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Executives

Daniel J. Starks - Chairman, Chief Executive Officer and President

John C. Heinmiller - Executive Vice President

Eric S. Fain - President of Cardiac Rhythm Management Division

Analysts

Robert A. Hopkins - BofA Merrill Lynch, Research Division

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

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

David R. Lewis - Morgan Stanley, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Brooks E. West - Piper Jaffray Companies, Research Division

St. Jude Medical (STJ) Q3 2012 Earnings Call October 17, 2012 8:00 AM ET

Operator

Welcome to St. Jude Medical's Third Quarter Earnings Conference Call. Hosting the call today is Dan Starks, Chairman, President and Chief Executive Officer of St. Jude Medical.

Before we begin, let me remind you that some of the statements made during this conference call may be considered forward-looking statements. The 10-K for fiscal year 2011 and 10-Q for the fiscal quarter ended June 30, 2012, identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made this morning. The company does not undertake to update any forward-looking statements as a result of new information or future events or developments. The 10-K and 10-Q are available through the company or online.

During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the press release or on the St. Jude Medical website at www.sjm.com. [Operator Instructions]

It is now my pleasure to turn the floor over to Dan Starks.

Daniel J. Starks

Thank you, Christie. Welcome to the St. Jude Medical Third Quarter 2012 Earnings Conference Call. With me on the call today are John Heinmiller, Executive Vice President; Mike Rousseau, Group President; Eric Fain, President of our Implantable Electronic Systems Division; Don Zurbay, Chief Financial Officer; and Rachel Ellingson, Vice President of Corporate Relations. Our plan this morning is for John Heinmiller to provide his normal review of our financial results for the third quarter 2012 and to give sales and earnings guidance for the fourth quarter and full year 2012. I will then address several topics and open it up to your questions. Go ahead, John.

John C. Heinmiller

Thank you, Dan.

Sales for the quarter totaled $1,326,000,000, down approximately 4% from the $1,383,000,000 reported in the third quarter of last year. Unfavorable foreign currency translations versus last year's third quarter reduced this quarter's sales by about $60 million. We will update our currency assumptions in a moment, but the actual average exchange rates during the third quarter were within our previous guidance range.

On a constant currency basis, third quarter sales increased less than 1% versus last year. During the third quarter, we recognized $80 million or $0.25 per share in after-tax charges, primarily in connection with restructuring activities announced this quarter to streamline our organizational structure, as well as our previously announced restructuring actions initiated during the second quarter of 2011 to streamline manufacturing within our CRM business, which consists primarily of closing down operations at our location in Sweden. Comments during this call referencing third quarter results and guidance for full year 2012 results, including EPS amounts, will be exclusive of these items.

At the end of 2011, the federal research and development tax credit expired, and it has not yet been extended for 2012. In this circumstance, GAAP requires us to estimate and record our effective income tax rate assuming that the R&D credit is not extended. For purposes of this conference call and our calculation of adjusted net earnings, however, we are assuming that the tax credit will be extended for 2012, as in past years. As a result, comments referencing third quarter results and our guidance for 2012, including EPS amounts, are presented based on an effective income tax rate that contemplates the extension of the tax credit retroactive to January 1, 2012. To the extent that the federal research and development tax credit is not renewed, our effective income tax rate for 2012 would be higher than what is being presented during this call.

Earnings per share were $0.83 for the third quarter of 2012, a 6% increase over adjusted EPS of $0.78 in the third quarter of 2011. We estimate that, on a constant currency basis, EPS increased approximately 15% versus last year.

Before we discuss our third quarter 2012 sales results by product category, with guidance for the fourth quarter of 2012, let me comment on foreign currency.

As discussed on prior calls, the 2 main currencies influencing St. Jude Medical's operations are the euro and the yen. In preparing our sales and earnings guidance for the third quarter of 2012, we used exchange rates which assumed that each euro would translate into about $1.20 to $1.25 and that each JPY 78 to JPY 83 would translate into USD 1. For the third quarter, the actual average exchange rates for the euro and the yen were consistent with these assumptions. In preparing our sales and earnings guidance for the fourth quarter of 2012, we are now assuming that each euro will translate into about $1.27 to $1.32 and that each JPY 76 to JPY 81 will translate into USD 1. This change in assumption regarding currency exchange rates increases total forecasted sales for the fourth quarter of 2012 by approximately $15 million to $20 million.

And now for the sales by product category discussion for the third quarter. Total cardiac rhythm management or CRM sales, which includes revenue from both our ICD and pacemaker product lines, were $691 million, down 8% from last year's third quarter. On a constant currency basis, third quarter CRM sales were down 4% versus the third quarter of last year. For the third quarter, ICD sales were $412 million, down 7% versus last year's third quarter. On a constant currency basis, third quarter ICD sales were down 4% versus last year.

U.S. ICD sales were $247 million, down 4% versus last year's third quarter. International ICD sales were $165 million, down 12% versus the third quarter of 2011, including $17 million of unfavorable foreign currency translations. On a constant currency basis, international ICD sales decreased 3% versus last year's third quarter.

