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CR Bard (NYSE:BCR)

Q1 2012 Earnings Call

April 24, 2012 5:00 pm ET

Executives

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

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

Todd C. Schermerhorn - Chief Financial Officer and Senior Vice President

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

Analysts

Jonathan J. Palmer - Credit Agricole Securities (NYSE:USA) Inc., Research Division

Michael Matson - Mizuho Securities USA Inc., Research Division

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Frederick A. Wise - Leerink Swann LLC, Research Division

Matthew J. Dodds - Citigroup Inc, Research Division

Jason Wittes - Caris & Company, Inc., Research Division

David R. Lewis - Morgan Stanley, Research Division

Topher Orr - Goldman Sachs Group Inc., Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

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

Lennox Ketner - BofA Merrill Lynch, Research Division

Daniel Sollof - Barclays Capital, Research Division

Joshua T. Jennings - Cowen and Company, LLC, Research Division

Anthony Petrone - Jefferies & Company, Inc., Research Division

Robert M. Goldman - CL King & Associates, Inc.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the C. R. Bard, Inc. First Quarter 2012 Earnings Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded and will be available for future on-demand replay through Bard's website. Today's presentation will be hosted by Timothy M. Ring, Chairman and Chief Executive Officer; along with Jay 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 2011 10-K, including disclosures 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 performances of the company and its individual product franchises. Reconciliations of non-GAAP measures to 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 24, 2012, 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 M. Ring

Thank you. Good afternoon, everybody. I'd like to welcome you to Bard's first quarter 2012 earnings call, and thank you all for taking the time to join us today. I'd expect the presentation portion of the call to last about 30 minutes.

The agenda today will go as follows. I'll begin with an overview of the results for the first quarter of 2012. 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 and balance sheet, as well as our expectations for the second quarter. John DeFord, our Senior VP Science Technology and Clinical Affairs, will then provide an update on our product development pipeline. And then finally, we'll close with a question-and-answer period.

First quarter 2012 net sales totaled $730 million. That's up 4% over Q1 of last year on an as-reported basis and up 5% on a constant-currency basis. Currency impact for the quarter versus Q1 of last year was unfavorable by about 40 basis points.

Net income for the first quarter of 2012 was $138.7 million and diluted earnings per share were $1.60. Excluding items that affected the comparability of results between periods, which Todd will cover later, first quarter 2012 net income and diluted EPS were $139.5 million and $1.61, up 4% and 7%, respectively. We're off to a good start this year, which Todd will put in perspective for you when he discusses this quarter's financial performance and our guidance for the second quarter.

Looking at revenue growth geographically, compared to last year, first quarter net sales in the U.S. increased 2%, while internationally, we grew an impressive 11%. In Europe, we were up 6% on a constant-currency basis. Japan had a particularly strong quarter, growing 19%, which included some benefit from a competitor's quality issue in stents that John Weiland will address a little later. Our other international businesses grew 15% in constant currency, driven by a 29% growth in our emerging markets.

On the business development front, we don't have any new deals coming up at this time, but I can tell you that the transactions we closed in the fourth quarter last year are proceeding as planned. We told you that we had expected ClearStream and Medivance together to contribute about 200 basis points of growth this year, and that was their impact on the first quarter. Later, you'll hear John DeFord's update at the LEVANT 2 trial from the Lutonix acquisition continues its rapid enrollment and is going according to our plans.

So in summary, I'd characterize the first quarter as a good start to the year. While we still haven't seen much change in the U.S. environment, our increased focused in investments in international markets are providing rapid returns and strengthening our growth profile. We remain focused on daily execution of our product leadership strategy to take advantage of the opportunities in front of us while positioning ourselves for stronger growth in the future.

Before I turn the call over to John Weiland, I wanted to give you an update on the Gore litigation. As most of you know, on February 10, the Court of Appeals for the Federal Circuit affirmed the District Court's decision in our favor. Gore has since filed a petition requesting a rehearing of the case, so we're currently waiting to find out if there will be further hearings or not. In the meantime, we're in the process of evaluating alternatives for the use of these potential funds in the best interest of shareholders.

As we've told you in the past, we intend to invest approximately half of the earnings power associated with the favorable ruling in the growth programs for the business. The timing of potential resolution of this case remains uncertain. Having said that, we think the most likely scenario is a final resolution late this year and at that time, we expect to provide further details about the use of funds.

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

John H. Weiland

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

So let's begin with vascular. Growth in this category was 6% for the quarter. Total net sales were $209.2 million, up 5% over last year on an as-reported basis. Our U.S. business was up 2% for the quarter, while internationally, we grew 13%. Our Electrophysiology sales were down 1% for the quarter, as EP lab systems were up 4%, while our disposable EP product lines were down 2%. Sales in our surgical graft category were down 4% in Q1, consistent with recent experience.

Our Endovascular business increased 9% in the first quarter. Within endovascular, our biopsy products were up 8%. We're now 3 months away from the second anniversary of the SenoRx acquisition, and we continue to see strong growth from these products at 20% globally in Q1, with the international results being especially impressive.

Sales in our peripheral PTA line increased 8%, with about 400 basis points coming from the addition of the products in the ClearStream acquisition, with over half of those sales outside the United States. Within PTA, our Chronic Total Occlusion, or CTO, product line continues to grow nicely in the 40% range. Sales in our Vena Cava Filter Line were down 5% in Q1. We expect to return to growth later this year as our new Meridian filter, launched in Q4 of last year, changes the trajectory of this product line.

Our Stent business grew 14% in Q1, with LifeStent growing 22%. As Tim mentioned, we benefited this quarter from a competitor's quality issue, especially in Japan. It's very difficult to quantify the exact global impact on the quarter, and we're not sure how long their disruption will last. We're doing all we can to make sure our customers have the product they need, and we're taking advantage of this opportunity to highlight the quality, reliability and clinical proof of Bard's portfolio.

Let's go to Urology. Total net sales were $185.1 million, up 3% versus Q1 of last year on both a constant currency and an as-reported basis. The United States business grew 1%, while internationally, we grew 9%. Our new targeted temperature management products were off to a good start, accounting for about 550 basis points of the global growth for the total category. So the legacy urology business actually declined in the quarter.

Our basic drainage business was flat globally in Q1 and down 2% in the United States, while our I.C. Foley business was down 4% globally and down 5% in the U.S., which is on the low end of our recent experience here. So we continue to see pressure in this daily use product line driven by general market conditions.

Our Continence business was down 15% in Q1, consistent with recent experience with almost half of that decline driven by the discontinuation of our bulking agent Contigen in Q2 of last year. So we'll have that headwind for one more quarter.

Within Continence in the first quarter, we launched 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. And while it's still early in the launch, we expect this improved technology to gain market share as the year progresses.

