C.R. Bard (New Jersey) (BCR) Timothy M. Ring on Q4 2015 Results - Earnings Call Transcript

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

Q4 2015 Earnings Call

January 28, 2016 5:00 pm ET

Executives

Timothy M. Ring - Chairman & Chief Executive Officer

John H. Weiland - President, Chief Operating Officer & Director

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Analysts

Robert Adam Hopkins - Bank of America Merrill Lynch

Larry S. Keusch - Raymond James & Associates, Inc.

Brooks E. West - Piper Jaffray & Co (Broker)

David Harrison Roman - Goldman Sachs & Co.

Michael Weinstein - JPMorgan Securities LLC

David R. Lewis - Morgan Stanley & Co. LLC

Kristen M. Stewart - Deutsche Bank Securities, Inc.

David L. Turkaly - JMP Securities LLC

Matthew Taylor - Barclays Capital, Inc.

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

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the C. R. Bard, Inc. Fourth Quarter 2015 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference call is being recorded and will be available for future on-demand replay through the Bard website.

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

Today, Bard's management will discuss some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are based on management's current expectations. The accuracy of these statements are necessarily subject to risks and uncertainties. These statements are not historical in nature and use words, such as anticipate, estimate, expect, project, intend, forecast, plan, believe and other words of similar meaning. Many factors may cause actual results to differ materially from anticipated results, including product development, sales efforts, income tax matters, the outcome of contingencies, such as legal proceedings, the uncertainty of loss revenue estimates, share repurchases, acquisitions, foreign exchange and other economic business competitive and regulatory factors.

Please refer to the cautionary statement regarding forward-looking information in Bard's September 30, 2015, 10-Q and the information under the caption Risk Factors in the company's 2014 10-K, including disclosure of 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 categories. Reconciliations of non-GAAP measures to the most comparable GAAP measures with respective to the company's historical financial results 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 January 28, 2016, and the company undertakes no responsibility to update any information. Unless otherwise noted, all comparisons are to the prior year-end.

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

Timothy M. Ring - Chairman & Chief Executive Officer

Thanks, Ernie. Good afternoon, everybody, and welcome to Bard's fourth quarter 2015 earnings call. I would like to thank all of you for taking the time to join us today. I'd expect the presentation portion of the call to last about 40 minutes. You may note, we have also placed a few slides on the Investor Relations page of our website to help you understand some of the moving pieces on our results and guidance to give you a little more clarity.

Our discussions today will go as follows: I'll begin with an overview of the results for the fourth quarter. John Weiland, our President and COO, will cover the fourth quarter product line revenue. John DeFord, our Senior VP of Science, Technology and Clinical Affairs will give you an update on the product development pipeline. And then, Chris Holland, our SVP and CFO, will cover the fourth quarter income statement, balance sheet and provide our financial guidance for 2016. And then, we'll close with Q&A.

Fourth quarter 2015 net sales totaled $878.8 million, that's essentially flat on an as-reported basis and up 3% on a constant currency basis over the fourth quarter of last year. Currency impact for the quarter versus the prior year was unfavorable by about 300 basis points.

Other non-operating adjustments also negatively affected revenue growth by about 200 basis points in the fourth quarter. Adjusting for these items are organic growth rate for Q4 of 2015 was 5.5%, which exceeded our guidance from three months earlier. We've provided a summary reconciliation of these quarterly revenue results on slide three of the deck provided on the website that I just referenced.

Net sales for the full year were $3.4 billion, that's up 3% as reported and up 6% on a constant currency basis. That correlates to approximately 6.8% organic growth for the year compared with our original guidance for the year of 4% to 5%.

The U.S. launch of the Lutonix drug-coated balloon exceeded our expectations, and we're also pleased to see the acceleration of the rest of the portfolio in 2016. It's notable that every business was at the top or above the revenue guidance ranges we provided a year ago.

Net income for the fourth quarter was $136.3 million and diluted earnings per share were $1.79, that's up 2% and 4%, respectively. Excluding items that affect the comparability of results between periods, which Chris will cover later, fourth quarter 2015 net income and diluted cash earnings per share, which exclude amortization of intangibles were $164.6 million and $2.43, that's up 4% and 6%, respectively.

Full year 2015 net income was $135.4 million and diluted EPS was $1.77. Excluding items that affect comparability between periods, full year 2015 net income was $615.8 million and diluted cash EPS were $9.08, that's up 5% and 8%, respectively. These results exceeded our original guidance for the year despite an estimated additional $0.15 of headwind during the year from a combination of additional FX headwinds and dilution from acquisitions during the year.

Looking at the fourth quarter revenue growth geographically compared to the prior year on a constant currency basis, net sales in the U.S. grew 2%. Internationally, we grew 5% with Europe up 7%, Japan down 22%, and our other international geographies up 16%.

To refresh your memory, the decline in Japan is due to the work down of inventory that was record as revenue when we sold it to our Japanese joint venture prior to the acquisition of the joint venture. This issue should be substantially behind us after the first quarter of this year. As anticipated in our strategic investment plan, our emerging market sales continue to increase nicely and represented about 10% of our total revenue in the fourth quarter.

Looking at overall results with some historical context, three years ago, we announced our strategic investment plan to invest in advance of the receipt of the Gore Royalty. At that time, our organic revenue growth profile was essentially flat. We increased our annual spending and SG&A and R&D by combined $70 million. We designed the investment plan to return the revenue growth of our portfolio to above market rates and to put the company in a better position for the longer term.

We then said on this call a year ago that 2015 was a very important year of execution for us to begin to see the results from that investment plan. As we look at where we are today, our organic growth rate has accelerated, again, to the top tier of the sector. We're pleased with our teams that executed the plan, and we believe we built the business in a matter that's sustainable. We've been able to achieve our objectives, while continuing to invest in future growth, despite absorbing various headwinds along the way.

So while we're pleased with the execution of the plan so far, our focus remains solidly on the future. We have many potential opportunities for strong growth in front of us. We believe we have significant room for growth in emerging markets. We also have several technology platforms that we believe provide us with billions of dollars of market opportunity to pursue new indications and expanded market development and penetration.

And the Japan joint venture and Liberator acquisitions provide us better access to customers with delivery platforms that we believe will position us well for the long term. So we remain in investment mode to pursue these opportunities.

Our objective remains sustained above market growth on the top line that we believe should provide an organic engine positioned for reliable and attractive profitability on the bottom-line.

Chris will give you more details when he lays out our financial guidance. We continue to believe that the effective execution of our strategic investment plan will allow us to continue to increase shareholder value over the long term on a sustainable basis.

With that, let me turn you over now to John Weiland for a review of our fourth quarter product line revenue.

John H. Weiland - President, Chief Operating Officer & Director

Good afternoon, everyone. Before I start, as usual I'll be giving all percentage growth data in comparison to the prior year period on a constant currency basis unless otherwise noted.

So let's start with Vascular. Total net sales in this category for the quarter were $239.3 million, a decline of 2% on a reported basis and an increase of 1% on a constant currency basis when compared to Q4 of 2014. Adjusting for the non-operating items, global vascular sales were up 5% with the U.S. business down 3% for the quarter and international up 18%.