For low-voltage devices, sales for the third quarter totaled $279 million, down 9% versus last year's third quarter. On a constant currency basis, third quarter low-voltage device sales decreased 4% versus last year.

In the United States, pacemaker sales were $114 million, down 10% from last year's third quarter. In our international markets, pacemaker sales were approximately $165 million, down 8% versus the third quarter of 2011, including $15 million of unfavorable foreign currency translations. On a constant currency basis, international pacemaker sales were equal to last year's third quarter.

For the fourth quarter of 2012, we expect total CRM product sales to be in the range of $660 million to $690 million. For the full year 2012, we now expect total CRM sales to be in the range of $2,832,000,000 to $2,862,000,000. At the midpoint of this guidance range, our 2012 CRM sales would be down approximately 3% on a constant currency basis versus 2011. This 2012 guidance range for St. Jude Medical assumes that the CRM market for calendar 2012 will decline at a low- to mid-single-digit rate on a constant currency basis. With 3 quarters behind us, our guidance for 2012 now assumes that St. Jude Medical will maintain or slightly improve its 26% to 27% share of the global CRM market.

Atrial fibrillation or AF product sales for the third quarter totaled $220 million, up 9% over the third quarter of last year. Unfavorable foreign currency translations reduced third quarter AF product sales by $9 million. On a constant currency basis, third quarter AF product sales increased 13% versus last year. For the fourth quarter of 2012, we expect AF product sales to be in the range of $220 million to $235 million, and we now expect our 2012 AF product sales to be in the range of $879 million to $894 million.

Total sales of cardiovascular products for the third quarter of 2012 were $314 million, including $16 million of unfavorable foreign currency translations. As discussed on prior calls, we now break out our sales of cardiovascular products into 2 categories: structural heart and vascular. Sales of heart valve products, along with AMPLATZER Occluder products and left atrial appendage plug, are categorized as structural heart. Our vascular products include vascular closure products, FFR PressureWire, OCT products, vascular plugs and other vascular accessories.

For the third quarter of 2012, sales of structural heart products were $145 million, a decrease of 4% from the third quarter of 2011 or an increase of 1% on a constant currency basis. Sales of vascular products in the third quarter of 2012 were $169 million, equal to the third quarter of 2011 on a constant currency basis. We experienced a negative impact this quarter from European austerity measures, which includes an overall slowdown in cardiovascular procedures in Europe. We note that, within the cardiovascular products category, for the first 9 months of 2012, the combined sales of tissue heart valves, vascular plugs, FFR and OCT and our left atrial appendage closure device increased 37% on a constant currency basis versus the first 9 months of 2011.

For the fourth quarter of 2012, we expect cardiovascular product sales to be in the range of $325 million to $345 million. We now expect our full year 2012 cardiovascular product sales to be in the range of $1,315,000,000 to $1,335,000,000. Excluding the impact of terminating the distribution contract in Japan, the midpoint of our 2012 cardiovascular product sales guidance implies 6% constant currency sales growth versus 2011.

Total sales of neuromodulation products in the third quarter of 2012 were $101 million, down 1% from the third quarter of 2011, including $3 million of unfavorable foreign currency translations. On a constant currency basis, neuromodulation product sales increased 2% versus last year's third quarter.

For the fourth quarter of 2012, we expect sales of neuromodulation products to be in the range of $110 million to $120 million, and we now expect full year neuromodulation sales in 2012 to be in the range of $420 million to $430 million.

Looking to revenue by geography. In total, 48% of St. Jude Medical’s sales in the third quarter of 2012 came from the United States while 52% came from international markets. As with prior quarters, the specific geographic breakdown of St. Jude Medical's sales for the third quarter of 2012 is available in our press release.

The gross profit margin this quarter was 73.7%, equal to the third quarter of 2011. We continue to expect the full year 2012 gross profit margin to be in the range of 73.5% to 74.0%.

Our third quarter SG&A expenses were 34.4% of net sales, a decrease of 150 basis points from the third quarter of 2011. The reduction in SG&A as a percentage of net sales is a result of a number of cost-saving initiatives, including the integration of the AGA Medical business into our cardiovascular United States and international divisions and the integration of our Neuromodulation domestic sales organization into our United States division. For the full year 2012, we now forecast SG&A as a percentage of net sales in the range of 34.3% to 34.8%.

Research and development expenses in the third quarter of 2012 were 12.8% of net sales, consistent with the third quarter of 2011. For the full year 2012, we expect R&D as a percentage of net sales to be in the range of 12.4% to 12.9% of net sales as we continue funding our portfolio of new growth drivers to accelerate long-term sales growth.

Net other expense was $19 million in the third quarter. And for the fourth quarter of 2012, we expect the other income and expense line item will be a net expense of approximately $20 million to $25 million. For the full year 2012, we expect other expense of approximately $87 million to $92 million.