Sales in urological specialties were up 1% in the first quarter as the largest product line in the category, our brachytherapy business, was up 2%. Stand-alone sales of our STATLOCK catheter stabilization line decreased 1% in Q1. We think this market has matured to a point where the growth will be more modest than it's been over the 6 years since we acquired the business. It is for that reason that you saw us combine these sales resources with our Access Systems team to optimize the opportunity with the call point at the nursing area.

Let's now go to Oncology. Total sales in this category were $198.9 million, an increase of 7% over Q1 last year on both the constant currency and as-reported basis. Geographically, net sales in the United States were up 4%. Outside the United States, sales were up 14%. Our port business was up 4% versus Q1 last year, while our PICC revenue was up 8%. Both of these product lines are benefiting from the strong adoption in emerging markets.

Here in the United States, in Q1, we reached the one-year anniversary of the launch of our Tip Confirmation System as an alternative to X-ray. We have converted over 200 accounts to this technology, with over 60% of those accounts already having eliminated x-rays from their protocols, which represents the elimination of about 140,000 x-rays annually. In addition to those converted already, we have over 150 accounts currently evaluating that technology, and our conversion rate to date is at 93%. We're very happy with the first year results in this product, and we still have plenty of opportunity in front of us.

We received FDA clearance for the new Sherlock 3CG integration system just a couple of weeks ago. The new platform combines our ultrasound technology with our Sherlock tracking and our ECG-based Tip Confirmation claims as an alternative to X-ray. We've also recently received CE mark approval for this integrated product and are planning a controlled rollout and launch in Europe beginning late this quarter or early Q3.

Our vascular access ultrasound product line was up 13% this quarter. While over 80% of our sales in this category are in the United States, our international business continues to expand, growing over 80% in the first quarter.

Let's conclude our revenue discussion with our Surgical Specialties business. Total net sales in this category were $114.7 million, essentially flat on a constant currency and as-reported basis. United States sales were down 2%, and international sales were up 7% for the quarter. Our soft tissue repair business grew 1% this quarter, slightly lower than recent quarters, and the mix of the growth has shifted. A year ago, our synthetic hernia products were declining, and we are seeing strong growth in our Biologics business.

This quarter, our recent product launches in synthetic hernia hit the mark, providing 23% growth in our synthetic ventral products and 12% growth in synthetic hernia overall. However, the sales trajectory of our natural tissue products has leveled off over the last few quarters and is showing an 8% decline this quarter against the high-water mark of the first quarter 2011. The good news for us is that with our new synthetic products for both open and laparoscopic procedures, including our resorbable non-adhesive barrier, we are well positioned to the extent there is any procedural shift toward synthetics in the future.

As expected, our Hernia Fixation business declined 27% this quarter as the market adjusted to 3 players instead of 2. So we expect continued headwind in the comps until the back half of this year. Closing out the surgical category, in Q1, our Performance Irrigation business declined 12%, and our Hemostasis business was up 23% over a very low quarter a year ago.

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

Todd C. Schermerhorn

Thanks, John. To start with, the only items that affected comparability of our results between periods in Q1 were acquisition-related items of $1 million associated primarily with the deals we closed in Q4. The P&L impact is detailed in the notes of the financial statements and the reconciliation accompanying our Q1 earnings press release.

Let's go through the statement of income for the quarter. Gross profit was $450.6 million, 61.7% of sales, down 40 basis points on an adjusted basis from the prior-year quarter. New amortization of intangibles relating to transactions closed in the last 12 months cost us about 70 basis points year-over-year this quarter. Price was more favorable than we expected at 150 basis points on the revenue line and 60 basis points in GP. It was Q2 of last year when we saw the first step up in pricing headwinds. So we're still assuming the full impact on 2012 will be above 100 basis points on the revenue line, but as you can imagine, this is an area we're watching closely. From a manufacturing standpoint, our cost improvement programs and manufacturing efficiencies continue to produce nicely and even with the step up in price erosion, we actually started 2012 a little bit better than we had expected. So right now, I don't see anything that would change our full year gross profit guidance.

SG&A expenses were $202.3 million for the quarter or 27.7% of sales, the same as a year ago despite adding about 80 basis points of expense from the deals closed in Q4 and our continued investments in emerging markets. And this net result for the quarter reflects also our prior restructuring activities, and as you know, we typically keep the spending range fairly tight in Q1.

R&D expenses totaled $48.2 million for the first quarter or 6.6% of sales. On an adjusted basis, R&D was $47.8 million or 6.5% of sales, up 10 basis points as a percent of sales from the prior year. As with SG&A, we conservatively plan our R&D early in each year. We continue to expect R&D as a percent of sales to increase throughout the year as we approach the 7% of sales we guided to in December.

Interest expense was $9.5 million for the first quarter, just up slightly from a year ago due to higher debt levels related to the Q4 deals. Other income expense was $800,000 of income for the first quarter as reported and $1.4 million of income on an adjusted basis, driven mostly by foreign exchange. The effective tax rate for the quarter was 27.5%, right in line with our full year guidance. Diluted shares for the period were 85.1 million as we purchased 1.2 million shares in the first quarter. So the net result is adjusted EPS $0.04 above the top range of our guidance for the quarter on slightly better margins and light spending levels. As you can probably predict, we're going to caution you about making too much of the over-performance as I provide guidance for Q2 in a minute.

Balance sheet as of March 31, 2012, reflects cash, restricted cash and short-term investments of $804.4 million versus $743.5 million at December 31. For the quarter, accounts receivable days were up 3.8 days, mainly due to a nontrade item and inventory days were up 0.2 days. Capital expenditures totaled $19.6 million for the quarter. On the liability side, total debt was $1.239 billion at March 31, compared to $1.213 billion at December 31. Debt to total capital at the end of the first quarter is about 40%, and total shareholder investment was $1.872 billion at March 31.

Moving on to financial guidance for Q2. We are again expecting constant currency sales growth between 4% and 7%. From an EPS standpoint, excluding items affecting comparability, if any, we see the second quarter in a range of $1.61 to $1.65. As I said, we're off to a good start from an EPS standpoint for the reasons I noted. But again, we do expect to elevate our investment levels going forward, so we remain committed to the full year earnings guidance we provided you in December.

I'll now turn you over to John DeFord.

John A. DeFord

With almost 50 projects discussed in December, I'll just jump in and hit the highlights today, and we'll bring in details of the other products as the year progresses. Anything not covered today remains on the timeline we presented in December.

I'll start with our new atrial fibrillation ablation technology, named ENCOMPASS. We began enrollment in our multicenter feasibility study in Q1 and anticipate enrolling between 40 and 60 patients. Our enrollment's been brisk, and we believe we'll complete patient recruitment and treatment in Q2. Our plan is to use those data to support CE mark approval and European launch around the end of the year. We also plan to submit the results to FDA in Q4 to support our pivotal IDE.

