products. Even excluding the SenoRx products, our Biopsy business grew in the mid-teens, demonstrating the strength of that business, coupled with the synergies we recognized from the acquisition. The FINESSE vacuum-assisted biopsy device and our tissue marker lines saw very strong growth once again this quarter.

Sales in our peripheral PTA line increased 29%, driven by our Chronic Total Occlusion or CTO product line. In Q1, we launched the smaller diameter device we call the CROSSER S6, which is designed to deliver more power to even more calcified, more distal lesions in the lower leg. To supplement our offering in CTO, we also introduced our Seeker Crossing Support Catheter last month at both the Society of Interventional Radiology Meeting in Chicago and more recently, at the American College of Cardiology Meeting in New Orleans. This product is a crossing support catheter with a novel marking system that enables physicians to cross tight stenosis or occlusions and easily measure the lesion length, so that they know what size stent is required. We have other recent and near-term launches in PTA that John DeFord will discuss in a few minutes.

Sales in our Vena Cava Filter line were down 28% in Q1 and accelerated decline in this already struggling product line. As we've discussed the last couple of quarters, we are seeing the impact of more selective use of filters, following the FDA's recommendation concerning the risks and benefits of leaving the filter in place after protection from a pulmonary embolism is no longer required.

Our Stent business grew 7% again in Q1. Within our bare-metal stent line, LifeStent continued its run of solid double-digit growth. And while we're seeing good LifeStent growth in emerging markets, the results in the United States this quarter were up double digits sequentially, as we remain the only approved SFA stent on the market. As an example of our tuck-in acquisition strategy, our success with the CROSSER line of products is driving incremental LifeStent sales as physicians cross CTO's and then seek a stent solution to support the reopened negative[ph] Lumen.

Let's now turn to Urology. Total net sales were $179.5 million, up 3% versus the first quarter of last year on both a constant currency and an as-reported basis. The United States business grew 1% while internationally, we grew 9%, driven by the ordering patterns Tim talked about in Japan. While the overall performance was at the top of our full year guidance range, we want to emphasize that based on the United States growing of 1%, we have not seen any noticeable improvement in hospital volumes or procedures through the first quarter. Our Basic Drainage business was up 4% in Q1, on the timing of those orders from Japan, but our trends in the United States remain unchanged in this daily use product line.

Our I.C. Foley business was up 3% globally, but down 3% in the United States, which is in line with recent experience here. Our Continence business was down 5% in the first quarter, consistent with our experience over the last five quarters.

In slings, we saw double-digit growth this quarter, driven by our single-incision sling AJUST, which has been on the market in the United States for over a year now. As sling technology has improved, the marking for bulking agents has declined. And as previously planned and included in our guidance assumptions, Q1 marks the last full quarter of sales for our product in this space called Contigen. So the next four quarters will have some headwind in the Continence comps from the discontinuation of this product. Within Continence, the growth of our DIGNICARE Fecal Management line has slowed to the single digits. However, we expect that trajectory to improve with the anticipated second quarter launch of our next generation fecal-management system called DIGNISHIELD. DIGNISHIELD builds upon the patent pending cup design of DIGNICARE and incorporates a new odor barrier technology, with new collection and containment systems to reduce the risk of cross contamination or leakage. We expect this product to have a meaningful impact in the market.

We continue to see double-digit declines in our Pelvic Floor Repair line. We are working with the FDA on our next generation of pelvic floor products, and John DeFord will provide the update on those projects.

Sales in the Urological Specialties were down 3%, driven by an 11% decline in brachytherapy, consistent with recent experience. Standalone sales of our STATLOCK Catheter Stabilization line increased 12% in the first quarter, including 25% growth outside of the United States. We've added new configurations again this quarter for stabilizing both the IVs and PICCs. STATLOCK is a good example of our practice of acquiring a product line or technology and putting it in to our R&D process, where we focus on filling unmet clinical needs. As we now pass our 5-year anniversary of that acquisition, we continue to iterate and we're still seeing double-digit growth up against much lower value competitive devices.

Next we'll move on to Oncology. Total net sales in this category were $186.4 million, an increase of 7% over the first quarter last year on both the constant currency and an as-reported basis. Geographically, net sales in the United States were up 6%. Outside the United States, sales were up 8%.

Our Port business was up 7% versus Q1 last year, with strong growth coming from emerging markets and winged infusion sets. PICC revenue was also up 7% in the first quarter. We're in the early stages of our Sapiens Tip Confirmation Systems launch. We're very pleased with our progress to date and are right on track with our projections.

Our Vascular Access Ultrasound product line was up 13% this quarter. We launched our new versatile Site-Rite Vision System in Q2 of last year, so the comps get a little tougher starting next quarter.

And to finish off Oncology, our Dialysis Catheter business grew 11% in Q1. In February, we expanded our offering with the launch of our EQUISTREAM XK dialysis split-tip catheter with the capability of very high flow rates and it's off to a good start.

Let's then finish up with our Surgical Specialties business. Total net sales in this category were $114.9 million, up 5% on a constant currency and as-reported basis. U.S. and international sales were both up 5% for the quarter. This performance is in line with our expectations for the first quarter and we expect our new products to raise this growth profile in the coming quarters. John DeFord will give us an update on those projects a little later.

Our Soft Tissue Repair business grew 10% this quarter. Within Soft Tissue, our natural tissue products were up 50%. Our ALLOMAX Human Tissue line continued its strong growth, particularly in the breast reconstruction line, where it was up 25% sequentially over the fourth quarter. Further, in our Natural Tissue line, our XENMATRIX porcine implant returned to its significant growth trajectory after our voluntary and brief recall disruption in early January. So in total, our biologic product lines continue to grow far ahead of the market.

Our synthetic hernia products were down 3% from the first quarter last year. We continue to see a shift from open surgeries to laparoscopic surgeries. Our focus is to have the best solution for the clinicians and we are excited about several launches this quarter, most notably our proprietary and highly innovative ECHO PS Mesh Positioning System. John DeFord will go into more detail on the products and the timing of the upcoming launches.