For the third quarter, the company's effective income tax rate was 21.6%, and for 2012, we expect the tax rate to be in the range of 21.3% to 21.8%.

Moving on to the balance sheet. At the end of the third quarter of 2012, we had $1.1 billion in cash and cash equivalents and $2.5 billion in total debt and $1.5 billion available under a revolving credit facility with a group of banks. Leveraging the strength of our balance sheet and cash flow generation, today we announced a $300 million common stock repurchase plan. This announcement demonstrates our commitment to maximizing shareholder value as we repurchase -- as the repurchase is expected to offset dilution from our stock compensation programs in 2013.

Next I want to offer some comments regarding our earnings per share outlook for the fourth quarter and full year 2012. In preparing our EPS guidance, we have assumed that, in the fourth quarter of 2012, the weighted average outstanding shares used in our fully diluted EPS calculation will be about 313 million to 315 million shares, with -- the weighted average outstanding shares for the full year 2012 will be about 315 million to 317 million shares. These share count assumptions take into account the $300 million common stock repurchase plan which we announced today.

For the fourth quarter, the company expects consolidated earnings per share to be in the range of $0.86 to $0.88, and for the full year 2012, we now expect consolidated earnings per share to be in the range of $3.42 to $3.44.

I would now like to turn it back to Dan Starks.

Daniel J. Starks

Thank you, John.

During the next portion of our prepared remarks, I would like to provide an update on data relating to St. Jude Medical's high-voltage lead product reliability. Our primary goal is to provide physicians and patients with the clinical data they need to make informed patient care decisions. As a reminder, in November 2010, St. Jude Medical issued its semiannual product performance report or PPR -- contains clinical data we generated through post-market surveillance regarding the reliability of our CRM products, including our high-voltage lead product lines. Our post-market surveillance included observations of high-voltage lead insulation failures due to inside-out abrasion resulting in externalized conductors, which we set forth in a separate subcategory for the first time in the November 2010 product performance report. We drew special attention to the risk of silicone insulation failure generally and to the risk of inside-out abrasion by issuing a global physician advisory dated December 15, 2010. This physician advisory can be found in its entirety on St. Jude Medical's public website, riatacommunication.com, so I will not repeat the details here. Regulatory bodies in a number of countries, including the U.K. and Germany, characterized this global advisory as a recall.

Between November 2010 and November 2011, St. Jude Medical continued to gain additional information regarding insulation abrasion in its Riata and Riata ST silicone leads. Some of this additional information was generated by centers in Belfast and in Germany where our global advisory had been declared to be a formal recall by regulatory authorities. We updated our semiannual product performance report in May 2011 and in November 2011 and drew special attention to this additional information by issuing an update to our prior global advisory. This update, dated November 28, 2011, also can be found in its entirety on St. Jude Medical's public website, riatacommunication.com. The FDA issued a notice classifying this global advisory update to be a recall.

One challenge for physicians managing patients who have received Riata or Riata ST silicone leads is that the majority of leads with externalized conductors continue to perform with normal electrical function. Recognizing that this presents complex patient management issues, St. Jude Medical, voluntarily, is conducting an international multicenter prospective study called the Riata Lead Evaluation Study to provide more information to help inform patient care in these circumstances.

On July 16, 2012, St. Jude Medical announced initial findings from the Riata Lead Evaluation Study. This study found that, by performing an x-ray which is not medically indicated but relies on special patient consent as part of a research protocol, externalized conductors could be found in 9.3% of Riata ST silicone leads, which are 7 French in diameter, and in 24% of Riata silicone leads, which are 8 French in diameter. By the design of this study, none of these leads had electrical anomalies that required intervention at the time of enrollment. More information about this study can be found on St. Jude Medical’s public website, riatacommunication.com. The study now will follow these patients to determine how these leads continue to function over time.

The initial findings of the Riata Lead Evaluation Study can be compared with the high-voltage lead malfunction data contained in our most recent product performance report. Again, this most recent product performance report can be found on the website riatacommunication.com. Although this report relies heavily on post-market surveillance and passive reporting, we think it is fair to say that St. Jude Medical's high-voltage leads are the most scrutinized in the history of ICDs and that the issue of underreporting has been significantly reduced. This report finds that the rate of all-cause electrical malfunction was 0.57% for 7-French Riata ST silicone leads and 0.76% for 8-French Riata high-voltage silicone leads.

If the lead -- if the Riata Lead Evaluation Study is correct that approximately 9% of Riata ST and 24% of Riata silicone leads have externalized conductors, the product performance report malfunction data made clear that the majority of these leads continue to function normally. This is due to the fact that externalized conductors are covered by another layer of electrical insulation which is still intact. We will need to complete the second phase of the Riata Lead Evaluation Study to gain further insight and draw more conclusions.

The global advisories involving our Riata and Riata ST silicone leads have drawn extensive attention from FDA. We believe that this attention is appropriate and are cooperating fully with FDA.