Moving to stent grafts, enrollment continues in our roughly 300-patient clinical study of the FLUENCY PLUS family for the AV access in-stent restenosis indication. As we discussed late last year, FDA requested some additional analysis that increased our required enrollment about 35%. This has extended the time needed for patient enrollment, and we now expect recruitment and treatment activities will continue throughout this year. At this point, we filed the first module of our PMA submission and anticipate filing the final PMA module in the second half of 2013, with an anticipated launch around the end of next year or early in 2014.

Our next-generation stent graft, LifeStream, targeted for the treatment of SFA disease, received conditional IDE approval just a couple of weeks ago and we're in the midst of site selection, contracts, IRB submissions and training. We anticipate enrolling our first of roughly 200 patients in this study in Q3. We're estimating about 12 months for patient enrollment and we'll need one-year follow up prior to PMA submission. So U.S. launch is certainly a couple of years out. European launch is expected later this summer.

In PTA, our LEVANT 2 pivotal clinical study of the Lutonix drug-coated balloon for the treatment of SFA and popliteal disease continues with very energetic enrollment. We've enrolled over 370 patients in this 476-patient study and anticipate completing patient recruitment around midyear. The study includes patients suffering from claudication or rest pain with significant stenosis in previously unstented vessels. We'll follow these patients for 5 years but anticipate PMA submission with one-year follow-up. We also have a 650-patient LEVANT 2 registry study under review at FDA. This registry will closely mimic the follow-up of the randomized study and is anticipated to start enrolling this summer.

The Lutonix drug-coated balloon is CE marked, and we're gearing up for a launch in Europe in the second half this year. We're also laying the groundwork for a large European registry study that will also commence later this year. And as we alluded to in December, we're working towards the submission of an IDE to study the Lutonix drug-coated balloon in below-the-knee arterial disease.

Also in PTA, we received 510(k) clearance and began the launch of our new CONQUEST HP 40, a line of very high pressure PTA catheters. CONQUEST HP 40 is the only PTA product family to have balloons with rated burst pressures as high as 40 atmospheres. Additionally, our new line of ATLAS large diameter PTA catheters is nearing development completion, and we remain on track for launch in mid-summer. We're also on schedule to launch a new CROSSER product for central lumen access across chronic total occlusions and new 300-millimeter length ULTRAVERSE balloons, both planned for launch in early Q3. All in all, it's a pretty full pipeline in our PTA business.

Moving to filters. In Q3 of last year, we began enrolling in our DENALI vena cava filter clinical study. DENALI is our next-generation filter designed with a unibody electro-polished construction, enhanced anchoring and penetration-limiting limbs. We anticipate enrolling about 200 patients in this study, and at our current recruitment rate we believe we'll complete enrollment around the end of the year. We'll need follow-up for at least 6 months prior to submission, so the U.S. launch is most likely late in 2013 or early in 2014.

In biopsy, we're progressing on schedule with the development of our new SENOMARK Ultra breast biopsy marker. This new marker is designed for long-term stability and visibility and is anticipated for launch in Q4.

Now turning to urology. We're making good progress towards the expected year-end launch of the COMFORT GLIDE hydrophilic intermittent catheter. COMFORT GLIDE will be manufactured with our new synthetic latex, providing superior material properties for patient comfort without the proteins that can cause natural rubber allergies.

Changing gears, in our Temperature Management business, we're right on track with our development of a new ARCTICGEL pad system for application at the first point of contact with a patient. We anticipate launch around the end of the year. This new proprietary product we're naming ARCTIC BLAST, allows for the initiation of supportive cooling for 60 to 90 minutes without the need to be tethered to the ARCTIC SUN system. Once that patient's been transported to the hospital, the ARCTIC BLAST pads will connect to the ARCTIC SUN system and continue cooling and temperature control without the need to exchange pads

Moving to oncology. As we discussed in December, we submitted our 510(k) for the antimicrobial COVERT PowerPICC late last year and we're in discussions with FDA on a reasonable path forward. Frankly, we've not had much success here in the last few quarters, so I'm not going to suggest a launch date yet. However, in the next couple of weeks, we plan to launch our new PowerPICC FT family of peripherally inserted central catheters. The FT has a unique small diameter shaft and flared tip that's designed to minimize the amount of catheter in the vein while not compromising the flow rate or power injection capabilities.

In December, I briefly mentioned our development of a new family of intermediate dwell catheters for use in patients that need extended venous access that don't require a PICC or port. To meet that need, we're nearing completion of our new POWERGLIDE IDC. POWERGLIDE integrates a proprietary introduction system to simplify placement and will be offered in common peripheral IV needle gauge sizes. We've submitted our 510(k) and anticipate launching about midyear.

Turning to ports. In just a few days, we anticipate the launch of a new intermediate-sized low artifact PowerPort family. The ports will, for the first time in the market, offer significantly reduced MR and CT imaging artifact, thereby reducing the effective port placement on the interpretation of diagnostic scans. As we move through the remainder of the year, we anticipate filling out this line with other sizes and configurations in both single and dual chamber PowerPort designs.

In imaging, we've completed development and submitted our 510(k) for the new SITE-RITE PREVUE, highly portable ultrasound system. PREVUE is designed to ease the placement of difficult PIVs and will be offered with proprietary disposable needle guides and an integrated ultrasound gel system. We're planning for launch of this product. We're also making good progress on our Site-Rite 7 ultrasound platform scheduled for launch in Q3 in Europe and late in Q4 in the U.S. And finally, our FAZER [ph] freehand stereotactic system is on schedule, and we anticipate a first launch in the first half of next year.

And moving to surgery, we recently launched our new fully resorbable PHASIX mesh material in a flat sheet configuration for inguinal hernia repair. PHASIX is designed to provide the look, feel and function of our standard polypropylene products with equivalent strength during healing, then resorbed, leaving the patient with no foreign material in the body after about a year. We're also nearing completion of the development of a PERFIX plug design using the PHASIX material, and we anticipate filing for regulatory clearance in late Q2 and launch around the end of the year.

In ventral hernia repair, we expect to launch several new sizes of the VENTRALIGHT ST product later this summer, while we continue to work toward the launch of additional sizes of our EcHO PS laparoscopic mesh expansion and positioning system in the second half of the year. And in our biologically dry materials, in Q1, we launched additional XENMATRIX xenograft configurations.

Wrapping up our surgical products discussion, we're making steady progress on our first antibiotic-coated ventral hernia repair product. We filed our first in a series of 510(k)s late last year and have recently received some additional questions from FDA. We anticipate responding in early Q3. I think we have a good path forward, but as with all combination devices, I'm a bit hesitant to put a stake in the ground concerning a launch date today.