Our Hernia Fixation business was up 20% this quarter, including international growth of over 80%, driven by our fifth straight quarter of strong results in Europe.

Closing out the Surgical category, our Performance Irrigation business declined 9% and our Hemostasis business was down 11% this quarter.

This concludes our product line revenue discussion. I'll now turn you over to Todd Schermerhorn.

Todd Schermerhorn

Thanks, John. Let me start with the items that affect the comparability results between periods. Q1, we had acquisition-related items of $2.8 million, which are detailed in the notes on the financial statements and the reconciliation accompanying our Q1 earnings press release.

Now going through the statement of income for the quarter. Gross profit was $435.5 million or 62.2% of sales for Q1. On an adjusted basis, gross profit was $434.9 million or 62.1% of sales, up 90 basis points from the prior year quarter. New amortization of intangibles relating to transactions closed in the last 12 months, costs us about 60 basis points year-over-year this quarter. So outstanding improvement, but over a very weak first quarter of 2010.

Sequentially, we were down from Q4 due to the timing issues that we discussed on the fourth quarter call. In terms of our ongoing manufacturing efficiency, we actually started 2011 a little better than we had expected. And right now, I don't see anything that would change full year gross profit guidance.

Moving forward, I think we'll see modest improvement in Q2 and then more significant improvement in the back half of the year. And just to remind you of our discussion last quarter, we need to adjust the original gross profit guidance down by 20 basis points in order to accommodate the accounting for the Puerto Rico excise tax. You'll recall that the reduction is offset in the tax rate.

SG&A expenses were $194.3 million for the quarter or 27.7% of sales, reflecting a 30-basis point increase over the prior year period on an adjusted basis. Again, I mentioned in the Q&A on the last call that we expect to leverage in SG&A to be weighted towards the back-end of the year. We saw less than $1 million of benefit from the 2010 restructuring in the first quarter, but we continue to expect $10 million in savings in 2011 as we previously communicated.

R&D expenditures totaled $48 million for the first quarter or 6.9% of sales. On an adjusted basis, R&D was $45 million or 6.4% of sales, up 20 basis points from the prior year. I imagine that looks a little light to many to many of you, so I'd point out that lower R&D investment levels in Q1 are not uncommon for us. In fact, in 7 out of the last 8 years, the first quarter was our lowest R&D investment quarter.

Our financial planning process continues to try to drive EPS momentum in Q1 each year to give us confidence in our full year earnings commitments before we initiate our investment programs. That approach has worked nicely for us in the past and I see no reason it would not continue to work. Now to be clear, we don't cut R&D in Q1 of each year. We just typically don't initiate new projects until we get a good sense of our business and earnings momentum. As we look forward, you can expect R&D as a percent of sales to continue to increase throughout the year nicely as our project and clinical trial efforts develop.

Interest expense was $9.1 million for the first quarter, reflecting the impact of the new debt we issued in December. The effective tax rate for the quarter was 28.3%. On an adjusted basis, it was 28.4%, a 210-basis point improvement over the prior year, in line with our full year guidance.

Diluted shares for the period were 87 million, slightly higher than we had anticipated, driven largely by the increase in our share price. The balance sheet at March 31 reflects cash and short-term investments of $748.3 million versus $641.4 million at December 31.

For the quarter, accounts receivable days were up 1.3 days and inventory days were up 5.3 days, with 1/2 of that increase attributed to the foreign exchange. Capital expenditures totaled $16.3 million for the quarter. On the liability side, total debt was $895.3 million as of March 31, down from $977.4 million at December 31. Debt-to-total cap at the end of the first quarter was about 33%, and total shareholder investment was $1.852 billion at March 31.

Moving to financial guidance for Q2, we're again expecting constant currency sales growth of 6% to 8%. At today's rates, foreign exchange would add 150 to 200 basis points to those results.

From an EPS standpoint, excluding items affecting comparability, we see the second quarter in the range of $1.53 to $1.57. I would caution you against seeing the extra $0.05 in Q1 as an ongoing trend. It's a good start from an EPS standpoint for the reasons I noted, but we remain laser-focused on our 14% full year EPS commitment, which gets you to $6.38. And we'll be planning the investment side of our earnings equation to deliver just that.

I will now turn it over to John DeFord.

John DeFord

Good afternoon. And with over 50 projects discussed in December, I'm just going to hit the highlights today, and we'll bring in details of the other products as the year progresses.

I'll start with our new atrial fibrillation ablation technology named ENCOMPASS. ENCOMPASS is our over-the-wire mesh ablation catheter, a new energy delivery system. We're in the final qualification phase of development and anticipate filing for the CE Mark early in the second half of the year and simultaneously initiating a clinical study. We expect to enroll up to 60 patients in this feasibility study and use those data to support both our pivotal IDE submission in the second half of 2012 and provide marketing data for our European rollout. We alluded to a number of new products to aid in the a-fib procedure at our December meeting and we expect to launch the first product, a new fixed curve introducer sheath system named EZCROSS later this quarter. We'll provide more details on that product and others in the pipeline as we launch them over the next several quarters.

In EP Lab Systems, we have several developments underway to enhance function and expand capability with launches anticipated to start during Q2 and continuing to the year. In Biopsy, you see a good example of our acquisition strategy folding into our R&D process. Only 3 quarters after the acquisition of SenoRx, we're completing our development and regulatory activities surrounding our next generation console vacuum-assisted biopsy system named the ENCOR ENSPIRE, and anticipate launch in early Q3. The ENCOR ENSPIRE includes new human factors-driven designs for the user interface, control system and the tubing and vacuum systems to simplify set up, use and changeover between patients.

In Stents, we told you in December that we completed our 30-day follow-up in the LifeStent European clinical study of our 200-millimeter devices with enhanced radiopacity and a new delivery system. Just a few weeks ago, we submitted our PMA supplement and contingent upon FDA approval, we anticipate launching in the U.S. in Q4.