FDA is currently inspecting our CRM facility in Sylmar, California. Although this inspection has not yet concluded, we believe it will likely end with observations on a Form 483. We would not be surprised if these observations are ultimately followed by issuance of a warning letter. If either of these events occur, we will respond in a way which demonstrates that our top priorities are patient safety and quality assurance. In the meantime, we want investors to be assured that we are taking all appropriate regulatory circumstances into account in managing our business and in setting investor expectations moving forward.

Next, I would like to offer an update on the performance of our Riata ST Optim and our Durata lines of high-voltage leads. Neither of these product lines has been the subject of a safety advisory or a product recall.

Over 85% of Durata lead components are newly designed and have resulted in improvements in abrasion resistance and reduction in all-cause malfunction. Our post-market surveillance of Riata ST Optim and Durata high-voltage leads is far more robust than our surveillance of Riata silicone leads due to our initiation of 3 actively managed registries: our SCORE Registry, our OPTIMUM Registry and our SJ4 post-approval study. Data for these registries are collected on case report forms at each scheduled and unscheduled patient visit, with additional information documented for any adverse event. We employ a dedicated field monitoring organization to ensure that the data from each clinical site are accurately and completely submitted. Because of the size and scope of these actively monitored registries, they represent the true clinical experience with our current generation of high-voltage leads.

As of our last published report in May 2012, these registries included 10,950 Durata and Riata ST Optim leads implanted in 292 sites. These leads have been followed for over 5 years, with a total of 27,477 patient-years of follow-up. The survival rate for these leads at 5 years is 98.7%, which compares favorably to the 5-year survival rate of 98.1% Medtronic has published for its own Sprint Quattro Secure high-voltage lead based on the Medtronic System Longevity Study.

Our goal moving forward is to continue to work closely with all stakeholders to provide the information physicians need about St. Jude Medical high-voltage lead performance to provide the best care possible for their patients. We are in the process of preparing to publish our 2012 second edition product performance report in November, as well as the independent analysis of Durata and Riata ST Optim registry data conducted by the Population Health Research Institute, one of the largest and most cited academic cardiovascular research groups worldwide.

We also are providing financial support for a series of independent webinars, concerning physician management of high-voltage leads, to be conducted by the Heart Rhythm Society. We are in the process of conducting additional post-market surveillance studies, as well as extending the 3 active registries for our Durata and Riata ST Optim leads and the Riata Lead Evaluation Study we have discussed previously.

St. Jude Medical employees, family members and friends are included among the patients who rely on the safety and performance of St. Jude Medical devices. Patient safety is our top concern on a human and very personal level as well as on a professional level of ethics and responsibility to the public.

Next, I would like to move away from the topic of high-voltage leads and say more about St. Jude Medical's results during the third quarter. We were encouraged during the third quarter that all of our results fell within our previously announced guidance ranges. The only exception was that revenue from our atrial fibrillation or AF business increased 13% on a constant currency basis and exceeded the upper end of our guidance. Growth in our AF business was broad based, with solid contribution from ablation catheters, other disposable electrophysiology products and capital equipment. One highlight was that we are beginning to launch our MediGuide non-fluoroscopic catheter tracking system in the United States. Early feedback from physicians who have used our MediGuide technology in Europe and in the United States reinforces our optimism that this technology offers significant clinical benefit and will help us continue to deliver strong growth from our AF business in 2013.

We also were encouraged during the third quarter that revenue from cardiac rhythm management or CRM products came in toward the upper end of our guidance range. Both usage and average selling price dynamics in the CRM market were generally in line with our expectations. We continue to think that the decline of the global CRM market, which began in 2011, is nearing its end and that the market will return to stability by the first half of 2013. We continue to think that we are well positioned to gain share in the U.S. ICD market due to the benefit of device replacement dynamics and the strength of our current product line. Our quadripolar CRT-D technology continues to demonstrate significant clinical benefit to customers.

Turning to our cardiovascular business. One highlight during the third quarter was that revenue from our fractional flow reserve, or FFR, and our optical coherence tomography, or OCT, product lines grew approximately 46% on a constant currency basis. We attribute this to the strong clinical evidence of comparative effectiveness we have generated through our FAME and FAME II clinical trials, as well as to strong customer acceptance of our ILUMIEN system which integrates both FFR and OCT applications on a single-hardware platform. Revenue from these 2 product lines will exceed $200 million for full year 2012 and become increasingly meaningful in 2013.

Our focus during the remainder of 2012 is to make sure we continue to execute on our comprehensive program to accelerate growth in 2013. One component of this program is the organizational changes we announced in the third quarter where we restructured our product divisions and streamlined our administrative functions. We estimate that, as a result of these organizational changes, we will be able to reduce pretax operating expenses by approximately $50 million to $60 million annually without disrupting our customer programs or our pipeline of new products. This strengthens our ability to capture EPS leverage in 2013 without sacrificing long-term growth. This restructuring is well underway and will be complete before the end of this quarter so that we can begin 2013 with the distraction of change behind us and with our improved cost structure firmly in place.