Now we certainly covered a lot of ground quickly here, and I thank you for your attention. Let me now turn you back to Tim Ring

Timothy M. Ring

Thanks, John. That does conclude the formal part of the presentation. I'll now hand the call back to the moderator to facilitate the Q&A session. I would ask you though, to accommodate the number of investors on the call today, we would request that you limit yourself to one question only.

Question-and-Answer Session

Operator

[Operator Instructions] And the first question comes from the line of Jonathan Palmer with CLSA.

Jonathan J. Palmer - Credit Agricole Securities (USA) Inc., Research Division

Quickly, could you just go through either geographically or from a product perspective what was driving the strength in Other International?

John H. Weiland

This is John Weiland. As we have seen over the last 3 years our expansions, it's more market-related expansions as opposed to a product line. The investments that we've made in emerging markets, in particular the strength that we've had in China, continues to drive the overall emerging market growth. I'd say Latin America was behind that as well in terms of the incremental growth that we saw.

Jonathan J. Palmer - Credit Agricole Securities (USA) Inc., Research Division

John, what kind of growth rates are you seeing out of China today, and what do you think is sustainable over the near term?

John H. Weiland

We're seeing in the mid-40s growth rate, and our plans tell us that we'll be able to continue that through, obviously, at least this year. As we get near the back end and we make our decisions on infrastructure additions, I think that will give us a better indicator for next year.

Jonathan J. Palmer - Credit Agricole Securities (USA) Inc., Research Division

Great. And then one quick one for Todd. On the 2Q guidance, you cautioned about assuming any aggressive savings on the SG&A line. What's going to be the incremental there that drives SG&A higher?

Todd C. Schermerhorn

Well it's incremental investment. Yes, I mean, we're real careful about spending in the first -- typically in the first quarter just to make sure that we have kind of the financial formula under our control. And so it's nothing more than that. Nothing specific per se. We're still funding the geographic investments John talked about. And obviously, the deals drive a big part of that increase. But the rest of it's just kind of the day-to-day investing and spending to sustain the business that we do.

Operator

Our next question comes from the line of Michael Matson with Mizuho Securities.

Michael Matson - Mizuho Securities USA Inc., Research Division

I just had a question on your hernia repair business, specifically the comments. I understand you've launched a lot of new synthetic products and that's helping that part of your business. But your biologic business really slowed down, and we've seen that at some of your competitors as well. So is this a market issue, or is it something specific to your product line? And were there some changes where the FDA's gotten stricter about how you market those products?

John H. Weiland

What we saw, and it took us a while to pick up on this trend quite frankly and we finally saw it confirmed in the Q4 IMS data that was published recently, that there is a flattening in the whole biologics market. And I think that most people have seen that, that are in that business. We attribute that to the differential in pricing between synthetics versus biologics and increased sensitivity on certain hospitals about ensuring that they use biologics only in cases where it's absolutely necessary.

Michael Matson - Mizuho Securities USA Inc., Research Division

Okay. And then with regard to the 3CG product in your oncology business, so how will that sort of be rolled out relative to the existing system that you're selling right now for tip confirmation? Is that something where you think that a lot of those customers would upgrade to 3CG? Or are you going to continue to sell both those products side-by-side?

John A. DeFord

This is John DeFord, Michael. The plan will be over time to just sell the 3CG. That said, we have a stand-alone Sherlock and ECG-based confirmation system for people who have their own ultrasound. So that will still be in the marketplace as well, but 3CG ultimately will replace what we've had in the market with a combination of Sherlock, Sapiens and our ultrasound.

Operator

Our next question comes from the line of Mike Weinstein with JPMorgan.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Tim, let me ask you a first question, and Todd, jump in here as well, is the discussion at this point around Gore is that you guys will look to invest roughly half of the earnings accretion from that, should that come to bear, back into the business. Can you just talk a little bit about, Tim, about how you do that? We've all seen in the last couple of years where you, I would say, struggled to ramp your R&D spending the way you thought you might have a couple of years ago. It still seems like the company isn't at that point where it could meaningfully ramp spending over the next couple of years. I'm not sure if the company could find the projects necessarily to invest in. And we're not talking small dollars here, we're talking large dollars. So how do you want us to think about this idea of reinvesting after the accretion back into the business? Give us some sense at this point, to the degree which you can, into where you would spend it and how you would spend it internal versus external.

Timothy M. Ring

Maybe at this point, the best thing for me to explain is the process. Clearly, this isn't something that snuck up on us last week. So we've had plenty of time to think about this. We put together a fairly well-defined deliberate process in place where all of our business units, whether it be geographic, product oriented, what have you, have put together a priority list of their own based on their request with associated ROI and other typical things we would run on in investment programs. We're in the process. We've accumulated those. We have them here at corporate now. We're going through those, assessing and prioritizing them according to the way we think we would want to make those investments. And then we're going to get together very shortly, actually, the senior management team and make the decision as to which ones and what priority we would put those in order. I think it's a well-managed process. Certainly, the early indication is there are absolutely plenty of ideas out there for us to invest in. And when we do make that decision and in fact, when the final decision in the case is made, we're prepared to let you know exactly how we plan investing that line.

John H. Weiland

The only thing I'd add to that is in addition to the R&D and product development sides of it, there is also the opportunity to escalate our strategic plan as it relates to geographical expansions, and that will be part of our evaluation as well.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Tim, so I want to make sure I have a sense. So in accelerating the strategic plan, geographic as well as R&D, so what does the Gore windfall changed about your appetite for adding a new platform? Is that something that is under consideration versus more bolt-on deals that you've done in the past?

Timothy M. Ring

Well I think we talked in the past about the widespread[ph]process we began a couple of years ago. Having the money doesn't change the strategic aspect of that at all. So that's part of our ongoing business development activity. We continue to assess other areas. It's not a new things for us. The Gore money makes it easier to afford some of those things but it doesn't change the strategy at all.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Let me ask a couple short-term questions. So 3CG, is that launching now? It wasn't clear what the timing was on that.

John H. Weiland

Launching now.

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Okay. So that's ready to go. And then could you just give us a little bit more, maybe Todd, on the Japan benefit, what you thought that was in the quarter and whether we'll see any of that flow into the second quarter as well?

Todd C. Schermerhorn

Well I don't think -- in terms of the competitor's product problem, you're talking about?

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Yes.

Todd C. Schermerhorn

Japan grew 19%. I think Japan is typically kind of just about a 10% growth for us out the door. So maybe a little stronger than that this period, so it's a few basis points there. As to how long it lasts, I don't think we know. We'll do the best we can to attempt to access sustainable opportunities.

Operator

Our next question comes from the line of Rick Wise with Leerink Swann.