In Stent Grafts, we began enrolling in roughly 200-patient clinical study of the FLUENCY Plus family for the AV access and stent restenosis indications. We expect enrollment to continue throughout the year. The study requires six months follow-up, so PMA submission is anticipated in the second half of 2012 and expected launch in 2013.

In our next generation stent graph, targeted for the treatment of SFA disease and built upon the LifeStent in our proprietary graft technology is nearing development completion. We anticipate submitting our IDE late this quarter and commencing enrollment in a roughly 200-patient clinical study in late Q3 or Q4. European launch is expected in Q4.

In PTA, we outlined in December a robust pipeline of line extensions and new platforms under development. In the near term, we've just launched additional products and expanded indications in the VASCUTRAK family and anticipate launching further line extensions in that family along with new rival PTA catheters in early Q3.

Moving to filters, in late Q3 of last year we submitted our 510(k) for the Meridian Vena Cava Filter, our next generation device built on the ECLIPSE platform. The Meridian filter incorporates enhanced anchoring technology and a new delivery system for both femoral and jugular placement. We've received and are responding to some questions from FDA and are prepared to launch Meridian upon FDA concurrence hopefully later this quarter.

Our next generation DENALI filter systems has completed our internal development process and we received conditional approval on our IDE in Q1, which allows us to start the clinical trial. We'll be conducting another approximately 200-patient study to evaluate both permanent placement and retrievability. We're in start up now and anticipate commencing enrollment in Q3 and launching the U.S. in the second half of 2013.

Now turning to Urology and Continence, we were pleased to receive FDA concurrence for our ALYTE pelvic floor repair mesh with a sacrosuspension and sacrocolpopexy indications later this month and expect to launch later this quarter.

We are also preparing for launch of NuVia family of single-incision anterior and posterior pelvic floor repair kits in Europe this quarter. On the U.S. front for NuVia, we met with FDA late in Q1 to discuss clinical trial designs, but as we told you last year, the FDA's dramatically changed the regulatory path for these products, and we're analyzing the guidance they provided at the meeting. At this point, there's still a number of points under discussion, so I'm not in a position to provide details on the design, commencement or estimated completion of the study.

In Basic Drainage, since our December meeting, we've received some new user input concerning the level of electronic medical record or EMR connectivity desired for our COREVIEW automated urine output and temperature monitoring system. Based upon this input, we've decided to significantly enhance COREVIEW's EMR capability. This is a pretty substantial change to the systems hardware configuration and software, so we're not quite ready to provide updated timelines here.

And moving to Oncology, in ports, we just received an additional round of questions on our antimicrobial PowerPort. We're evaluating FDA's request and are not sure at this point how we'll proceed, so I plan to provide more information later.

And turning to PICCs, our 3CG system that integrates ultrasound guidance for venous access, Sherlock tip tracking and ECG tip confirmation technology is being studied in the clinical trial we discussed in December. We have begun enrollment and anticipate steady completion and FDA submission in Q4 and launch in the first half of next year.

In January, we launched the 3 French Single and 4 French Dual Lumen POWERPICC SVs for use in patients with small diameter vessels. We've also responded to a round of questions from FDA on our thromboresistant PICC family. We continue to believe with FDA's current demeanor that the timing for this product has some regulatory risks. So I'm not going to suggest a launch date yet. And we're finishing up our final test reports and anticipate submitting a 510(k) for our COVERT POWERPICC antimicrobial family this quarter and anticipate launch around the end of Q3, though I must say with FDA's recent history, there's some risks here as well.

Moving to surgery and open ventral repair, a couple of weeks ago, we received 510(k) concurrence for both our VENTRALEX ST and VENTRIO ST product families. These new mesh products incorporate our patented lighter-weight polypropylene mesh designs with the Sepra resorbable barrier technology. Subsequently, a few days ago, we launched VENTRALEX ST, our umbilical hernia repair mesh and anticipate launching the VENTRIO ST later in Q2.

For laparoscopic ventral hernia repair, we're gearing up for the launch of the ECHO PS mesh positioning system later this quarter. The device will be packaged with our VENTRALIGHT ST and COMPOSIX L/P products, which will provide the surgeon with a choice of either resorbable [ph] or permanent barrier technology. ECHO PS is a proprietary and innovative technology that assists the surgeon in placing, centering and securing mesh during laparoscopic ventral hernia repair. The system consists of a low-profile inflatable scaffold that's preattached to the mesh. Inflation facilitates unrolling and expanding of the mesh for positioning and attachment. The scaffold is then deflated and removed to the trocar. ECHO's intended to reduce the laparoscopic surgical time required to position and fix the mesh to the abdominal wall, simplifying the overall procedure.

And finally, just last week, we began the rollout of our new SORBAFIX and PERMAFIX hernia fixation products. The new delivery platforms incorporate our proven tack technology with enhanced human factors-driven designs intended to ease tack delivery and reduce hand fatigue. We've also added a fastener account indicator to provide the surgeon with a visual gauge of remaining tacks.

I know we've covered a lot of ground pretty quickly here, and I thank you for your attention. Let me now give you back to Tim Ring.

Timothy Ring

That does conclude the formal part of the presentation. I'd like to now turn the call back to the moderator to facilitate the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Amy Keusch(sic)[Larry Keusch] with Morgan Keegan.

Lawrence Keusch - Morgan Keegan & Company, Inc.

It's Larry Keusch. Just a couple of quick questions for you, probably for you, Todd. In terms of the cash generation and the uses of the cash for the year, obviously, did your accelerated share repurchase, and I know you guys continue to focus in on acquisitions. But how are you thinking about share repurchase out of your internally generated cash?

Todd Schermerhorn

Well, we wouldn't be in the market while our ASRs is ongoing. At least at this point, we don't think we would be. But after that point, Larry, as I've said in the past, I don't think that you're going to see us change much relative to -- our methods of capital deployment include deals and buybacks at historical patterns.

Lawrence Keusch - Morgan Keegan & Company, Inc.

Okay. And then just two quick housekeeping ones. Just if you can give us the sort of the organic growth rate x acquisitions for this quarter and last year? And also is the interest expense run rate correct now for the year?