Sales in our Vascular Graft category were up 7% in Q4, which is above trend driven by some timing issues within our OEM business.

Excluding the Gore Royalty, our endovascular business grew 4% in the fourth quarter. Within endovascular, our biopsy line was up 10% driven by strength in emerging markets.

Our peripheral PTA products were up 5% this quarter. As expected, the growth rate here was affected by the anniversary of the significant stocking event for Lutonix in Q4 of 2014, as well as the reduction in Japanese sales due to our inventory adjustment there.

As Tim said, we are very pleased with the first year of our drug-coated balloon sales in the United States. Sales in Q4 were as expected, and we estimate that end customer usage, which more than doubled the prior year. We look forward to expanded adoption of this technology longer term as the market continues to develop.

Our stent business was up 4% in the fourth quarter, which is better than recent trends, driven by strength in this product family internationally. And to complete the category, sales in our Vena Cava Filter line were down 28% in the fourth quarter. This was mostly due to a supplier component issue that we expect will be resolved in the next few months.

Now, let's move to urology. Total net sales were $217.9 million, which is flat versus Q4 of last year on an as reported basis and up 3% on a constant currency basis. Excluding the Japanese inventory issue, global growth was 5%, with the United States up 5% and international up 4%.

The Targeted Temperature Management products saw double-digit growth again this quarter, both domestically and internationally. Our basic drainage business was up 3% in Q4 globally and up 9% in the United States. I.C. Foleys were flat globally and up 7% in the United States. We believe this strong finish to the year in the United States is more related to our sales mix than overall volumes.

We saw a particular strength in our temperature sensing products, which are nearly double the ASP of our base product. We continue to see a favorable shift in mix to higher ASP products. Our continence business declined 1% from the prior year quarter.

Sales in urological specialties were up 1%, with our Brachytherapy product line up 7%. We do not hold significant Brachytherapy inventory in Japan. So that product line benefited from moving to end customer pricing in the fourth quarter. And sales from our STATLOCK catheter stabilization line decreased 3% in Q4. Before we leave urology, we're pleased to announce that we completed the acquisition of Liberator Medical last week. As Tim said, this adds a new delivery platform to a strong technology platform, and we're very excited about the possibilities here.

Now for Oncology. Total net sales in this category were $237.8 million, which was flat compared to the fourth quarter last year on an as reported basis, and up 3% on a constant currency basis. Adjusting for the Japan inventory issue, global sales were up 4%, with the United States up 2% and international sales up 10%.

Our port line was down 8% versus the fourth quarter of last year. The Japanese inventory issue contributed to this decline as did timing issues of orders in emerging markets, which were lower than trend in the fourth quarter, as we expect to register next generation devices there, in the first quarter of 2016.

PICC revenue growth was 9% in the fourth quarter. Contrary to ports, we sell very few PICCs in Japan currently. So, the impact from the acquisition is minimal. Our vascular access ultrasound product line was up 1% this quarter, and our dialysis catheter business was up 9% in the fourth quarter.

So, let's then finish up with surgical specialties. Net sales in this category were $152.8 million in the fourth quarter, up 5% on an as reported basis and 8% on a constant currency basis. Adjusting for the Japan inventory issue, global sales were up 10% with the United States up 11%, and international sales up 7%. Our Biosurgical product portfolio grew double digits again this quarter, and we're excited about the long-term potential here.

Our Soft Tissue Repair business grew 9% overall in the fourth quarter. Within that subtotal, our total synthetic hernia products were up 9% this quarter, while our natural tissue products increased 7%. We're pleased with the execution and the momentum in our broad product portfolio of synthetic, natural tissue and hybrid products for the treatment of hernia repair.

Our fixation business grew 15% in Q4, benefiting from the initial launch of new products in this product category. Closing out the Surgical category, our Performance Irrigation business was down 22% this quarter, consistent with expectations.

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

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

Thanks, John, and good afternoon, everyone. 2015 was a pretty busy year with about 40 product launches and several important developments and milestones reached. We expect 2016 to be another year with a robust pipeline and a similar number of launches planned.

I'll start today with our drug-coated balloon pipeline. We're building inventory for the launch in Q1 of recently approved additional lengths and diameters in the U.S. SFA product line. We've also submitted to FDA seeking approval for the treatment of long lesions based on clinical data we've gathered in Europe.

During the Leipzig Interventional Course or LINC meeting this week, investigators are sharing data and updated results from several of our Bard-sponsored studies, as well as results from independent studies of DCBs conducted by clinicians. Some highlights include yesterday's presentation by Dr. Christopher Metzger of updated Lutonix Global registry results, including a 93% freedom from TLR at 24 months now in 229 patients.

He also presented results for subgroups, including a first look at freedom from re-intervention for patients treated for In-Stent Restenosis. At 12 months, almost 92% of ISR patients were free from re-intervention and that result was durable, with over 88% of patients free from intervention at 24 months.

Also yesterday, Dr. Sabine Steiner from University Hospital Leipzig, presented results from their single center comparative study of the impact in Lutonix DCBs. This real-world retrospective study included 12-month analysis of 456 patients with SFA and popliteal disease. Though retrospective, the baseline patient and lesion characteristics were pretty well matched. This study treated very difficult patients with an average treated length in both groups of over 280 millimeters. No statistical difference between devices was seen, with freedom from re-intervention at 12 months in excess of 82%. Sustained clinical benefit, defined as freedom from an increase in Rutherford class, was also found to exceed 80% in both groups at 12 months.

In our Below the Knee IDE enrollment progresses, and we continue to work with FDA to expand patient inclusion and analysis in this important study. At projected recruitment rates, we anticipate we'll continue to enroll patients through 2016, putting PMA submission late in 2017 or likely into 2018.

On the other hand, our AV Access DCB IDE study, which began recruitment in Q2 of 2015, continues to enroll quickly. At current rates, we anticipate enrollment could be complete in late Q1 or Q2 of this year, putting PMA submission slightly ahead of schedule in the first half of 2017.

The in-stent restenosis IDE study is also ongoing, and we're working toward a projected second half 2016 PMA submission seeking this expanded indication. Around the world, we're also working to expand access to this important technology, with submission for approval expected in the first half of the year in Japan. We also expect enrollment to begin to accelerate in our LEVANT China Study.

Also in vascular, the LifeStream Balloon Expandable Covered Stent continues to perform well in Europe. The IDE is in follow-up, after completing enrollment in Q3. These clinical studies evaluating the technology for the treatment of iliac artery disease. We'll remain on schedule for the projected submission of the final module of the PMA in the second half of the year.

Our Covera next-generation stent graft designed for use in AV access, recently received CE mark and the IDE was submitted in December. Our current plans have enrollment commencing in Q1. And our new VENOVO venous stent also receive CE mark in Q4 and our first case was completed in December. In the U.S. we received approval to commence our IDE study a few weeks ago.