A second component of our program to accelerate growth in 2013 is to execute a strong launch of our renal denervation business in Europe. We are on track to enter 2013 with a foundation of more than 50 key opinion leader and reference centers in place. We are presenting 6-month follow-up data for our EnligHTN I clinical trial next month at the AHA Congress and will enter 2013 with our EnligHTN II clinical trial well underway. We are on track to launch our second-generation renal denervation technology in Europe in 2013 and think we have a credible opportunity to become a leader in the renal denervation market.

A third component of our program to accelerate growth in 2013 will be to receive CE Mark and launch in Europe our Portico 23 millimeter line of transcatheter aortic valve replacement or TAVR products. One-year follow-up data for the Portico 23 millimeter product line will present -- will be presented next week at the TCT congress. The clinical data for our Portico line of TAVR products continues to meet or exceed expectations and supports our confidence that this product line can gain meaningful share once it is released to the market. Initial revenue from our Portico line of products will be modest due to the limitations of one size and one delivery system, but we expect revenue to grow steadily during 2013 as we continue to launch an expanded offering of sizes and delivery systems in Europe.

Another catalyst we expect for our growth profile in 2013 relates to presentation of the RESPECT trial clinical results next week at a late-breaking clinical trial session of the TCT congress. The RESPECT trial involves 980 patients and generated more than 2,500 patient-years of experience to evaluate the benefit of patent foramen ovale or PFO closure in patients who have suffered from cryptogenic stroke. We are optimistic that the clinical data, which will be presented next week, will help reinvigorate the market for PFO closure in Europe in 2013. St. Jude Medical already is the clear leader in this market and will be the major beneficiary.

As we look forward to 2013, we also reiterate that we are making good progress improving our quality systems and strengthening the product lines in our neuromodulation business and that we expect to deliver stronger growth from our neuromodulation business in 2013 than we have been able to deliver in 2012. One encouraging milestone is that we are in the process of relaunching our Brio line of deep brain stimulation or DBS products in Europe. A second encouraging development in our neuromodulation business is that we recently received CE Mark approval for our Eon family of neurostimulators for patients with intractable chronic migraine. We unveiled our Eon Mini, Eon and EonC neurostimulators for migraine applications at the European Headache and Migraine Trust International Congress in London late September and will enter 2013 with European launch of our migraine program fully underway.

To summarize, although our market environment is challenging, we are being transparent about our challenges and taking them into account in setting expectations. Third quarter results reinforced our confidence that St. Jude Medical is on track to accelerate growth in 2013. Our existing growth drivers are performing well, and we are making good progress with emerging growth drivers that will launch in the coming year. As we move into 2013, we are focused on execution and on making sure our organization is as efficient and streamlined as possible to achieve our goal of delivering innovative medical devices which improve patient outcomes and reduce the cost of health care.

With that, I would like to turn the call back to our moderator and open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from Bob Hopkins with Bank of America.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

So Dan, I appreciate the comments. Obviously, I want to ask about your comments on the warning letter. I don't think I've ever heard a company proactively tell Wall Street they think they're going to get a warning letter before actually receiving a warning letter or even a 483. So I think the important question is, why did you make that comment? Has the FDA uncovered something in Sylmar and told you about it? Or have you guys uncovered something in Sylmar that you want to be proactive about and have notified FDA about? Just can you give us a little more detail there that drove you to make that comment about the warning letter and 483?

Daniel J. Starks

Sure, Bob. Well, first, the overriding motive for us is the appreciation that investors do not like surprises. So one of the goals that we have in our quarterly conference calls is to reduce the opportunity to investors to receive surprises within appropriate limits. And we think that everybody should be realistic about the role warning letters play in today's regulatory environment, and we want people to -- so we have 2 goals: We want people to understand that St. Jude Medical is realistic about the role warning letters play in today's regulatory environment, and we want investors similarly to be realistic about it. We also -- another reason that we made our comment is that, if we do receive a warning letter between now and the time of our next earnings call, we want investors to know in advance that we're already planning for it in our 2013 operating plan and that it will not change the expectations we set for 2013 on our earnings call next quarter. Another reason we made the comment is that, in the long run, we think it's good for our markets if the public knows FDA is exercising its regulatory oversight of medical device companies in a very rigorous and robust way, and it's clear to us that FDA is doing that. So it -- the -- I can't comment on the practice of other companies, but we've made our comments on this call in the spirit of being transparent and in the spirit of being realistic about the regulatory environment, the challenge of the regulatory environment, the role of warning letters play in today's regulatory environment, and we thought that investors would appreciate the information.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

But Dan, what's wrong with Sylmar that made you made those comments? I mean, have you uncovered something? Or has FDA uncovered something? I think the main concern is that there's a reason you made those comments is -- do you -- have you identified any problems there that need to be communicated?