Todd Schermerhorn

Last one first. Yes, the interest expense run rate is correct for the year. We do have a variable portion of that. But it would get offset by interest income in the event that interest rates rise. As it relates to acquisition-related sales, 13.5% this period for SenoRx. And if I'm not mistaken, I think last year was -- full year was for SenoRx for the 1/2 year was 26% or 27%, somewhere in that rate.

Lawrence Keusch - Morgan Keegan & Company, Inc.

Okay. Thanks very much, guys.

Operator

And our next question comes from the line of Matthew Dodds with Citigroup.

Matthew Dodds - Citigroup Inc

Todd, for you first. If you look at the second quarter guidance, I do know you hate going through this stuff, but you gave us a little sequential improvement in gross profit. You gave us kind of the constant currency and the FX. To get to the range you're talking about, you got to have R&D up a lot as a percent of sales sequentially, SG&A probably up a little bit. I mean, does that all make sense because it sounds like a lot of this was backend loaded for expenses, but to get to that range, it seems like it has to hit the second quarter?

Todd Schermerhorn

Yes. I think we'd see a pretty big pickup in R&D. At least that's what we're planning as of right now. Modest improvement in gross margin, Matt, doesn't really get you very far from 62.1%. We're going to improve a lot more in the back half. So it won't be huge margin period in Q2. But we would expect, nonetheless, to your point, we would expect it to be a strong R&D quarter.

Matthew Dodds - Citigroup Inc

And then one question for John DeFord. For vena cava filters, the PICC decline, I guess it's getting worse, but it seems like you're still spending quite a bit in clinicals and looking for new products. At what point do you feel the data or new product flow will offset these concerns or maybe alleviate some of the concerns at the FDA at a minimum?

John DeFord

Well, so Matt, let me jump in. The Meridian, we thought we'd have on the market by now. We're in discussions with the FDA. Like I said, we've got some questions we're trying to answer, and we hope to launch that product late this quarter if all goes well. We think that we've got to get these new products out to make a change in the market. DENALI is our next generation. I talked about the fact that we've got approval for our IDE and are getting that study started. That's a 200-patient study. So we think that those new products are going to be key in the marketplace and we're doing everything we can to get them out there.

Matthew Dodds - Citigroup Inc

For this year, I mean, should we still expect it's down year right through for vena cava filters?

John DeFord

Yes. I mean, we've got to get Meridian out there and at this point, we don't have concurrence on it. So until that happens and we get a chance to get some traction, and I wouldn't expect things to change.

Matthew Dodds - Citigroup Inc

Thanks, John. Thanks, Todd.

Operator

And we'll go to the line of Mike Weinstein with JPMorgan.

Michael Weinstein - JP Morgan Chase & Co

I just want to clarify Todd, you made a strong pitch at the end of your comment relative to EPS growth for the year. Can you just clarify basically what you want us to hear relative to the 14%?

Todd Schermerhorn

Yes. It's just that the 5% outperformance for the quarter can't be added to the year necessarily. We plan to the EPS numbers. So when we commit to you that 14% EPS growth, that $6.38, we're planning our investments around getting ourselves to that $6.38 level. So if currency were to be favorable, if sales were to come in favorable or so, our first step is to think about how we might invest that productively first. And so typically, that keeps us from dramatically outperforming that 14% goal. We get focused on the goal and we'll either grind ourselves to get up to that number or invest to get down to it. And generally, in the last 6 or 8 years, it's been an investment to get down to that $6.38, the 14%, whatever that number was each year.

Michael Weinstein - JP Morgan Chase & Co

Yes, understood. Just two items, Todd. I don't know if you said on the policy [ph], I missed it, when you get back to complete the ASR and then just one more business question, which is...

Todd Schermerhorn

I'm sorry, Mike, what was the question on ASR? When will what?

Michael Weinstein - JP Morgan Chase & Co

When do you expect to complete it?

Todd Schermerhorn

That's a proprietary information, Mike. There's trading around so we're not going to give that. What we've said historically is we think it'll get done in '11. That's all we said.

Michael Weinstein - JP Morgan Chase & Co

Okay. And then just one business question and I'll hop. Just what do you think the underlying hernia repair market is growing at right now? And the do you think there was any softness in the first quarter or was that just more of the timing of your own product launches?

Timothy Ring

Well, you know there's different segments in there that you kind of need to break down. If you look at the Synthetic segment, that's growing at a much different rate than the Biologic segment, Ventral. So the Synthetic market's growing kind of low-single digits, 3-ish. And then your Biologic Ventral market would be growing kind of low-double digits.

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

Okay, thank you, Tim.

Todd Schermerhorn

Mike, to that point, overall soft tissue is growing in the quarter at the same rate it did in the prior quarter. It really is an issue of the performance irrigation and the hemostasis lines from being down from their normal trends that pulled that surgery number down to 5%, if you're still on the call.

Operator

And our next question is from David Roman with Goldman Sachs.

David Roman - Goldman Sachs Group Inc.

I wanted to come back to a quick question on the P&L side. As we think about the progression of gross margins throughout the course of the year, you commented that most of the improvement will be seen in the back half of the year. I assume that when we get to that second half run rate, that's the right number to think about on a sustainable basis. That's a good picture of the gross margin going forward?

Todd Schermerhorn

Sure. Although it's -- we're always trying to continuously improve it and our cost improvement programs continue to run very productively. So I wouldn't expect it to hold at that value. I'd expect it to continue to increase as we out into '12 and beyond. That's the plan. 50 to 100 basis points a year of gross margin improvement.

David Roman - Goldman Sachs Group Inc.

Okay. And on the SenoRx, John, I guess the numbers around that, can you maybe give us a sense of what the year-over-year growth rate of that business is now versus when you acquired it and whether we should think about your either ability to continue to accelerate that growth as you integrate it into your sales channels?