Next, moving to Urology and home care, we're expanding the launch of the new Magic3 GO self-lubricated catheter for female patients as our manufacturing ramps up inventory. We're also building large quantities of our MAGIC3 TOUCHLESS, and we anticipate launching the product family this quarter.

And in endourology, we expect to launch around the end of Q1 upon FDA clearance, the new PROXIS sheath family for flexible ureteroscopy. In temperature management, we've released software upgrades for enhanced EMR connectivity and additional user controls.

Moving to Oncology, the new Site~Rite 8 Ultrasound System, which launched in Europe in Q3, has received clearance in the U.S., and we're launching the product this quarter with 3CG diamond and Pinpoint GT capabilities.

We continue to believe the combination of ultrasound, needle guidance and catheter tracking and tip confirmation in an integrated system will provide a user-friendly and intuitive solution for vascular catheter placement.

In PICCs, we're awaiting FDA clearance for the launch anticipated in the first half of this year of our new family of chemical-resistant catheters based on a new material design to resist commonly used chemotherapy solutions, as well as cleaning and disinfecting agents.

We're also making steady progress on our new PICC family designed to reduce the risk of thrombosis or DVT and remain on plan to began launching in the back half of the year.

For the difficult stick IV catheter patients, we are giving up to launch around the end of the first quarter, an improved family of AccuCath wire guide assisted products. These new products are anticipated to launch alongside our new midline catheter, the PowerGlide Pro, also slated for launch this quarter.

And lastly, for the acute hemodialysis patient, we're preparing for the launch of the new dual lumen Power Xenesis (23:43) catheter, which was cleared by FDA earlier this month. Xenesis (23:48) is designed for superior flexibility and kink resistance, and flow rates in excess of 400 mLs per minute, and an 11 French configuration.

I'll close my portion of the discussion today with surgery. In 2016, we'll continue to expand our Phasix and XenMatrix AB families of products with launches planned throughout the year.

In our bio-surgery product family, we're awaiting PMA approval for our new Tridyne vascular sealant and continue to anticipate approval and launch of the first in a series of indications in the back half of 2016. We're also working towards the launch of a new Progel sealant configuration designed to improve visibility during minimally invasive and robotic surgery.

And finally, in mesh fixation, we're expanding on our recent permanent and resorbable product launches with two additional fixation devices slated for later this year.

And now, before I hand you over to Chris, I'd like to invite all of you to our Analyst Day to be held on Monday, May 23, at the New York Palace Hotel at 4:30 PM. I look forward to seeing you there.

I've stalled about as long as I can, so I guess I'll hand it over to Chris now.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Thank you, John, and good afternoon, everyone. Let me start by covering the items that affect the comparability of our results between the periods. We had acquisition related items of $33.9 million pre-tax, a $14.5 million pre-tax charge for restructuring and productivity initiatives, and a $4.5 million pre-tax charge for asset impairments. These items are detailed in the notes to the financial statements and the reconciliation accompanying our Q4 earnings press release.

Now, let's go through the statement of income for the quarter. Gross profit was $550.8 million in Q4 or 63.3% of sales. On an adjusted basis, gross profit was $553.2 million or 63.5% of sales, that's up 40 basis points from the prior year. The headwinds to GP in Q4 included new amortization of about 30 basis points and FX at about 30 basis points. Pricing pressure, which was about 100 basis points of headwind on the revenue line, was 40 basis points of headwind in GP during the quarter.

On the a positive side for GP, mix was favorable by about 40 basis points and cost improvements and other items drove about 100 basis points of favorability this quarter. For the full year 2015, that brings adjusted gross profit as a percentage of sales to 61.8%, which was at the very high end of our original guidance, down 30 basis points from 2014.

FX was a headwind of 30 basis points, price was negative by 40 basis points, and new amortization was also 40 basis points. Mix was positive by 30 basis points and cost improvements and other items were about 50 basis points favorable.

SG&A expenses were $279.3 million for the quarter or 32.1% of sales. On an adjusted basis, SG&A was $271.3 million or 31.2% of sales. That's up 110 basis points from the prior year, primarily as a result of the acquisition of our Japanese joint venture.

For the full year 2015, adjusted SG&A as a percentage of sales was 29.3%, that's a decrease of 30 basis points from the prior year. SG&A was higher than we guided at the beginning of the year, primarily because of acquisitions, as well as some additional investment spending in the back half of the year reflective of our strong operating performance.

R&D expenditures totaled $69.4 million for the fourth quarter, or 8% of sales. On an adjusted basis, R&D expense was $64.8 million or 7.4% of sales, a decrease of 80 basis points from the prior year period.

For the full year 2015 on an adjusted basis, R&D was also 7.4% of sales, which was consistent with our guidance and reflective of a very robust level of investment spend.

Interest expense was $11.2 million for the fourth quarter and $44.9 million for the full year. Other income and expense was $32.9 million of expense for the fourth quarter. On an adjusted basis, it was $5 million of income for the quarter and $1.6 million of income for the year.

The effective tax rate for the quarter was 13.7%. On an adjusted basis, it was 22%, taking us to 24.1% for the full year right in the middle of the guidance range we provided at the beginning of the year. The quarter, of course, was lower than the full year average due to the renewal of the R&D tax credit in December, which as you now know has been made permanent. That all adds up to cash EPS of $2.43 for Q4, excluding items affecting comparability, bringing us in at $9.08 for the full year on the same basis. That's $0.03 above the high end of our original guidance for the year despite having absorbed roughly $0.15 of additional FX headwind and dilution during the course of the year, which is indicative of the strong operating performance we saw in 2015.

We repurchased about 600,000 shares of stock in Q4 taking total buybacks in 2015 to approximately 2.7 million shares. The balance sheet as of December 31 reflects cash, restricted cash and short-term investments of $1 billion versus $1.1 billion at September 30. For the full year, AR days were up 0.8 days, and inventory days were up 6.9 days, driven by the acquisition of our Japanese JV. Capital expenditures totaled $23.6 million for the quarter and $102.9 million for the year. On the liability side, total debt was $1.4 billion as of December 31, no change from September 30. Debt to total cap at the end of the fourth quarter was about 49% and total shareholder investment was $1.5 billion at December 31.

So, with the strong 2015 now on the books, let's turn to financial guidance for 2016, excluding the impact of items that affect the comparability. For revenue, we project 2016 constant currency organic revenue growth between 5% and 6%. Beyond organic growth will benefit from incremental revenue in 2016 from the acquisitions of our Japanese JV, as well as Liberator Medical.

We also expect to see a non-operating reduction to revenue from lower sales of EP products to Boston Scientific, and we're prepared for a range of levels for the Gore Royalty. Therefore, our overall constant currency revenue guidance is between 6% and 8%. Our expectations assume no change in the market growth rates from where they've been in the last couple of years, which we would characterize as being in the low-single digits.

Obviously, the strength of the U.S. dollar will continue to be a headwind for U.S. multinational companies in 2016. We estimate that at current rates, we're looking at a revenue headwind related to currency of about 1.5%, which would put our reported revenue guidance for 2016 between 4.5% and 6.5%.