Daniel J. Starks

Well, I'm not going to -- it's a fair question, Bob, but the right process here is to have FDA finish its inspection and have it -- have a close-out to the inspection and go from there. What I'll say is that the -- when you say, "What's wrong with Sylmar?" in the sense that you're asking it, nothing. There's nothing. The -- and what I mean by that is that the reliability data, the level of transparency, what you see in the way our products perform on the market, I went to -- you -- what you -- you'll see it across the board with the pacemaker product line, with the ICD product line, with the Durata and the Riata ST Optim product line that the reliability data and the evidence that, that implies for the robustness of our quality systems is all very good. Now none of that changes the fact that a lot of public attention has come to the challenges of externalized conductors in the Riata and Riata ST silicone leads. There has -- and that the amount of public attention has -- and patient attention and physician attention has naturally drawn significant attention from FDA. And in today's regulatory environment, with this level of attention and this level of appropriate concern, everyone should be realistic about the -- about just what the likely outcomes are. So there's not more to it than that, and I don't want to downplay it, and I certainly don't want to overplay it, and the right way -- I think the best thing -- I appreciate that this is a challenge for investors to digest, but the -- take the comments that we've made in our prepared remarks in the context of everything else that we've said here this morning and will continue to reinforce, and that is that we think that with taking everything into account, that we are on track to accelerate growth in 2013. Taking everything into account, we think we are well-positioned to continue to gain share in the U.S. ICD market. And so those comments would help put into perspective the comments that we've made this morning regarding the very vigorous oversight that FDA is exercising of medical device companies and generally, including of St. Jude Medical.

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Just real quickly, what percentage of your CRM products are manufactured out of Sylmar? And then lastly, do you have any color on what you expect this warning letter or 483 to be about?

Daniel J. Starks

Well, percentage of devices, first, I actually don't know the number, Bob, but -- so I won't offer a number since I don't actually know it. But I would tell you though that I believe that most of our manufacturing is in Puerto Rico and in Malaysia, and so -- but I'm virtually certain that, that's the case, but I'm not 100% certain, and I'm sorry that I can't do better than that. And I'm sorry, what was the other part of your question, Bob?

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Just what do you expect the letter to be about?

Daniel J. Starks

Oh, we'll have to wait and see. Don't read more into it than what we've said. We've been very collaborative, and we've been very correct and precise in exactly what we’ve said. We said that we would -- in today's regulatory environment, we would not be surprised to receive a warning letter and that we expect a 483 observation. So we'll -- that's as much as I could tell you this morning, and as additional disclosure becomes appropriate, we'll certainly make it.

Operator

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

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

So Dan, is the Sylmar facility inspection, is that a routine inspection? Or is this specifically related to the FDA's interest in Riata?

Daniel J. Starks

Eric, why don't you comment on that?

Eric S. Fain

Sure. So there's regular inspections that occur. We were due for an inspection in Sylmar, and that's not surprising that there's a focus on -- when FDA comes to do an audit, they'll pick their spots of where to focus, and certainly, high-voltage leads area was one of those areas.

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

Okay. And Eric, is this a -- the assumption on 483s, is that a what I would characterize as a documentation issue?

Eric S. Fain

Well, as Dan said, we’ll wait to see the -- get the official letter, but it's in -- the FDA inspections are really focused on quality system elements.

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

Okay. And well, let me just ask on this kind of broader interest of the FDA in Riata. Are you expecting them to -- are you expecting them to go down to Puerto Rico or to any other facilities?

Eric S. Fain

So we've had FDA inspections, as you would expect, at the facilities that FDA typically does, so Puerto Rico, Malaysia as well.

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

You have had and there have -- whether a 483 is issued or, obviously, if there was a warning letter, you would have told us?

Eric S. Fain

Correct. I mean, we haven't had a warning letter.

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

Okay. Let me just turn the page on that for just a minute. The drop-off in performance in Europe that you cited that showed up certainly in your Cardiovascular business, any particular countries you can point to? And more broadly, anything you think that drives a turn in the overall Cardiovascular business or the neuromodulation business?