John Weiland

I'd say that the way we're looking at it is that we just recently launched the product lines and built our sales forces internationally, both in Europe and the emerging markets. And I think what we're seeing, while you see the overall growth rates have not been great. We're really bouncing off some pretty significant growth. We're starting to realize in Europe and in the international markets. So I think you'll see a slow continued ramp of that, and then we think the new product that we have coming out in the third quarter will be significantly beneficial to us.

David Roman - Goldman Sachs Group Inc.

And then on Japan, was it fair to say the stocking impact was about $2 million or $3 million?

Todd Schermerhorn

Yes.

David Roman - Goldman Sachs Group Inc.

Okay, thank you.

Operator

And our next question is from Paul Choi with Caris & Company

Paul Choi - Caris & Company

Thanks for taking the question. If we continue with the Biopsy, could you maybe comment a little bit on how you think the market conversion you think is going with your FINESSE product and specifically the SIMS? And how long you sort of see the ramp to market conversion progressing over the remainder of the year?

John Weiland

Well, we're very impressed with the results of FINESSE. The clinical benefits are really substantial in terms of having untethered or unhooked up, so to speak, system that can take multiple samples on a single insertion. I think clinicians are seeing that benefits, those benefits. And the way we look at it, it's a long-term conversion program, one new user at a time. We had an in-service with the device. We in-service heavily the clinicians using it. And then you start to see if it will ramp from there. So it's really one new user at a time, and it will be a long-term ramp process in our mind because of the significance of the device.

John DeFord

And Paul, John DeFord here. Just one other quick note. We don't have our full line out there yet. We have our 14-gauge FINESSE out and the 10-gauge, we've talked about 2012 launch of that product. And so we've got other developments that we've ongoing here to sustain that growth.

Paul Choi - Caris & Company

Okay, thank you for that. And then, John, as a follow-up to your comment on atrial fibrillation for the CE Mark application that you're planning for in the back half of this year, will there be any sort of a presentation of related data for that mid-year at any of the upcoming conferences? Or will it just go ahead with the application towards the second half of the year?

John DeFord

No. We'll be putting that application in. And as I said, we're starting in the clinical study, roughly 60-patient study of this new device at about the same time. So there won't be presentations on clinical data with the new device coming right out of the gates.

David Roman - Goldman Sachs Group Inc.

Okay, great. Thanks.

Operator

And our next question is from Tom Gunderson with Piper Jaffray.

Thomas Gunderson - Piper Jaffray Companies

On the soft tissues side, I didn't hear the growth rate on your biologics revenue. What was that again?

Todd Schermerhorn

Sure, Tom. Just a second. Our total biologics were up 50%.

Thomas Gunderson - Piper Jaffray Companies

Okay. An acceleration, good. And then the impact, can you quantify, Todd, XENMATRIX? You had that little brief January hiccup. Can you put a dollar figure on what that held you back?

Todd Schermerhorn

I really can't, Tom. I don't -- it's hypothetical. We broke out last quarter what we booked for the expense of the recall. It's very small, sort of like under $1 million or about $1 million. So as far as the disruption, a little hard to measure. We got through it pretty quickly, actually.

Thomas Gunderson - Piper Jaffray Companies

I got it, okay. And then John DeFord, I know it's the U.S. government. I know it's going to be hard to answer, but you've got 1 arm saying that they don't want to pay for in-hospital-acquired infections and another arm slowing you down on antibiotic-coated products. Are they asking hard questions, easy questions, silly questions? What kinds of barriers are they putting up for you to get these products out?

John DeFord

Well, Tom, it's really a significant change right now. They have kind of moved in the direction of viewing any type of technology as sort of a drug, even if that historically, it wasn't viewed that way. And so we're getting questions that we have not anticipated and have not prepared for around some of these coatings that historically, we wouldn't have expected and guidance documents don't really help us there. So it's a bit of a paradigm shift, and so we're struggling to work with them, to figure out exactly what they need and then give them the answers that they're looking for.

Thomas Gunderson - Piper Jaffray Companies

That's it for me, guys. Thanks.

Operator

And our next question is from Bob Hopkins with Bank of America.

Robert Hopkins

So first for Tim, I noticed in the press release you're pretty explicit in pointing out that you've seen a real uptick in the marketplace at all or no real change in the marketplace at all. I'm just wondering if you could elaborate that a little bit from a utilization and procedure perspective. Are things -- it seems getting worse in your view? Are there any signs as you work throughout the quarter, that there's light at the end of the tunnel and that things might be getting better? I just would love for you to elaborate on that a little bit.

Timothy Ring

Yes. We'll we haven't seen, bottom line, we haven't seen any change. And as we said in the past, in any one given quarter, it's unlikely that anybody can see that kind of a change. If sales are up a percentage point, it's very difficult to tell what's driving it. If it's market share gain, if it's the market itself. We do file a public hospital data that lags a quarter. So it's going to take a couple of quarters there anyway to triangulate any of that data. Our assumption for the year was that it wasn't going to get any worse, that's one part of your question. But we didn't see it getting better, and we still think that's pretty good assumption. The hypothesis had been perhaps if unemployment rates improved, that you'd see some better utilization. But it's highly unlikely somebody gets the job in the first month to have taken a week off to go to the hospital, unless it was an emergency or something like that. So I think there'll be some lag there as well. So net-net, we just haven't seen any market difference in what's going on in the marketplace.

Robert Hopkins

Okay. And then just a couple of other real little ones. Could you remind me how big the discontinued business is in Urology? That's one little one. and then any milestones through the rest of the year that are worth pointing out relative to the Gore litigation? And then finally, do you guys have any sense as to whether or not Cook is ever going to come to market with the drug-eluting peripheral stent?

Timothy Ring

So the discontinued business is in the area of $8 million to $10 million. We have no comment on Gore. And I'll let John DeFord talk about Zilver.

John DeFord

So Zilver, Bob, you probably already know. They have submitted, they told everyone that they've submitted their PMA. They're awaiting presumably a panel meeting discussion. We haven't heard any kind of a date for that. We're still looking for this product to hit the market sometime later this year. But your guess is as good as mine because they've got to get through the regulatory hurdles. So that's really all I know.