As far as constant currency revenue growth in our four disease state categories, in 2016, we expect vascular revenue growth to be between 3% and 7%, Urology to be between 8% and 11%, Oncology to grow between 5% and 8%, and our Surgical Specialties business to grow between 6% and 9%. To be clear, these are constant currency growth rates, not organic. We're only providing organic revenue growth guidance at the corporate level.

As we move down the P&L for financial guidance, we're making one important change in our presentation. As you know, when the sector moved to cash EPS, the vast majority of our peers excluded amortization of intangibles from their entire adjusted P&L. Up until now, we've been reporting amortization in the entire P&L and only excluding it from the EPS number below the line.

In order to make it easier for investors to understand our results in context with others in the sector, beginning with 2016, we'll exclude the amortization of intangibles from our entire adjusted P&L.

We've provided a reconciliation of the key margin percentages on the Reg G. section of our Investor Relations page on our website and a summary of that reconciliation is provided on slide six of the deck associated with this call.

So the following guidance excludes items that may affect comparability and amortization of intangibles. We expect our overall gross margin percent to improve in 2016 between 50 basis points and 100 basis points compared to 2015, which translates to a gross margin range between 65.8% and 66.3% that reflects about 30 basis points of pressure from FX.

Pricing pressure continues to be a challenge for us, and we estimate the impact on 2016 to be between 30 basis points and 50 basis points of gross margin headwind. Our cost improvement programs are projected to contribute between 80 basis points and 100 basis points of benefits to GP, and we expect mix to be favorable between 50 basis points to 60 basis points, which includes the positive gross margin impact from our acquisition in Japan. We expect SG&A as a percentage of sales to be about the same as 2015, as we continue to increase our investments in emerging markets this year and work to integrate our recent acquisitions. And we expect R&D as a percentage of sales to be in the mid 7% range again this year.

This would project our operating margin in 2016 to be between 29% and 29.5%, which is an improvement of 50 basis points to 100 basis points compared to 2015 on the same basis. We expect interest expense in 2016 to be between $50 million and $55 million, reflecting higher projected average rates and debt levels compared to 2015.

Primarily as a result of jurisdictional mix, we expect a slight pause in the cadence of the improvement in the effective tax rate, which we project to be between 25.5% and 26% in 2016. The R&D tax credit is now permanent. So we will not have the sharp reduction in the Q4 effective rate that we've seen in the last couple of years.

So all of that adds up to adjusted cash EPS for 2016 excluding items that affect comparability, between $9.90 and $10.05, representing 9% to 11% reported growth over 2015. This guidance includes a projected negative currency impact of about $0.30 based on today's rates. The suspension of the medical device excise tax represents approximately $0.20 of benefit to us, essentially offsetting two-thirds of our overall estimated currency headwind in 2016 at today's rates. So were we to exclude both the negative impact of currency and the benefit from the MDET suspension, our operational EPS growth forecast would have been between 10% and 12%.

As we enter 2016, we continue to be in investment mode, with planned, targeted incremental spending in SG&A, particularly in emerging markets and a continued robust level of investment in R&D.

We're pleased that we're able to provide attractive 2016 guidance with strong reported earnings growth, without having to reduce or delay investments and projects, we believe we'll provide long-term value to our shareholders.

In Q1, we expect constant currency sales growth between 4.5% and 5.5% and reported revenue growth between 2.5% and 3.5%. As with the case in Q4, Q1 revenue guidance reflects the negative impact from the sell-through of existing inventory in Japan. We expect this factor to be behind us by Q2.

On an organic basis, we expect Q1 sales growth to be in the 5.5% to 6% range. We expect adjusted cash EPS in Q1 2016 to be between $2.14 and $2.18, which reflects the initial dilution from recent acquisitions, as well as the foreign exchange headwind. We expect the dilutive impact from acquisitions, in particular, our joint venture buyout in Japan to moderate as we move through 2016. Excluding the front-loaded dilution from acquisitions, Q1 adjusted EPS would have been about 10%. So, operationally, I expect us to be off to a very solid start to the year as we move into Q1.

As for capital expenditures, we expect 2016 to be in the $120 million range, and we expect operating cash flow to be in the $700 million range in 2016.

Thank you for your attention. And with that, I'll turn you back to Tim.

Timothy M. Ring - Chairman & Chief Executive Officer

Thank you, Chris. While we're pleased with our performance in 2015, as I mentioned earlier, we remained very focused on the growth opportunities in front of us and our execution against the plan for those. We look forward to updating you on our continued progress in the coming quarters.

With that, that concludes the formal part of the presentation. I'll now turn you back to the moderator to facilitate Q&A.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the Q&A session. We'll go to Bob Hopkins with Bank of America. Please go ahead. Your line is open.

Robert Adam Hopkins - Bank of America Merrill Lynch

Great. Thanks for taking the question and congrats on the strong finish to the year and the strong guidance. A couple of things I wanted to ask about, just in terms of the guidance that you provided. I was wondering, Chris or Tim, if you guys could talk a little bit about some of the assumptions that drive the 2016 guidance? Specifically, on buyback and share count for 2016, I'm wondering what you're assuming?

And then also, on drug-coated balloons, could you give us a sense as to the contribution to growth in Q4 and the contribution to growth in 2016 that you're assuming? I assume it's probably between 1 point and 1.5 points of contribution to top-line growth, but just wanted to confirm that. Thank you.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Sure, Bob. Thanks for the questions. I think on the buyback side, we're not going to give a specific guidance number. I think we've been pretty consistent as a repurchaser of our stock. I think having said that we feel really good about the operational momentum in the business. So I think we'll continue to have the latitude to maintain a lot of flexibility with the balance sheet. And while we'll certainly be a active repurchaser, I think we've got a lot of flexibility as we move into 2016 given what we see as really strong operating performance straight down the P&L.

I think from a Lutonix standpoint, we're really happy about where we are. Q4 came in as we expected it to be. Obviously overall, we're ahead of our guidance for the quarter, and I think as we move into 2016 – we like to talk about not being about one big thing. I think we're trying to really focus on the entire portfolio. We feel terrific about Lutonix's momentum going into 2016. I think some of the data that John referenced that's just hot off the press, out of LINC, continues to show a great clinical positioning of the product that frankly continues to get better the more we see some of this real world data coming out. So it's a component of what we think is a really strong organic growth profile coming into 2016.

Robert Adam Hopkins - Bank of America Merrill Lynch

Okay, fair enough. Thanks for that. And then, Tim, just on emerging markets, we've heard a lot of discussion out of other companies on emerging markets today, and it sounds like for you guys the growth continues to be strong. But I just wanted to ask your views on emerging markets here exiting 2015 and beginning 2016 In Q4, did you see the same kind of growth trends that you've seen in the last couple of quarters, and just any highlights on emerging markets or specific geographies would be helpful? Thank you.