Daniel J. Starks

Michael, our experience in Europe, I'm sure, is very consistent with the experience of other companies, where markets in Southern European countries are particularly sluggish. But the austerity measures certainly are European-wide, and we see the European market generally just to be sluggish in the same way that other companies have reported. So that's kind of -- I don't think there's anything impacting St. Jude Medical's business any differently. The exception is that the AF market continues to be as strong as it has been. We were encouraged to see another company report very good numbers yesterday, and so that's a bright spot, and that's -- we're very exposed to the AF market as a percent of our business. So we point to that as being a notable exception. But with respect to catalysts in the other parts of our business, I mean, we are in very good shape coming into 2013 with catalysts to help accelerate sales growth, give us a good opportunity to help accelerate sales growth in the cardiovascular business and in the Neuromodulation business both, and so -- and to me, it's really an abundance of opportunities in cardiovascular, and we've made a point to talk about several of them, the ones that are most visible and have the opportunity to make the most impact, and so both -- as a person digests the information we offered on the FFR and OCT business and how large that business already has become and what the growth rate of that business is at its current size and that there are -- it's solid market development that we've been working on for a number of years. More FAME II cost effectiveness data will be presented next week at the TCT Congress. So a person would take that whole franchise where we have significant technology advantage. We have been developing the market as intentionally as we have, dating back a number of years now, and you can see the traction of it, and so that's -- think about that in modeling the cardiovascular business and then add to it the -- I hope that our prepared remarks were adequate to signal that our Portico 23-millimeter CE Mark application is on track and that we are prepared to launch that -- to begin launching that product line in Europe, and we are -- we continue to see that as a fourth quarter event. And again, on the market development side and on providing as much information to customers about what they can expect from the value of that new growth driver, it's important to us that additional data will be presented in peer-reviewed forms here in the next few weeks. So that is something that deserves significant focus, thinking about implications for 2013. And then add to that -- everything starts a little slower than one might hope, but that's the nature of market development and launching new technology. On the renal denervation side, we received CE Mark, obviously, in May, as I recall. The record will correct me if I have that wrong just a little bit, but I believe it was May. And so now, we said that in the second half of 2012, we were going to prepare to make this a good revenue contribution in 2013. And so in our prepared remarks, again, our goal was to offer reinforcement to that and to indicate that, that's on track, that we -- not so much happens during the summer, but even so, we -- our goal was to provide all of the organizational training, to get a good core of key opinion leaders and good reference centers, to get -- to create the conditions where there could be a groundswell of growth in our renal denervation business, particularly as the clinical data continues to extend and as we initiate the -- and get going in an energetic way the EnligHTN II clinical trial. All of that will be in place here coming into 2013. That will be followed by our -- during 2013 by the launch of our second-generation renal denervation product. So you could see, again, now that's another very meaningful new growth driver that we look to as a catalyst for our cardiovascular business in Europe that's, again, very visible, and then the next thing -- all of these are big. Some of them are big as they stand, and some of them are big potential opportunities. Add to that then the presentation of the RESPECT clinical trial data at the Late Breaking Clinical Trials session next week at the TCT. So -- and people would appreciate that the PFO closure market is one where St. Jude Medical has a very strong franchise and a very strong current market share that challenges entirely one of market development, and everyone will have to wait for appropriate disclosure of the clinical results in the peer-reviewed form next week, but we are optimistic that once these results are disclosed that they will be a catalyst to market development and to our PFO closure growth driver in Europe next week. So that's -- or next year during 2013. So there's a lot there, and that's only pointing to the major highlights that there is plenty more in the left atrial appendage occlusion technology and our vascular plug technology and our tissue valve, our conventional surgical tissue valve technology that will go along to supplement those major catalysts that we are pointing to. On the Neuromodulation side, again, 2012 has been a very challenging year for us across many of our franchises, but we have -- but we're on track to enter into 2013 with a lot of energy, with a lot of enthusiasm, with a lot of confidence that we will -- that even taking continued risks into account, no matter what risks a person might have on a short list, we are very optimistic that we are on track to accelerate growth in a meaningful way in 2013. Now we're not giving our guidance for 2013 yet, we'll give it one quarter from now, but that's our view from inside the business, taking everything into account. So we're -- we’re getting a little bit of distraction here on the line with somebody punching a keypad. But the last thing I want to say before asking you for a follow-up question and moving on to the next questioner is the things that we've done in restructuring our business are very fundamental and will pay a lot of dividends. And so it isn't the kind of thing that one talks about as a new growth driver in itself, but we've got our cost structure. We are on track to make significant improvements. We've already made some. We're going to continue to make significant improvements as we complete this restructuring to get our cost structure in very good shape coming into 2013. And so that implies robust -- continued robust funding of our new growth drivers, and it implies a good positioning to capture meaningful EPS leverage. So you put all that stuff together, and yes, there are things that a person appropriately looks at as risks and challenges, but taking all of that into account, we like our position. We're very confident, very optimistic about our growth opportunity coming into 2013.

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

Dan, I am still here. I do want to just ask one quick follow-up. I appreciate all your optimism on '13. On the Neuromodulation piece, are you any closer to resolving your warning letter with the FDA, which obviously has delayed your entry into the U.S. DBS market and your conversations with the FDA on migraine?

Daniel J. Starks

I'll start out with a standard qualification, which is that we're very sensitive to the -- exactly what we say and don't say with respect to any FDA process. And so as Bob was asking questions, I'm sure that Bob and others are frustrated more than anything as we're not more precise. So we're always working to strike a balance in the sense that we -- our experience is that, on the one hand, the details of communications with the FDA are generally confidential. We don't want to characterize the communications in a way that might create offense anywhere. We don't want to take anything for granted, and so I appreciate that our caution in the level of detail is -- can be frustrating, and I'm sorry that it is. It's not our goal to create frustration. It's our goal to make disclosures and be transparent. Having said that, when you ask if we're closer to resolving our warning letter on the Neuromodulation side, absolutely. We've made good progress. We don't want to characterize the details of that, but we absolutely have made good progress, and we expect stronger growth here in 2013.