Frederick A. Wise - Leerink Swann LLC, Research Division

Tim, you talked about not much change in U.S. volumes, up 2%. But you do -- in the first quarter, you had your toughest comp of the year. I'm just curious on a couple of fronts. Did the U.S. come in where you thought -- I mean U.S. came in a little weaker than we thought, OUS a little better. But is it on budget for you? And does it improve from here, I assume, as comps ease through the year?

Timothy M. Ring

I'd say it's about maybe a little lighter than what we had anticipated, but we didn't anticipate a big change. I think generally, when we gave the guidance for the year, our assumption was no change in the environment to the positive. So -- and I think we've seen that happen as we came out of the blocks here.

Frederick A. Wise - Leerink Swann LLC, Research Division

All right. But again, it's reasonable to think it gets better from here with new products and easier comps?

Timothy M. Ring

Well, you'd almost have to go product line by product line to do that. I'd just say in general, we're pleased with the overall start of the year across the board.

Frederick A. Wise - Leerink Swann LLC, Research Division

Maybe, Todd, I'll turn to you. Guidance unchanged despite the $0.05 beat. I mean I understand your caution on expenses rising, but we've sort of already modeled that. Where do you think we need to be sensitive to? Is R&D or are R&D and SG&A going to be higher for the year? And maybe just give us, if you would, the share count for the second quarter and maybe for the year that we should be using now.

Todd C. Schermerhorn

I mean I think there's plenty of room, Rick, between what we spent and our guidance. We had anticipated SG&A to be in -- and our guidance had been 50 basis points higher than prior year. We were right on prior year this period. And as far as R&D, we're saying that we can get R&D approaching to 7%. We did 6.5%. So there's plenty of room to invest within the guidance we gave you, and I think this has always been a model where we're always balancing deliverables to shareholders against the investments we want to make in the business. And I think if you look at the last 10 years, we've been pretty good at bringing this pretty big airline down right in the middle of the landing strip every year. So we just want to amplify the fact that we're going to continue to do that, and we don't want people to get ahead of us relative to some sense that we've got $0.05 extra every quarter. This is a balance between delivering what we've told you we're going to do and investing in the business, and I think we're going to continue to maintain that balances exactly as we have. As it relates to shares, I don't know, Rick. It depends on what comes along. The business development process is active. We're typically looking at excess cash and deploying excess cash to buy our shares. So I think from an attitude standpoint, none of that has changed. It will just depend upon cash flow and opportunities.

Operator

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

Matthew J. Dodds - Citigroup Inc, Research Division

Just one more question, Todd, on the stent benefit. Why was it mostly in Japan? Is this a Japanese competitor, or are they just big in Japan, or is that where they have the issue?

John H. Weiland

They have a large share position in Japan, Matt, and I think the Japanese customers were -- the choices that they have are not as significant as they have in the U.S. market at this point in time. So we were very well positioned to be able to take advantage of it.

Matthew J. Dodds - Citigroup Inc, Research Division

Just one more quick one on the U.S. sales front. Basic Drainage, you said that was down in the U.S., and my impression is Biologics and Fixation were also down in the U.S. Were those the 3 businesses that really showed the weakness? Or was there something else there that may have influenced the number in terms of a step-down?

John H. Weiland

I think that if you look at our quarter-to-quarter rates, vascular was down just a little bit. Surgery was probably the area that we were surprised the most, primarily because of the flattening in biologics. And I think that once we saw that Q4 IMS data and we confirmed what was happening in the entire market, it allowed us to have a clearer picture of where we were.

Todd C. Schermerhorn

That's exactly right. Matt, I don't see much of a change in the trend line in Drainage. It's a point different maybe, but no, the real change is going on in Surgery.

Operator

Our next question comes from the line of Jason Wittes with Caris.

Jason Wittes - Caris & Company, Inc., Research Division

A couple product questions. First off, you mentioned 3CGs is available at this point. My question is, it still seems like you're going to do a very controlled launch. I think you said 50 to 100 accounts. I might have misheard that, but what's the rationale behind that? And basically, how long does it take to get customers to get complete buying? You said you had a 93% conversion rate for some of the other technologies.

John H. Weiland

We're going to roll this thing out. It's part of our larger rollout of Sapiens that we originated a year ago. And recall, the numbers that I gave you, we've converted 200 accounts in its first year. We have 150 accounts that are in evaluation. So that's a total of 350 accounts, and we're working hard on these conversions. So 3CG will be a part of that conversion as we move forward and certainly makes it more convenient for customers having one hardware system to be able to accomplish all of the elimination of X-ray needs that they have.

John A. DeFord

Jason, I think another piece of that is that we have CE mark approval for that product now, so we'll also be rolling out in Europe and where we've not had the product available yet.

Jason Wittes - Caris & Company, Inc., Research Division

Okay. Also, are you able to break out PICC growth excluding 3CGs and Sapiens?

John H. Weiland

We're able to, but we're not going to do that for competitive reasons.

Jason Wittes - Caris & Company, Inc., Research Division

Can I also ask, you had a few questions about LifeStent, and I think you mentioned Japan was about 3 -- it sounds like 3% or so to the growth. But it was still pretty healthy, and last couple of quarters you've seen a nice rebound in LifeStent and I'm assuming you think that's -- what the levels we see now x Japan are pretty sustainable going forward given all the changes we've had in competition. Or how are you feeling about that business?

John H. Weiland

Well I think there certainly is -- there's probably another shoe or 2 to drop in the competitive area within that area right now. However, having said that, we love our positioning of LifeStent in that market. We love the longer lengths that we have in our new delivery system. The only product in the market with the long-term data associated with LifeStent, we love what that product has to offer across the board.

John A. DeFord

I mean that said, Jason, there are 7 other companies with SFA stents either -- ev3 recently got their indication. Cook's coming on the market at some point, and then there's at least 5 others that I could name off the top of my head that are in the hunt. So this is going to be a competitive space. But as John said, we think there's a real interesting value proposition with LifeStent, and we think there's real differentiation as well.

Jason Wittes - Caris & Company, Inc., Research Division

Okay. And then one last clarification and I'll jump off. I think you said pricing worldwide was down, I think 150 basis points. And I guess, a, could you give us an indication of how much of that was related to the U.S.? And also, you also mentioned some optimism. Could you give us a little color in terms of what gives you optimism that it's probably I think you said close to 100 basis points for the year?

Todd C. Schermerhorn

Well the one thing we don't want to get into is pricing by product line because we don't think that serves us well competitively, but I would tell you that the change is entirely U.S. driven. And as it relates to the optimism, all that we're saying is if you go back, we were running at about 20 to 30 basis points of price up until the second quarter of last year where we went up to 80 basis points of price. So this is in effect each time we measure it, above comps to some extent. And so we had a 50 basis point move. We really had our first move back into the second quarter last year. So we're hoping that with that difficult comp, I guess you'd call it, it will ease the erosion a little bit.