Timothy M. Ring - Chairman & Chief Executive Officer

Sure. We haven't really seen a change from the trends that we've seen. Clearly, we pay attention to what others are seeing and feeling in emerging markets. I think it might be kind of the mix of the geographies where we're strong and have a sizeable presence and some of the geographies that seem to be causing others more of an issue; either it's the mix of our offering in those geographies that don't seem to be impacted and/or we're not very strong in some of those other geographies. So, John, if you want to...

John H. Weiland - President, Chief Operating Officer & Director

The only thing I'd add is that I think one of the unusual natures of our business is we're really still rolling out the portfolio of products into a lot of these markets. In fact, we had 252 new product approvals in 2015; that was up from 114 in 2014. So we have a bolus of new products yet that are still in regulatory agencies around the world, waiting for approvals, all those are a wave that are coming through our international businesses through 2016. I think that's a little unique to us based on the investments that we've made and the product mix that we're developing for these markets.

Robert Adam Hopkins - Bank of America Merrill Lynch

Great. Thanks for the color.

Timothy M. Ring - Chairman & Chief Executive Officer

Welcome.

Operator

Thank you. Let's go to the line of Larry Keusch with Raymond James. Please go ahead.

Larry S. Keusch - Raymond James & Associates, Inc.

Good morning, or good afternoon I should say, sorry.

Unknown Speaker

Good evening, Larry.

Larry S. Keusch - Raymond James & Associates, Inc.

Yeah. So could we start off just, Tim, maybe, I know that you've said that you assume the environment is sort of where it's been, but I'm wondering as you kind of move through the fourth quarter and into 2016, was there anything notable that you might have been seeing that was changing in the U.S.?

Timothy M. Ring - Chairman & Chief Executive Officer

No. We didn't detect any notable difference really at all. John, I don't know if you want...

John H. Weiland - President, Chief Operating Officer & Director

No. I think that we didn't see any trends that would cause us to believe it's different from what we experienced through the majority of 2015.

Larry S. Keusch - Raymond James & Associates, Inc.

Okay. Terrific. And then, Tim, look, on the home side, you obviously did the Liberator deal, you did Rochester a while back. Can you sort of help us think about just what the strategy now is for the home now, you've got some enhanced distribution. You obviously have some new products flowing through, which John talked about. But where do we go with the home strategy?

Timothy M. Ring - Chairman & Chief Executive Officer

Yeah. So, look, I think it's coming together. We're still figuring it out as we go here, and I do think we do know certain of the trends, right. So, hospitals are trying to take care of more people outside of hospitals. And obviously, we paid attention to that. We've done a lot of work relative to understanding that dynamic. We think we understand very much the difference between a good solid product model and a service model and the profitability and sustainable growth differences between those two.

So, I like the way we're positioned. I'd say we're still understanding it and trying to figure out where to plug and play in that kind of an environment. But we're optimistic about it, which is why we pulled the trigger on Liberator. We felt we needed that platform as a missing piece to solving that puzzle. So, we're pleased with that, and I think you'll continue to hear more from us in the future on that front.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Larry, I think just the one thing I'd add, and I think it's important as you think about the strategy, both Rochester and Liberator were movements into the home, but based on the back of a strength in urology. And I think as we said when we did Rochester, and I'll repeat it again now that we've got this really interesting platform, it works just on the back of a urology entry strategy into the home for us. What it's given us is clearly these other capabilities that we can then begin to really think about how we can leverage into some other category areas, but we don't need to do that to make this, both the Rochester and the Liberator now in combination, very successful and really accretive to us for a long period of time. So I'd characterize it as a lower risk build of a new capability into an adjacency on the back of some core strengths we already have.

Larry S. Keusch - Raymond James & Associates, Inc.

Okay, terrific. Thanks, guys.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Sure.

Operator

Thank you. Next we go to the line of Brooks West with Piper Jaffray. Please go ahead.

Brooks E. West - Piper Jaffray & Co (Broker)

Hi, guys. Thanks for taking the question. A question on margins, maybe more theoretical. Chris, you're getting back to the margin profile that you had in 2012, which I think was a big kind of milestone for investors, maybe you're a little bit ahead in gross margin, almost there in operating margins. I'm just wondering, you've got leverage left in the business and specifically from the emerging markets investments that you made. How do you think about running the business going forward? Do you kind of get to 30% operating margin and reinvest from there? Is there significant upside to where you might see operating margins progress from here? I'm just curious your thoughts there.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Yeah. I think what we've been saying now for a number of years, Brooks, is we're focused on driving margins higher, certainly back to the levels we were at, we made good progress in 2015, and we've now committed to making additional significant progress in 2016.

As we do that we're continuing to balance that objective with longer-term investments that make all of this sustainable. So we're not giving a longer-term margin goal that we get to and then we think about running business differently. We're making investments in China as we go into 2016 and making investments in other areas in the business, but still committing to 50 basis points to 100 basis points of operating margin performance. We'll continue to try to strike that balance. Obviously, there'll be headwinds that come our way along the way, but as Tim said, this is all about sustainability and we like where we're at and we'd like the opportunities in front of us.

John H. Weiland - President, Chief Operating Officer & Director

The only thing I would add to what Chris said is that when you look at our guidance for 2016 you note – and in our 2015 results, you note the strength of the contributions of our operating manufacturing teams around the world. That's a core capability that we believe we'll deliver every year for the corporation moving downstream, and it gives us a lot of, I think, a lot of strength in the ability to make a lot of moves strategically depending on where we see the opportunities.

Unknown Speaker

Thanks for that. And then just one on the acquisition environment, if I could. There's been a lot of speculation on consolidation, perhaps this year in med-tech. I'm just wondering, it seems like there's still a disconnect between valuation expectations from sellers and buyers. I'm wondering if you're seeing that change at all, or how your expectations might be for kind of the rest of the year here. Thanks much.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Yeah. I think it's hard to comment specifically. Brooks, obviously, there's been a lot of volatility in the market. Certain stocks have settled at much lower levels. Certainly, sellers always have a long memory in terms of recent highs. So I think all of that noise doesn't really affect us frankly. We're very focused on a number of key criteria and transactions need to make sense to us from a whole other set of perspectives as well as obviously from a valuation perspective. So we're obviously in a world here with a lot of market volatility, but I don't think it changes the things we're focused on, and we looked at a lot of things in 2015. We'll continue to be very active in looking, but we'll pull the trigger on things that meet a whole bunch of criteria, and we can get at a price that makes sense for our shareholders.

Unknown Speaker

Okay.

Operator

Thank you. Next, we'll go to the line of David Roman with Goldman Sachs. Please go ahead.

David Harrison Roman - Goldman Sachs & Co.

Thank you and good afternoon, everybody. I wanted to start with one clarification question around the EPS guidance. Can you just help us tease out what the deal related dilution is in your guidance? And if that $0.25 number you provide around Medicon still holds and how that tracks throughout the course of the year? I think you said it was mostly Q1 weighted, but if any – any more detail you can provide around the dilution from deals would be helpful.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Yeah. So, the Medicon dilution in the year, David, is about $0.20. It's about half of that, actually hits us in Q1, again, because you've got obviously, the full P&L with the reduction in sales as well. And the other acquisition, the Vascular Pathways acquisition as we're really ramping up some of the R&D spending around those – the products that were required are also more heavily impacted in Q1 before we launch the new AccuCath.