Robert Hopkins

Great, perfect. Thanks, guys.

Operator

And we'll go to the line of Matthew O'Brien with William Blair.

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

Can you remind us the percentage of your revenues that are coming from products that are maybe introduced over the last three years? And then within that, with the FDA pushing back so aggressively, do you think there's any risk to getting those 32 products out to market this year that you talked about during the Investor Meeting back in December?

Timothy Ring

The 3-year new product metric is around 25%. John's telling me 25% to 30%. It's not a number I have handy, and it sort of tracked over the quarters. But that's safe, I guess, from an approximate standpoint. As far as the risk on the products, maybe I'll let John DeFord handle that.

John DeFord

So the risk on the product, there's no question that there is some risk in here and I tried to outline that and anything that we thought was significant risk, I put into my comments here. So when you look at the antimicrobial technologies, we talked about that and clearly, there are some risk there. We don't think it's going to be insurmountable forever. It's just the timing might not be where we want it to be. And the same with vena cava filters, we talked a little bit about the pelvic floor repair products as well. So some of that stuff is a moving target. We're doing everything we can to try to manage our way through it. But I'd say there's definitely some risks there.

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

I'm assuming a guidance range of 6% to 8%. Maybe you could closer to the 6% range if a number of these products get delayed. Is that fair?

Todd Schermerhorn

We'll see. I mean, obviously, our sales budgets, sales plans assume a lot of these products hit now. There's cannibalization and a lot of that as well. But that tends to be kind of a trigger there, Matt. I just want to go on record to say that the 3-year number was 25%. That's it.

Timothy Ring

I think the other thing, Matt, to note this isn't the first year that we've had delays from regulatory approvals. There have been delays every year we've ever been in these jobs. It's just so many times or some year's more than other years and when you go into your planning process, you try to put some calculation on that based on your historical experiences.

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

Okay, thanks. And then one other quick thing for you. Clearly you're taking a bunch of share on the peripheral side of things, but can you talk about the market growth there? It seems to be pretty bulletproof just in terms of volumes, pricing and mix? In the areas where you're competing.

Timothy Ring

Sure. If you look at self-expanding stent and stent grafts together, globally and this is '10 data, right? So there was a little over 9% growth in those markets. If you look at the PTA segment, we think the growth there is in the 7-ish percentage-type range, maybe a little bit higher than that, 8%. And the Biopsy markets, we think are growing in the 7-ish range as well.

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

Okay. Those are all numbers that, I think you gave us out on the Investor Meeting, but we're still kind of seeing that here in Q1 as well?

Timothy Ring

Well again, it's 1 quarter. We're not going to tell if it will change in 1 quarter.

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

Okay, thank you.

Operator

And we'll go to the line of Rick Wise with Leerink Swann.

Frederick Wise - Leerink Swann LLC

Maybe I'll start with a question on the strong OUS growth you've had in the quarter. I know there was a special factor, it sounds like in Japan. But maybe, Tim, just expand a little bit. Are we likely to see sustained acceleration in your OUS based on what's going on in the emerging markets or the x EU portion of your business?

Timothy Ring

Yes, that would be the expectation. I mean, clearly, if you think back, I don't remember if it's the last call or the Analyst Meeting, but recently, we talked a about couple of things driving this. Clearly, increased investment. We added a significant number of sales people in those markets last year. We're going to do it again this year. We did the year before that. So that's 1 segment. Obviously, getting the products registered and approved and a lot of efforts gone into that going back the 2 or 3 years and it takes a couple of years depending on the market to get approval. So we're starting to see those get approved as well. So that's important. Training the clinicians is obviously a big part of that. And what I was referring to in the first part of the answer, we're deploying resources. You've seen a couple of restructurings where we've essentially moved investment from 1 geographic area over to these faster growing other geographies. So the strategy and the plan is to make that exactly the way you described to happen. They have them grow faster.

Frederick Wise - Leerink Swann LLC

And then just a follow-up on that, obviously in 2007 and 2008, you grew sort of the mid-teens rate internationally. The last couple of years have been a little bit more challenging. Should we think in '11 and '12, you can get back to that sort of low to mid-teens x currency kind of growth? Does that make sense?

Timothy Ring

I think if you look at Europe is such a big piece of it still, and these other emerging markets, although this study will make an impact on us, but until that balance shifts more significantly that's when you see a sharp acceleration.

John Weiland

And as I said, we don't have any upper limit in terms of what are desires are internationally. That's for sure.

Frederick Wise - Leerink Swann LLC

All right. Thanks, John. Just a last quick one for you, Todd, you've been kind enough to talk about price on past calls. It seems like a the price headwinds have been running around at 30, 40 basis points. Was it similar in the first quarter?

Todd Schermerhorn

It was, yes.

Frederick Wise - Leerink Swann LLC

Okay, thank you so much.

Operator

And our next question is from Douglas Tsao with Barclays Capital.

Douglas Tsao - Barclays Capital

Just I hoping you could provide a little color in terms of what you're seeing with the LifeStent platform right now. Are you seeing share gains as the only on-label device out there? Or do you think it's a reflection of just sort of growth in demand for the product and sort of higher from penetration rate in terms treatment, certain really relative to say bypass surgery? And/or is it just sort of a mixture of boths and if directionally, you could sort of provide some color on whether one is greater than the other?

John Weiland

We're definitely seeing share gains in our mind. The fact that we're approaching a 3-year clinical data for LifeStent, we think we'll continue to be a positive, as well as the longer lengths that we'll be launching as well as the new delivery system. All have positive aspects on it. And I think if you couple that with the results we're just starting to generate in emerging markets, I think that certainly holds well for the continued growth of that line. For example, we just need to seek approval in China for LifeStent. Now we'll be launching that product in the near future. I think that's a good example of what our strategies are around the world with the product like LifeStent.

Douglas Tsao - Barclays Capital

Okay. and then just one quick follow up. In terms of -- Todd, perhaps you can provide some color in terms of the R&D expense. You noted that you tend to hold it back a little in terms of new projects in the first quarter. When we see the acceleration through the rest of the year, is this sort of starting new development work internally or is this simply initiating clinical trials and that kind of development work as we move through the year and that sort of projects are in queue to take that next step?