Operator

Our next question comes from the line of David Lewis with Morgan Stanley.

David R. Lewis - Morgan Stanley, Research Division

I want to come back to a comment that was made in the earlier remarks about EM returns coming in a little stronger and earlier than you expected. I wonder, Tim, what's the strategy there? I'm assuming those returns are coming in at a corporate contribution margin. But is the corporate strategy now with EM to reinvest those returns more aggressively, or some of those returns beginning to drop down to the bottom line and that was evidenced in the quarter?

John H. Weiland

We're investing heavily in the EM markets. We're not looking at that to be a driver of income appreciation because we're in the investment mode in those markets and we would expect that we'll continue to be in the investment mode in those markets for some time.

David R. Lewis - Morgan Stanley, Research Division

Okay. So this quarter's upside really has -- the revenue -- the top line growth rate accretion was probably tied to some EM but the bottom line was not?

John H. Weiland

That's the right way to look at it.

David R. Lewis - Morgan Stanley, Research Division

And then just thinking about urology for a second and try to maybe tease out Medivance. It looked like, depending on what the Medivance result was in the quarter, that urology may have stepped down incrementally. We had sort of the product around $10 million to $12 million for the first quarter. Is that sort of in the ballpark? And can you help us with what is a reasonable expectation for contribution for the year?

Todd C. Schermerhorn

Yes, that sure is in the ballpark. And as it stands right now, we're expecting to grow that number each quarter going forward. So I'm not going to put a dollar figure on it for the full year, but we are looking for improvement as we go out each quarter.

David R. Lewis - Morgan Stanley, Research Division

Do you just mean [ph] the underlying urology trends are more or less stable?

Todd C. Schermerhorn

Well we're down a couple of percent outside of temperature management this period. If you think about it, last year, we guided minus 1% to plus 3% and we ended up around 0. So I think there may be a percent difference in there somewhere, maybe a 2% difference in those, women's health fundamentally and continence. But a 1% move isn't necessarily unstable.

John H. Weiland

David, we grew at 3% in urology in Q4. We grew at 3% in Q1, both had Medivance in, although we didn't have as much Medivance in as we had in Q1. So I think Todd hit the nail right on the head.

Operator

Our next question comes from the line of David Roman with Goldman Sachs.

Topher Orr - Goldman Sachs Group Inc., Research Division

It's actually Topher Orr in for David. First, I'd like to get back to the SG&A spending question. You guys touched upon previously both the pick up next quarter as well as for the full year. I was wondering if you could give a little more detail how much of this is related to integration of M&A and how much of it is related to incremental spending for market build out, say, for Lutonix?

Todd C. Schermerhorn

Well we said the deals were 80 basis points, Topher. 80 -- if you look at the deal spending -- new deal spending as a percent of this quarter's sales is 80 basis points all in. As it goes -- as we roll forward, I don't know that that's going to change dramatically. As I said, it was just a very tight quarter for us from a spending standpoint that is typical of us to get our earnings sort of forecast under control early on so we can kind of control our own destiny effectively, and that's really all it is. This is something we've done for, I don't know, 8 years. So no new news here.

Topher Orr - Goldman Sachs Group Inc., Research Division

Okay. And then just as a follow-up on Lutonix specifically, could you just remind us when we should expect the next set of data for the European?

John A. DeFord

Well, so LEVANT 1 has finished 2-year follow-up, and we have the data that's being analyzed right now. So it's not available yet. LEVANT 2, which is our pivotal study, we're in enrollment right now. And so we expect to enroll into the middle of the year. And so we're not going to have much in the way of follow-up for at least 6 months until we have a 6-month follow-up time point. And then obviously, the one year time point is the key for us getting things together for our PMA filing. So nothing really new. Now the one-year LEVANT 1 data was presented at length this year and it was also presented at ISET and really continue to have very good results with a significant difference between PTA alone and the treatment arm itself. Now there's a little bit of noise in that when you look at it because remember, LEVANT 1 had some of the issues around balloon twisting and those kind of things that we as Bard have fixed. But if you're looking specifically for the one-year data for LEVANT 1, we had late loss of 0.46 millimeters versus 1.09 millimeters. So very significant difference between our treatment arm and PTA arm, and also had pretty significant difference in terms of TLR of 21.6% of one year versus 62.5%.

Topher Orr - Goldman Sachs Group Inc., Research Division

And then just one last question, are you guys making any changes at this time to your segment sales guidance for the full year?

Todd C. Schermerhorn

We usually don't go back, Topher, and update that. We'll stick to the full guidance, which is 4% to 7%. Obviously, not a great start in surgery in particular. But we're not going to get into traits in that through every period. I really don't think it's relevant. At the end of the day, total sales that matter to everybody, and we'll make sure we'll show good transparency, I guess, as to how we're going to get there.

Operator

Our next question comes from the line of Kristen Stewart with Deutsche Bank.

Kristen M. Stewart - Deutsche Bank AG, Research Division

I was just wondering, sorry if this was asked, but have you guys quantified or did you think there was an impact from the extra selling day in the quarter, or was there one just because of leap year?

Todd C. Schermerhorn

Yes, there was an extra selling day, I think, although you have to go through weekends and end of the period and so on. We tend not to get all caught up in that. What would it be 1 on 63 or something if it was really there, so no. I've seen other people with very discrete calculations. Just not sure -- I'm not sure how they do that. But hospitals stay open right through the weekend, so always a little difficult for us to calculate.

Kristen M. Stewart - Deutsche Bank AG, Research Division

So I guess is it the best way to look at it as organic growth I guess kind of around 3% if I take out acquisitions and then just maybe a little bit below that just given the fact that there probably was some benefit like 1 to 2 or something like that?

Todd C. Schermerhorn

Well I mean it wouldn't be 1 to 2, 1 on 60. I guess that's not a bad analysis, Kristen.

John H. Weiland

I mean there's a lot of other things on the other side, dealer inventories, and we don't get involved in calling all that stuff out, we don't follow it out when the days go the other way. So I mean...

Todd C. Schermerhorn

At one point, we did call out dealer inventories for a change, and we did nothing but reconcile it for about 2 years. So we decided it wasn't such a good idea.

Kristen M. Stewart - Deutsche Bank AG, Research Division

I do remember that and that was not pleasant on my end either. And also, any update, sorry, Todd, but on your replacement, not to rush out the door? Any timing? And I forget exactly, Todd, when you were set to sail off into the sunset?

Timothy M. Ring

Yes, I'll take that. It's Tim. The announcement that we made with Todd was he was with us through the end of August. We have had a fairly extensive search. Just to give you an idea on the process, the funnel started with over 140 candidates. I've personally seen more than 12. And I think we're literally just a few weeks away from probably formalizing things and in the position to make an announcement.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay. Would you be willing to say whether it's likely someone from internal or...