So, the dilution from Medicon is still a good $0.20 number for the full year. The other acquisitions, Vascular Pathways caused us $0.03 to $0.05 in 2015. It'll be a little bit less than that during the course of 2016, but obviously, all of that's fully loaded into the $9.90 and $10.05.

David Harrison Roman - Goldman Sachs & Co.

Okay. That's helpful. Thank you. And then, maybe on Japan specifically, you could help us think about the opportunity that exist in front of you, and at least the way we thought about was two pieces. There's obviously the price recovery from shifting from distributor to direct, but then I think there's also a fairly significant market share opportunity across at least three of your four categories. So can you maybe help us think about the cadence at which might be able to recognize that benefit and if sort of a similar playbook to what you've been able to execute in emerging markets and how we should think about the contribution to growth going forward?

Timothy M. Ring - Chairman & Chief Executive Officer

Yeah. So I'll start and maybe John Weiland wants to jump in. I wouldn't compare it to an emerging market and the models that we are running are different. It's more of a mature market model. Maybe it's a little bit of high grade in the sense that because we haven't had total control and management over all of these selling and marketing resources, some of the things that we do relative to training and some of the management generally that practices we have around the world haven't been fully implemented there, and we do think that implementing those in Japan will have a positive influence, but that underlying growth of that market isn't anywhere close to what the emerging markets are. So we see this as – we continue to invest in getting some of the clinical trials and some of the market investment build out of training, et cetera, clinical trials, having control of that we thought was important thing from a long term in Japan.

John H. Weiland - President, Chief Operating Officer & Director

I think the only thing I'd add is we have 191 salespeople in Japan. They will now be fully integrated in the Bard selling model, which I think will be a significant momentum builder for us, and I think that the product lines, which we expect to come out of our own internal R&D and clinical base, this has been largely a Urology business, historically, as we move our competence into oncology, into vascular, into surgery, I think that's where we believe we're going to have the bigger payback from.

David Harrison Roman - Goldman Sachs & Co.

Okay. That's helpful. And maybe just one more on a longer term basis. As you look at the acquisition of Medicon as well as Liberator, I think you've talked about both being accretive on a go-forward basis, do you think you're tangibly getting closer to having a higher degree of confidence and being able to still the "Gore hole" (53:35) as we look toward a much more outer year period?

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Yeah. I think these are just two more examples of all the things we're trying to do to grow the business in a way that we've got a really strong organic engine, with lots of different growth platforms that are hopefully increasingly accretive as we approach the end of 2019 and 2020. So these are just consistent with I think everything we're trying to do to build a really strong, sustainable organic engine, that looks attractive when it's compared to other alternatives in the sector.

David Harrison Roman - Goldman Sachs & Co.

Okay. Thank you very much.

Timothy M. Ring - Chairman & Chief Executive Officer

You're welcome.

Operator

Thank you. Let's go to line of Mike Weinstein with JPMorgan. Please go ahead.

Michael Weinstein - JPMorgan Securities LLC

Thank you. Chris, can you just walk me through the impact of Medicon buying on your organic growth both this quarter, and then as we – more importantly as we roll through 2016?

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Yeah. It's about 2 points in Q1, Mike, in comparison to prior year. The thing about comparing it to last year is we were selling in dollars into Japan last year, right. And so as the yen has weakened and we're now consolidating the JV, there's a negative impact to organic really over the course of the year, but it's somewhat muted compared to what we're seeing in Q1 because of the inventory sell-through.

Michael Weinstein - JPMorgan Securities LLC

But we've looked at your organic growth as you guys are characterizing it here, you're expecting a lower number obviously in the first quarter, because of Medicon and then a much higher number over the back half – certainly over the back half of the year?

Christopher S. Holland - Chief Financial Officer and Senior Vice President

It's excluded from organic growth, Mike, in the 5% to 6% guidance.

Michael Weinstein - JPMorgan Securities LLC

So the Medicon impact is excluded from that?

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Yeah.

Michael Weinstein - JPMorgan Securities LLC

And that's in your non-operational items?

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Yeah, exactly.

Michael Weinstein - JPMorgan Securities LLC

Okay.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

So – yeah.

Michael Weinstein - JPMorgan Securities LLC

Okay. So you're including that in that. Okay.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Yeah. So it's totally pulled out.

Michael Weinstein - JPMorgan Securities LLC

And then, Chris, when you get to that $0.30 impact from FX off of just 150 basis points from the top line, could you bridge us on that? Because just the math implies at a 60% pre-tax drop through, but obviously it's tied to the Japanese distributor and...

Christopher S. Holland - Chief Financial Officer and Senior Vice President

It's driven by Japan, Mike. So again, the way to think about is, last year, the JV was hedged at 102 on the yen. This year, we're naked on the yen. So it's really – and we have 100% of the exposure to the JV compared to 50% last year. So the $0.20 of dilution is really off from the impact of the yen when you compare 2015 to 2016.

Michael Weinstein - JPMorgan Securities LLC

Okay. Perfect. That's very helpful. Thanks, Chris.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Sure, Mike.

Operator

Thank you. Next we go to the line of David Lewis with Morgan Stanley. Please go ahead.

David R. Lewis - Morgan Stanley & Co. LLC

Good afternoon. Maybe one for Chris and one for Tim. So Chris, you have two deals in 2016, Medicon and Liberator. They have this muted effect on 2016 both with the yen exposure of Medicon and the reinvestment in Liberator. But there's this hopefully bigger effect in 2017. We think these deals could be at least $0.25, $0.30 accretive in 2017. So I know you've been reluctant to provide the returns on Medicon, but is there anything you can tell us about the potential returns in Medicon accretion, Medicon relative to the 2016 dilution and give us a sense of the relative magnitude of the Liberator investment in 2016, so we can start thinking about how this begin to hit the P&L in 2017?

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Yeah. I think, David, hopefully you'll join us about a year from now and I'll give you a lot more visibility to that. I think seriously they both become accretive going into 2017. The Liberator platform is strategic to us. We are making significant investments in 2016, and we've got a lot of work integrating Medicon and to John's point, turning that sales force into a Bard sales force engine.

I think as we move into 2017, between now and then, obviously, lots of other things are going to happen. Those will be two nice tailwinds, but I'm not going to call out specific accretion from them in 2017 and how do you guys make assumptions before we wrap everything up and think about what kind of commitment we want to make for 2017. But those are two nice tailwinds that we'll have and then we'll reassess additional investments – incremental investments as we get closer to see how 2017 is rolling up.

David R. Lewis - Morgan Stanley & Co. LLC

Okay.

John H. Weiland - President, Chief Operating Officer & Director

I think one of the things to think about in the Liberator and in our home strategy in general and Urology is that unlike most home care segments, most home care segments are episodic. A patient gets home from the hospital. They're getting care at home for a given period of time. They get well and they move off the rolls.