Todd Schermerhorn

Yes. I think it's actually both. It is new projects that are in the queue that we anticipate funding as we move through the year and as we talk about all the time, the direction of our clinical trials is always up. That is the expense for clinical trials almost always increases every period as our intensity of clinical work has increased. So the answer to your question is no.

Douglas Tsao - Barclays Capital

Yes, great. Thank you very much, Todd.

Operator

Now we'll go to the line of Michael Matson with Mizuho Securities.

Michael Matson - Mizuho Securities USA Inc.

I had a question on the ECHO PS product. Just wondering, I guess I would assume that that's something that you're going to be able to get a price premium for in addition to the price of your standard meshes that it will be used with. Is that a fair assumption?

John Weiland

That's a fair assumption.

Michael Matson - Mizuho Securities USA Inc.

Okay. And then just with regards to the biologics in hernia repair, what are you seeing now in terms of penetration in some of the less severe hernias? Is it still really limited to the kind of infected contaminated hernias? Or is there some penetration starting to occur in less severe, more run-of-the-mill hernias?

Timothy Ring

We still see the growth drivers being the movement in the complicated cases or contaminated cases. So you once in a while, rarely see a small portion of it going straight hernia cases. But it's mostly in the complicated hernia cases.

Michael Matson - Mizuho Securities USA Inc.

Okay. And then if I recall correctly, I think you guys tend to see a little benefit from a weaker dollar on your bottom line or you tend to see it on your bottom line. And given the weakening of the dollar that we're seeing here, I was just wondering if there is potential for that to drive some upside to your EPS guidance or if given the commentary around really playing a hard target on that $6.38 number means that any kind of upside there you'd really end up just reinvesting somewhere?

John Weiland

Well, I'd say this, Mike, the volatility in currency over the last year, it's a little hard to count as money in the bank in expectation that the euro is going to be $1.46 in December. It's just been swinging too wildly. Yes, it typically helps us a little bit on the bottom line and we worked out what it means this quarter and what it means the next quarter. But I have to tell you honestly, I haven't worked out what it would be in Q3 and Q4 or to the full year. Now we do that maybe generally 90 days, 120 days before the end and to the extent that we can, if there was a benefit there, we definitely would look first to investments that make us more productive going forward. So that's always a formula, Mike, to the extent, there's more investment opportunity in our P&L than we go looking for it. Now there are times when the timing is such where we can't find it and that money will go to the bottom line. But generally, our first step is to invest it in R&D because that's how we make ourselves strategically strong for the long term.

Michael Matson - Mizuho Securities USA Inc.

All right, thanks a lot.

Operator

We'll go to the line of David Lewis with Morgan Stanley.

David Lewis - Morgan Stanley

Just a question on your Urology. One of your smaller competitors in the quarter talked about increasing price competition and specifically in the PICC line. And I wonder, is that to be isolated to that competitor or if you start seeing some of the product cadence sort of be delayed throughout the back half of 2011, do you think it's possibly start seeing price and mix soften in that segment?

John Weiland

We have a very strong position in that market from a share standpoint and that market has always been competitive. There has always been a number of reasonable sized players in that space that we've had to deal with on an account-by-account basis and we've been able to compete very effectively. We don't see that changing especially looking at our pipeline and the strength of that pipeline.

David Lewis - Morgan Stanley

Okay, very clear. And I guess it's a small line, so I'm sure it's not particularly relevant. But it was a surprising to see EP Lab Systems, I know it's been volatile over the last several quarters, but most of your competitors, so far, this quarter have reported very substantial kind of CapEx trends or better than what would've expected. So is there anything competitively that we should be aware of in EP Systems? Or you just think this is kind of a 1-quarter dynamic?

Todd Schermerhorn

David, this is Todd. I think it's interesting that in the times where our competitors were struggling with capital, we would have -- I don't know if you remember this -- but we we're having huge quarters in EP Systems. So our base is actually higher than they're dealing with. And then interestingly enough, as they start to repair, we've run up against a couple of tough quarters. But I think it's more about the fact that we were not running into the softening that some of them did in late '08 and '09.

David Lewis - Morgan Stanley

Okay, just last question and I'll jump back in queue. Specifically on Foleys, in prior quarters you've talked about how that business is -- a percentage of Foleys or have basically been declining inside certain hospital systems. I didn't hear that specific commentary this quarter, but I also didn't hear utilization is getting dramatically better. Have we reached the point, do you think, as you look across the U.S. business where that business has begun to trough in terms of penetration of implants?

Timothy Ring

We've certainly seen the fact that the slippage in the IC business, the Infection Control business, has not had continued at the same rate it had, let' say, this time last year. But at the same point, we have not seen utilization of Foleys in aggregate increase. And it's a pretty good gauge for us in terms of the healthiness or the growth in marketplace. If you add everything up in the United States market, we're about flat in Foleys for the year, for the quarter.

David Lewis - Morgan Stanley

Perfect, thank you.

Operator

And your next question is from Kristen Stewart with Deutsche Bank.

Kristen Stewart - Deutsche Bank AG

Thanks for taking the question. Todd, just going back to the underlying growth rate, I know you gave for SenoRx. If I add kind of back in Japan and I guess a little bit for YMed, is it fair to say that kind of constant currency organic growth was kind of more around 5% in the quarter versus the 8%?

Todd Schermerhorn

Yes. Probably more than 5%, less than 6%.

Kristen Stewart - Deutsche Bank AG

Okay. And I guess, Tim, if we think back to the Analyst Meeting, because it was now 2 years ago or whatnot, where you had talked about the changing environment with the FDA and the need to kind of increase R&D, you guys were one of the first to identify that trend. And clearly, we're continuing to see the impact of the FDA on the business. I guess at what point do you really significantly ramp up R&D? Is it just that you're not spending enough that all these product lines are going delayed or is it just the FDA moving the bar on you as you kind of going through the process?