Timothy M. Ring

No, I think I could say, I'd go back to the -- refer you back to the process, it was a pretty extensive process.

Operator

Our next question comes from the line of Matthew O'Brien with William Blair.

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

Just wanted to get a little bit more on the pricing side here in the U.S. Can you talk about whether or not that was more competitive driven, or was that more pushbacks specifically from the hospital?

John H. Weiland

Boy, I don't know if you could ever define that, Matt. I mean you think about there are so many dynamics that happen on a day-to-day basis. You add to that the 40 contracts -- the 41 contracts or 41 that we were in last year. You talk about people that have had local agreements. I mean I don't think there's any way mathematically to get to that number for you.

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

What about anecdotally from your sales force in terms of what they're telling you?

John H. Weiland

No, I don't think there's a general trend out there. I think it's a combination of all of those things quite frankly.

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

Okay. And then follow-up question for you. Vascular, certain segments of that business do quite well every quarter, other areas weigh it down. Absent what we saw in Japan in the quarter, it looked like you were a little bit light of the 6% to 9% number that you had given for the year in terms of constant currency growth out of that business. Now again, just a little bit light. But what is it that is kind of going on in the market from a competitive prospective, pricing perspective? Is this where you're seeing some of the bigger pricing pressure? And how should we think about these new product introductions getting you back to the midpoint if not the higher end of that range, specifically just some of these, with LifeStent and the longer length products you're coming out with?

John H. Weiland

Well I mean there's about...

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

Only 12 questions in there.

John H. Weiland

That's a pretty tough set of questions, I would say, Matt. I would say this, we have a number of significant new product launches within the BPB space. We have a significant uptick that we can continue to have on products that have been launched over the last year that are still taking share. I mean I wouldn't -- we have we think a potential change in the growth trajectory of our filter business as Meridian continues to take hold. I think all those things give us comfort level in the strength of our business overall in vascular.

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

Okay. And volumes are still pretty healthy there? Is that true?

John H. Weiland

I don't know if I understand your question.

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

Just the general volume growth within the vascular business be it lower extremities or wherever it maybe. Are those still fairly healthy?

John H. Weiland

We have not seen any major change in that business.

Todd C. Schermerhorn

One other point I'd add while you go off is none of our U.S. businesses are immune to price. They're all going in the same direction. So as you guys try and tease out the various businesses where price may have moved greater or lesser this period, a, we're just not going to go there because we're not interested in signaling this to our competitors. But b, I can tell you that nobody's exempt. It's hitting across the board.

Operator

Our next question comes from the line of Bob Hopkins with Bank of America.

Lennox Ketner - BofA Merrill Lynch, Research Division

It's Lennox Ketner in for Bob. Just quickly on the deal dilution in the quarter. I know you said it was 80 basis points. So by my math, it's about $0.05 or so, but I think you had said at the Analyst Day that you expected Lutonix to be about $0.25 dilutive for the full year. Is that still your expectation for the full year?

Todd C. Schermerhorn

Yes, I think we have apples and oranges in there, Lennox. So that's the raw spending in SG&A, obviously the sales that go with that. The ClearStream and the Medivance deal, we don't expect to be dilutive or very dilutive, really materially dilutive for the full year. It really all is in Lutonix. And I would say within a few hundred thousand dollars, we spent what we expected to in Lutonix for the period.

Lennox Ketner - BofA Merrill Lynch, Research Division

So it's fair to assume Lutonix was maybe $0.06 to $0.07 dilutive for the quarter?

Todd C. Schermerhorn

In that range. I think we said $0.25 for the year, and we're pretty close to what we expected for this period, yes.

Lennox Ketner - BofA Merrill Lynch, Research Division

Okay. And then just last one, just a clarification on the Gore timing. I know you said that you expect to have a final resolution by year end. But is that something where the ruling on Gore's petition could come any day? Or is there some reason you expect it to be closer to the year end? And then also once the court does make that ruling, are there any other avenues for Gore to pursue? Or once that's ruled on, is that it?

Todd C. Schermerhorn

No, they have the opportunity to appeal to the Supreme Court and that would be a process. So we're not exactly sure whether they will or they won't, and nor are we all that clear on how long that will take.

Lennox Ketner - BofA Merrill Lynch, Research Division

Okay. But is the ruling at the Appeals Court level that could come any day?

Todd C. Schermerhorn

Theoretically, it could come any day, yes.

Operator

Our next question comes from the line of Daniel Sollof with Barclays.

Daniel Sollof - Barclays Capital, Research Division

Many of my questions have already been answered, but just a couple of quick follow-ups from some of the product lines. I mean I guess beginning with urology. I appreciate all the commentary on Medivance. But I mean, so the legacy business has been down. It looks like what's really been weighing that down has been like continence, you talked about mid double-digit declines there. Can you talk about some of your expectations for new products such as DIGNISHIELD? Can that really change the trajectory of that business?

John H. Weiland

I think the biggest thing that will change the trajectory of the business, one, DIGNISHIELD we think will make a positive contribution through the second half of the year. We also lose a difficult comp, which is the annualization of the discontinuation of Contigen which is about half of that decrease in revenue growth in continence that we mentioned, and that will happen at the end of the second quarter.

Daniel Sollof - Barclays Capital, Research Division

Right. Quick one on soft tissue. It seems like you guys are really well positioned from a product perspective given really the shift back that we've seen to synthetic. Is there something in the pipeline to talk to, to rejuvenate the biologics growth? Or are you just taking note of the changes we've really seen in that market and really focusing on the synthetic side in the soft tissue market?

John A. DeFord

We do have a couple of products under development, but we haven't really signaled what that technology is exactly made of. But it's in the biologics franchise, if you will. So we think we've got some things there sort of late this year, really more likely next year time period. And we're also launching in the biologics space. As I talked about in the first quarter, we launched some line extensions, if you will. But the real mover is going to be new product and technology that's coming later on.

Daniel Sollof - Barclays Capital, Research Division

Great. And then just really one final one and back on emerging markets. Your guides have said it's about 5% of your global revenue currently. You've talked about the focus, all the investments. Do you have any target looking out, say, 3 or 5 years, what percent of total revenue, like, where can that go, or nothing specific there?

John H. Weiland

There's people that do that. We don't do that internally. We say we look at our investment profile, we look at the market opportunities and we try to match up our investment profile to where we have the biggest opportunities. Do we have some focus internally on what that could be? Yes, but we don't roll that out publicly.

Operator

Our next question comes from the line of Josh Jennings with Cowen & Company.