That's not the case in the urological segment. Most of these patients are on catheterization for the rest of their life. So, they naturally build the business year after year after year as you add more patients to your segments. Liberator and Rochester help us do that and they're both hand in glove

David R. Lewis - Morgan Stanley & Co. LLC

Okay, very helpful. And then, Tim, just coming back to this notion of drop through and I think it seems like the message you have for shareholders as you're moving towards this durable kind of 6% top, 10% bottom-line model, look at the presentation, the PowerPoint you provided and obviously, underlying growth rates are in excess of 10% earnings. So, maybe just give us a sense of – do you think you can deliver greater than 10% earnings growth or is this sort of 300 basis points to 400 basis points of leverage on whatever top-line you put up, is that sort of the model that we should continue to expire and expect?

Timothy M. Ring - Chairman & Chief Executive Officer

Well, the guidance we just gave for the earnings of the guidance, so I'm not going to change that during the course of the call here. But if you go back even historically and look at some of the leverage between our revenue and our earnings, it's been about that kind of a range. We were 8% and 12%, 10 years ago and you can get that kind of range, which we think gives us a very fair return to shareholders and also, gives us the flexibility to invest in the business for future growth, and it's that balance between those two that we manage, and we think that's a good balance, at least to – certainly for this year.

David R. Lewis - Morgan Stanley & Co. LLC

Okay. Thank you very much.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Sure, David.

Operator

Thank you. Next, we go to the line of Kristen Stewart with Deutsche Bank. Please go ahead.

Kristen M. Stewart - Deutsche Bank Securities, Inc.

Hi. Thanks a lot. I guess, most of my questions were taken. So, I guess, just thinking about, I guess, just acquisitions and just kind of appetite now, are you seeing any – how do you expect kind of the rollout in 2016? Do you continue to think the pace of tuck-in acquisitions will accelerate from here? It's kind been asked in a couple of different ways, but...

Timothy M. Ring - Chairman & Chief Executive Officer

Yeah. We haven't changed our strategy at all relative to acquisitions, despite the commentary earlier about valuations perhaps changing around. We have a very disciplined set of filters that we look at and it starts with strategic first. And we don't see any reason to change that. I would say, our pipeline is extremely full. I do know, for example, just already this year, we've had meetings with well over 50 different companies and technologies, et cetera, which is a very strong start for this early in the year.

So that cadence hasn't changed really. The effort, momentum, the resources are all what they were. So we don't feel any differently about our profile in terms of doing acquisitions going forward.

Kristen M. Stewart - Deutsche Bank Securities, Inc.

Do you think the suspension of the medical device tax perhaps changes sellers' minds, especially on the small company level, in terms of their desire to sell out, maybe more in the near-term or...?

Timothy M. Ring - Chairman & Chief Executive Officer

I haven't had that or heard that portrayed by anybody yet.

Kristen M. Stewart - Deutsche Bank Securities, Inc.

Okay. And then, Chris, I guess you had mentioned in terms of the guidance, you had mentioned that it seems a wide range of, I guess, scenarios with the Gore Royalty, I was just wondering if you could share what those wide range of scenarios are or if you've had any sense of a change in terms of the cadence of what that could be, anything – I don't know if you just said that to include just different possibilities or if there's something behind that?

Christopher S. Holland - Chief Financial Officer and Senior Vice President

That's how we've been approaching it, Kristen, so there's not a change. Obviously, it's been flat to down. Obviously, there's some FX component to that that we frankly don't have visibility into. And we're making commitments to you guys, and we take it really seriously, and we understand we may see some variability there, but we continue to not have visibility to the royalty until it comes in the door.

And so, I think the same dynamic that's been in play for a while continues to be in play. It's just we need to make sure that we've got business plans that can deliver on the commitments we're making to you without visibility to that one item.

Timothy M. Ring - Chairman & Chief Executive Officer

It's not unlike, Kristen, our other businesses. I mean, we give you a range for the businesses that we run and know something about, and there's a high and low-end to those too, and the Gore thing is not dissimilar, it's just we don't have any control over it.

Kristen M. Stewart - Deutsche Bank Securities, Inc.

Okay. All right. Look forward to the Analyst Day and hope you let John throw in some jokes there.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Not a chance.

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

I'm not even getting a question, I feel like I was just ear candy for the prepared portion.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Thanks, Kristen.

Kristen M. Stewart - Deutsche Bank Securities, Inc.

All right. Thank you.

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

Hey, operator, since Kristen's questions were already taken and we are past the hour, we're going to do three more analysts and then I apologize to everybody who's on the line after that. Obviously, we'll be available here tonight over the phone to take questions, but – so, we're going to do three more analysts, okay, Ernie?

Operator

Okay, thank you very much. We'll go to the line of Dave Turkaly with JMP Securities. Please go ahead.

David L. Turkaly - JMP Securities LLC

Thanks. And just quickly on the Liberator deal, I've gotten asked a couple of times sort of the buy versus build. And I wondered if you can just spend a moment on sort of why that was a buy decision, sort of what the secret sauce is there that you gained?

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Sure, David. On the back of Rochester, one of the things we spent the last couple of years doing is getting really smart on the DME space. And we obviously came to a strategic conclusion that we wanted to control our destiny. And, Liberator really in urology is the market-leading, highest quality provider of urology-related products. There's no question. If you look at their metrics, the quality of their billing, the quality of their customer service and really the great partnerships they have with all the leading manufacturers, they were frankly the only platform that would have fit what we were looking for.

And so, the complexity of building a nationwide DME distribution, having all of the licenses and all the capability to build and – bill and ship to Medicare patients in virtually all of the 50 states and to do that at the volume of transactions that they need to do it at is something that, frankly, would have not been economically viable for us to try to build.

So we're really fortunate that that team is now part of the Bard family and welcome them. And really again, they were the only – really the only company that was going to allow us to pursue this strategy. So we're really – really feel great about having them on board now.

David L. Turkaly - JMP Securities LLC

Thanks. And then, just on the tip navigation or confirmation on the PICC side, we've seen some news from competition. I guess, penetration today, where does that stand and I guess how big of an opportunity do you think that is for you guys moving forward? Thank you.

John H. Weiland - President, Chief Operating Officer & Director

Well, we're very well penetrated. We don't give that number out for competitive reasons, but we have a high degree of penetration of our base business. We continue to add segments to that as you can see by the new product launches that we talk about year in and year out within that segment.

So we're not slowing down at all. And at the same time, if you look at some of the new product lines that we're bringing to the PICC area, John talked about them tonight, you add some of those important competitive differentiators to our already strong differentiated position, we think our position only gets stronger and stronger in the months and years to come versus any competitive offerings and the like.

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

Yeah. And as John said, we've been trying to move the needle here and move the game and the goalpost time after time. So as we've added Pinpoint GT, which is rolling out this quarter, it's a new technology to further improve and simplify the placement of our devices. We already have, of course, the ultrasound capability, which is pretty unique to us on an integrated basis. And then our tip tracking technology, the Sherlock.