Timothy Ring

It's not any one particular thing. Despite the issues with the FDA, we try to continue to work very closely with them. There's probably not a day like our interaction with the agency by business. There's probably not a day a division, all divisions aren't in contact with the FDA, trying to give them information enough upfront so that we can try to prevent some of these delays. So we understand what their issues are and what kind of data they're going to require early on in the process. So we try to minimize to the extent possible. In terms of the rate of spending, we launched a number of new products this quarter. The R&D is always a timing issue based on one project startup, start down. But our process is we've got a standing list of products in the projects in the queue, at any given time, we're ready to turn out. So it's not like we have to run off and get the ideas. And just like we manage the rest of the business, this business is performing. We'll continue turn on the spending and the expectations. We'll continue to ramp up R&D throughout the year.

Kristen Stewart - Deutsche Bank AG

And then I guess I will point a couple of years ago, you guys made the case that you cut the EPS growth rate from 14% down to 10% with the thought that, that was going to be more of a couple of year process and really ramp up R&D to kind of got the top line back up to 10%. At what point do we kind of reach that level again? The top line is just not accelerating and maybe you do need to rethink the 10% bottom line gross target, in general?

Todd Schermerhorn

Well, we guide year-to-year and we'll look at the environmental situation in terms of how we do that. Hopefully, the strategy has not changed. We still believe in product leadership. We think new products make a big difference here and you got to invest to be able to do that. So there's no change in that outlook or strategy at this point.

Kristen Stewart - Deutsche Bank AG

Do you think it's still possible to ramp back up to a double-digit rate of growth towards that, just not possible given the more structural changes in the environment?

Todd Schermerhorn

If you look at a number of the product lines that John Weiland went through, we've got a lot of products growing well in excess of 10%. We just need to get more of them. So that still is the goal, to try to get up to that kind of growth rate. And we think new products and new sales forces and geographic expansion and doing deals, all of those in combination are what's going to get you ahead in that direction.

Kristen Stewart - Deutsche Bank AG

And in your original comments, you're speaking of deals, it's kind of sounded like you had a couple of things in the hopper. Should we be expecting the pace of deal flow to increase this year or kind of much of what we've seen like last year?

Timothy Ring

It's hard, the pipeline is probably as full as it's ever been across all the businesses. It's just hard to predict when -- it takes two sides to come to an agreement and it's just hard to predict exactly when that's going to happen. But we're very active right now.

Kristen Stewart - Deutsche Bank AG

Thank you.

Operator

[Operator Instructions] And we have a question from the line of Josh Jennings from Jefferies and Company

Joshua Jennings - Jefferies & Company, Inc.

I just wanted to circle back to emerging markets and if you could, just sort of give us an idea, the 29% growth, whether that beat internal expectations? And then possibly, if you can give us what you have baked in the guidance in terms of emerging market growth for 2011? And maybe give us some more color -- is China still generating the lion's share of that growth?

Timothy Ring

First of all, we're right at our internal expectations in terms of growth in emerging markets. And we've not given that number historically from our perspective. And I don't think we're looking at doing that right now. And I'd also say though that if you look around the globe, we increased our sales forces this year by about 15% over prior year. China was a large portion of that investment, but we also invested in our U.S. sales forces, particularly in Surgery and in our Oncology business. So I think you have a pretty good mix of investment around the world, but certainly emerging markets is getting a large portion of it.

Joshua Jennings - Jefferies & Company, Inc.

Thanks for that. And lastly, just on Japan, it sounds like there you really didn’t take any -- there was no disruption in the business over there with the JV, the orders occurred before the catastrophe. Is there any risk to order levels in Q2 and any disruption over there going forward? And thanks a lot.

Timothy Ring

The way we look at the situation in Japan is that first of all, overall for Bard, it's about 5% of our total sales revenues. And if you look at the three provinces in question where the tsunami and earthquake had the greatest impact, if we look at our business in Japan, it represents little less than 5% of our total business in Japan. Now we do know there are about 600 hospitals there. We also know that there were 31 hospitals that closed down, so which is not a large percentage of that entire pie. So at this point in time, as we look at it, unless there happens to be some ripple effect that goes throughout Japan as a result of this, we think it's pretty well contained.

John DeFord

The other part of that equation is obviously, we get suppliers from all over the world. There a couple of suppliers that were impacted. We found alternatives suppliers. On that side of the equation, we don't really see any disruption going on.

Joshua Jennings - Jefferies & Company, Inc.

Great, thanks.

Operator

Next we'll go to the line of Bruce Jackson with Morgan Joseph TriArt.

Bruce Jackson - Morgan Joseph TriArtisan LLC

Thanks for taking my question. I know it's still maybe a little early to start thinking about 2012 and the research and development, but do you intend to keep that 15% growth rate in R&D spending?

Todd Schermerhorn

Well, we won't give any 2012 guidance until the end of this year, but clearly, as we indicated a couple of years ago, the overall long-term goals, we continue to increase R&D investment.

Bruce Jackson - Morgan Joseph TriArtisan LLC

Okay. And then in terms of how the R&D expense rolls out for the rest of the year, would you expect it to be more back end loaded in the third and fourth quarter?

Timothy Ring

Bruce, I think as we said earlier, we expect a solid Q2 from the standpoint of R&D investment. And it may progress from there into Q3 and Q4. I wouldn't say, dramatically different. I think we're going to take it up pretty good for next quarter and then probably moderately increase through Q3 and Q4.

Bruce Jackson - Morgan Joseph TriArtisan LLC

All right, thank you.

Operator

And there are no additional questions in queue. Please continue.

Timothy Ring

There's no other questions?

Operator

No, I have no further questions.

Timothy Ring

Okay, great. Okay, well listen, thanks everybody -- so let me just conclude by saying at the end of the first quarter, it came out of the box in pretty good shape. We're right on track where we told you we will be when talked with you the most recent occasion. And I'd like to just thank everybody for taking the time to join us today, and we'll talk to you again next quarter.

Operator

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

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