Joshua T. Jennings - Cowen and Company, LLC, Research Division

I just wanted to focus on Moxy and the Lutonix acquisition. Can you just talk about your perception of the European market for drug-coated balloons? And what types of data do you think needs to accelerate that market growth for one? And then two, if you could just remind us, I believe you guys do have CE mark approval and what your launch plans are for the international markets with that product.

John A. DeFord

Sure. So you're right. We do have CE mark for the product. We think that one of the key drivers for the European market and frankly any of the markets with drug-coated balloons are randomized studies and good data. There are certainly a lot of studies that have been conducted with competitive devices. None of them randomized. There are some gearing up of course. And so -- or none of them of any size that were randomized. And so we think that's the key driver. So our randomized study, we think, is important. We talked about a 650-patient registry that we're starting this summer and then also a European registry that we're starting after launch. We think all of that is going to be really key to driving growth in this space. Again, in Europe, there's a lot of competitive product on the market, a lot of different drug-coated balloon technologies. And so we think we've got a really unique platform here that's got some real benefits, and it's going to take a little bit time for us to show that.

Joshua T. Jennings - Cowen and Company, LLC, Research Division

And then just on the launch plans for internationally or in Europe?

John A. DeFord

So we said, second half of the year, we're going to launch that in Europe.

Joshua T. Jennings - Cowen and Company, LLC, Research Division

Okay. Great. And then last, just a follow-up. A number of your competitors have talked about the pelvic floor repair market with some of the FDA issues really suffering in Q1 here. Has that been part of the issue with the continence business? And I know it's a small portion of your business, but is that causing some of this downturn? Can you comment...

John H. Weiland

It is a piece of that for sure, although it's not a huge business for us anymore.

Joshua T. Jennings - Cowen and Company, LLC, Research Division

Can you just talk about what you're seeing in that market, although it is a small piece of your business?

John H. Weiland

Well we're seeing the entire market decrease pretty substantially, and I think every player in it is seeing the same thing, in particular in the United States. But the rest of the world is not immune to it either.

Operator

[Operator Instructions] And our next question goes to the line of Anthony Petrone with Jefferies Group.

Anthony Petrone - Jefferies & Company, Inc., Research Division

Just a couple on Gore and one on vascular. With Gore, can you comment on the mix of the other half of the Gore proceeds potentially that you may be receiving there as it relates to buybacks and dividends? And also the plan for any potential follow-on royalties, is the mix the same as you mentioned for the upfront cash? And then the one on vascular would be, did the 6% to 9% growth you put out at the Analyst Day contemplate the entrance of competing products? Again, you mentioned EverFlex came out from ev3 and potentially one, a competing stent from Cook.

Todd C. Schermerhorn

As it relates to Gore, we talk about earnings power. Maybe I could just articulate that a little clearer because we haven't laid out when we do each one of these things necessarily. So we don't have the Q1 numbers yet, but we'd estimate their potential liability to us at the end of Q1 at about $885 million. In addition to that, there's a royalty rate, if you look at the fourth quarter what we've disclosed -- the third and the fourth quarter, that's at about $35 million in Q4. So what we're saying is if you tax effect the cash payment and buy shares with that bolus of cash and then add the EPS impact of that royalty flow, you get something around $1.50 a share annually, and that's what we mean by the earnings power. How that all plays out and exactly what we do, which we do and in what order, will depend upon the investment pool and how that will play out. So until we have that full plan developed, it's premature for us to tell you in what order the buyback will occur versus the royalty flow. Do you understand that?

Anthony Petrone - Jefferies & Company, Inc., Research Division

No, I follow that. But I guess by definition then, the dividend policy stays the same?

Todd C. Schermerhorn

Yes, it would be buybacks, yes, assuming we're successful here at all.

Anthony Petrone - Jefferies & Company, Inc., Research Division

Right. Assuming, yes, of course. And then the follow-up would just be on the vascular question. Did the 6% to 9% growth contemplate EverFlex from ev3, potentially Cook and other competing stents out there?

John H. Weiland

Yes, we're well aware of the competitive potential launches for the year and had built that into our plans.

Operator

Our next question comes from the line of Robert Goldman with CL King.

Robert M. Goldman - CL King & Associates, Inc.

A couple of questions on aggregate growth. First, we talked about the potential bolus from Gore. I guess you could add to that the potential bolus were it to happen if the medical device excise tax were stricken down. But my question is for the internal projects, much of what I imagine you'd expect to do involves hiring people, and that takes time. And I'm wondering if you would spend in advance of the final decisions, either with Gore or with the medical device excise tax, or we do not spend, which is to say not hire these incremental folks until there was a definitive conclusion on both. And the second question on the aggregate sales is for Tim, that certainly it was quite good quarter relative to expectations. But the aggregate organic sales growth was, as it is, 3%. And I'm wondering, Tim, if you see at all a runway to get Bard up to, let's say, higher single-digit sales growth. And if you do, if you could just lay out how and when?

Timothy M. Ring

I'll let John DeFord take the R&D question and...

John A. DeFord

So Bob, when you think about traditional R&D investment, then certainly hiring people is a big part of that. However, we also have a lot of R&D partners. We do a lot of open innovation, and so we would also feel that we could deploy a significant amount of investment using some outside partners and our internal people to manage those projects, and then of course over time, build our teams. It's not just an R&D thing. It's growing infrastructure across the company.

John H. Weiland

And Bob, we have not -- we're in the process of evaluating the potential investment areas. That's a fine line that's well downstream from where we are right now, and I don't think we're in a position to be able to give you an accurate answer.

Timothy M. Ring

As it relates to getting the faster revenue growth, it's a function of a couple of different things and the most important part of it is the underlying market. During the course of the call and even in the Q&A, we talked about different issues in different markets, biologics market being one that's flattened out. The pelvic floor surgical and continence market and some of the impact of some of the regulatory pronouncements in that area having some impact. So the whole game here is you want to invest more heavily in faster growing markets, whether be geographic or product and do that both with internal investment and acquisition. So it's a question of shifting more investment to those faster-growing areas and then the underlying growth of those areas picking back up. And when that happens, you'll start to see us grow faster.

Robert M. Goldman - CL King & Associates, Inc.

That really does sound like the incremental investments are heading towards emerging markets, and that does seem to be, by far, what's growing the fastest at Bard. Is that an incorrect assumption?

Timothy M. Ring

No. We've been saying we've been investing heavily in those markets for the last few years.

Operator

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

Timothy M. Ring

Great. Thank you. I'd just like to close by thanking everybody for attending the call today, and I'd also like to take this opportunity, as I always do, to thank Bard employees around the world for a very good start to this year. So we look forward to updating you on the progress next quarter.

Operator

Thank you. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.

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Source: CR Bard's CEO Discusses Q1 2012 Results - Earnings Call Transcript
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