And then, of course, we also continue to improve upon our final tip confirmation technology, and so we continue to add new algorithms and new ways to make that better, like 3CG diamond. So we think we're going to continue to do that. We've got a few other tricks up our sleeve, and we'll – as we get further down the pathway here, we'll talk about them.

David L. Turkaly - JMP Securities LLC

Thank you.

Unknown Speaker

Welcome.

Operator

Thank you. Next, we'll go to the line of Matt Taylor with Barclays. Please go ahead.

Matthew Taylor - Barclays Capital, Inc.

Hi, thanks for taking the question. So I wanted to just ask one, you were going through some of the new products and lines of the Lutonix balloon that you're coming out with here in the beginning of the year. I was just wondering if you thought that would make a material difference in the applicability and the growth rate or if there are any other catalysts that you're looking for in 2016 that you think could meaningfully juice your DCB sales?

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

Well, so I think there's a few things that we've got in there. We talked about the longer lengths. So we've submitted data seeking approval for treatment of patients with lengths up to about 300 millimeter. So about twice the length that we have now. That could potentially open up the market. In-stent restenosis, probably a lot of that is going on today, but having the ability to promote that is going to be helpful, and some of the other sizes we talked about. We've got some other launches that we hope will come in this year that we think will be helpful.

And then, obviously, expanding indications is going to be key, below the knee, AV access, which is a little more near term for the U.S. market and it's an area where we're particularly strong anyway with our stent graft technology, as well as some of the other products we have for dialysis patients, I think give us what we think is a pretty good opportunity for DCB and our ability to leverage that.

Matthew Taylor - Barclays Capital, Inc.

Great. And then, I was just curious on Liberator, really two minor questions. One is, you can kind of see their mix in the last 10-K in terms of what they distributed. I was wondering if you could help us understand how much of that revenue is going through your different segments. And then also, I guess, what was your history with them, working with them before, how much product was yours going through that channel and what else can you bring now to the table?

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Sure. So just to be clear, we're selling through them today and prior to the acquisition, just urology products. So we were a pretty small part of their volume. So, probably less than 10% overall. They've been a very high-quality partner to us. Again, they're the leading independent urology DME, and so they have urology, ostomy and some mastectomy products, but again, we're only selling urology products to them today and that's certainly obviously going to continue to be the case for the foreseeable future.

Matthew Taylor - Barclays Capital, Inc.

Okay. I guess what else can you kind of bring in to the channel right away, or I mean where do you see that expanding down the road?

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

Yeah. I think that was the point I was trying to make. It...

Matthew Taylor - Barclays Capital, Inc.

Okay.

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

We're, obviously, to John's commentary around the expansion of our ISC catheter portfolio, that's continuing to become much more robust and that's really the first R&D products coming out of the Rochester R&D engine. This acquisition and this strategy is a winner for us just within urology. And that's what we're focused on integrating Liberator, getting this off to a very strong start.

We've talked about investing in the platform and expanding it including the sales force that's supporting it. Those are the near-term milestones that we're focused on. What we're going to have now is this aperture into the home that's going to allow us to think more broadly beyond urology.

Again, we don't need to do that to make this successful, but that's something that, I think, you should just look for really over the coming years as opposed to anything within the next 12 months or 18 months.

Matthew Taylor - Barclays Capital, Inc.

Okay. Thanks a lot.

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

Sure.

Operator

Thank you. And our final question will come from the line of Rick Wise with Stifel. Please go ahead.

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

Good afternoon, everybody.

John H. Weiland - President, Chief Operating Officer & Director

Hi, Rick.

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

A little more on Lutonix. You highlighted, John, the AV access, BTK, In-Stent Restenosis indications that are coming up. Just can you give us some color on the indication opportunity, is it 50% bigger? Is it double the current opportunity you're tackling? What are we looking – what are you looking at?

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

Well, I think if we look, the SFA, if you kind of look in that broad category, I think the SFA is a big part of the overall market opportunity. I think below the knee is – I'm not the marketing guy, so, I'm looking at John Weiland here. But I think it's 20%, 30% of the SFA opportunity, AV access kind of in that same ballpark. So certainly significant incremental opportunities. But the SFA probably makes up about half of the overall – maybe a little more than half of the overall opportunity.

John H. Weiland - President, Chief Operating Officer & Director

I think the other thing to think about Rick is that after a little bit over a year into this now, physicians now are getting to the point that have started using DCPs on some of their patients, they're not only looking at the data, they're looking at the fact that patients aren't coming back for re-intervention. And as patients don't come back for re-interventions, they get great confidence in using the device on more and more and more patients in the future. And I think we'd like that in combination with the real life data that's coming out on our product and the fact that we're generating those kinds of results with 50% less drug on than other players in the space in the United States right now.

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

Yeah.

John A. DeFord - Senior Vice President-Science, Technology & Clinical Affairs

Yeah. I think just to add a little bit to that, I think physicians are still sort of figuring out what's the right treatment paradigm and how do they optimize the outcomes for their patients. And so, we certainly hear in our interaction with customers that the DCB gives them an important tool in the toolbox, but exactly how they combine that with other therapies is still sort of underdevelopment. So, as John said, there's a lot of work going on out there, and I think there's a lot of penetration opportunities still ahead of us.

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

Yeah, thank you. And just one last one, just the 100 basis point cost reduction benefits that we saw, just remind me again, where that came from? And how sustainable that is, is there more to come out of that magnitude in 2016, I just wasn't clear on that point? Thanks again.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

Yeah. Sure, Rick. And John referenced that being a real core strength of the company, and actually within our guidance for 2016, we're projecting 80 basis points to 100 basis points of incremental benefit from all the initiatives that our manufacturing and sourcing teams will be undertaking in the course of 2016. So that is something that we believe does have a long runway. It's not easy, but our guys are superb at doing it, and they delivered in 2015 and they're telling us and we're expecting them to deliver similar magnitude in 2016. I think the unfortunate thing is with what FX has been doing and in price as well that's been mitigating a lot of that benefit. So if we can get some of those headwinds to shift or to be a little more benign, you'll really see, I think, the power of what our operating – our operations and sourcing teams are delivering year in and year out.

John H. Weiland - President, Chief Operating Officer & Director

And Rick, I would think about it as almost half being operating efficiencies in terms of cost savings in our plants and production at about 50% on sourcing initiatives that are reducing raw material costs into our plants.

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

Got you. Thank you, again.

John H. Weiland - President, Chief Operating Officer & Director

You bet.

Christopher S. Holland - Chief Financial Officer and Senior Vice President

You're welcome.

Operator

Thank you. This does conclude our Q&A session. I would like to turn the call back over to Bard's management for closing or additional comments.

Timothy M. Ring - Chairman & Chief Executive Officer

Great. Thank you. I'd like to thank all of you for joining us here today, and I'd also like to take this opportunity, as I always do, to thank Bard employees around the world for their dedication, commitment and very strong execution throughout 2015. We look forward to catching up with all of you again after the first quarter. Have a good evening.

Operator

Thank you. And that does conclude our conference for today. Thanks again for your participation and for using AT&T Executive Teleconference Services. You may now disconnect.

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