Operator

Your next question comes from the line of Derrick Sung with Sanford Bernstein.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Just one quick follow-up on the warning letter, and then I'll move on. But assuming, Dan, that you were to get a warning letter from this inspection, could you dimension for us kind of the range of implications that having a warning letter on your Sylmar facility might have on your business? Namely, are there any PMA products that you were hoping to file in 2013 that would be held up? And/or what is the range of implications that this might have on your current high-voltage business?

Daniel J. Starks

Derrick, the -- let me -- I'm not going to be specific because we haven't offered disclosure on our lineup of new products in any of our businesses for 2013 yet. We will start to talk about that on our next quarter's call, and we will talk about that in significant detail at our Annual Investor Conference in early February. So just give us one more quarter before we set expectations for any of our specific businesses with our guidance for 2013 and then support those expectations with details of what the product flow is that will support those expectations. But generally speaking, a person might keep in mind that, particularly on the CRM side, across the board, the rate of new products coming out from all of the industry participants in the United States, in particular, has been very modest. The most significant technology for us was our quadripolar CRT-D system, and obviously, that's in the market, and the next generation of that is also in the market here with our recent product launch, and so -- and that creates a meaningful technology and product line advantage for us. We expect that meaningful technology and product line advantage to continue through 2013, and so a person -- that starts to answer your question, although I'm not going to do it more directly until we talk about expectations specifically for 2013 on our next quarter call.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Okay, that's fair. But is it fair to say that a warning letter in general would not necessarily -- or would not generally impact your -- sales of your ongoing business?

Daniel J. Starks

Yes, I think that's fair. I think that's fair. Keep in mind, for example, we operate under a warning letter with our AF business here for -- I'm challenged a little bit to put the time frame exactly in mind, but for several years and continued to deliver very robust growth in our AF franchise, and continued to put significant technology in the market, especially in Europe, and then also to a lesser extent in the United States. Another point here is to me, another aspect of the landscape is that we have been -- we have expressed frustration at times with the rate of -- with the timing of new product approvals in the United States versus the timing of these technologies of being able to get regulatory approval for these technologies in other markets, and we would still -- it's a mixed record from FDA in that sense, and we would stand by those comments and kind of stand by what the record shows with respect to timing of approval of new products into various markets. But on the compliance side, we have regularly indicated that FDA -- that we have very significant respect for FDA's compliance oversight. When a warning letter was issued in our AF business, we said that we deserved it, that we were remediating that warning letter with the highest priority, and we did. And we've maintained the AF business as a very strong growth driver throughout that entire process. When we received a warning letter for our Neuromodulation business, we said that we deserved it, that we were working to remediate it with the highest priority, and we -- as I indicated in response to the previous question, we have made good progress, and we're optimistic that we're nearing the end of that process. And we received a warning letter in response -- in our Cardiovascular business a few years back that we were able to resolve relatively quickly, and we don't know if we’ll receive a warning letter on the CRM side, but we're just telling -- we're telling investors that this is a regulatory environment where warning letters have been issued to us. They've been issued to a number of other companies. When they are issued, we don't like it. When they are issued, we take them very seriously. When they are issued, we work to remediate this with the full energy and commitment of the organization, and so there's a risk here. So to the extent that people would not like the fact that we've flagged this risk on today's call, I think we're all sympathetic to that. On the other hand, it's a risk, and don't be shocked by it if that risk is realized. And if it's realized, we're managing our business to completely accommodate it, and we will take it very seriously. And if that risk is not realized, then, meanwhile, we've continued to improve the robustness of our quality systems. We've continued to do all of the right things to accelerate our growth for 2013 and beyond, and we like the position of the business. We like the way we've set ourselves up to return to a stronger growth profile in 2013.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Okay. And then maybe just a follow-up on your broader performance in ICDs. So you saw a sequential deceleration in sales both in the U.S. and outside the U.S. in your own performance. Do you feel that that's a reflection of the market? So do you think that the global ICD market also decelerated from Q1 to Q -- or from Q2 to Q3? Or do you feel that, perhaps, maybe you lost a little bit of share and might be actually growing below market? And maybe if you could also comment on what the impact of the FDA guidance document around x-raying all Riata leads, what that impact might have had on your share this quarter?

Daniel J. Starks

I think there were 3 parts to your question, Derrick. Generally, we -- so first of all, just generally with respect to the markets into third quarter, the best way to characterize our information and our observations here at this point is to say that our markets just generally seemed sluggish, and so that's kind of the -- that's how we think about it as an overview comment. With respect to the -- our share in the ICD markets, specifically in the third quarter, we really don't have enough information to be more precise yet. We'll -- in the next few weeks and certainly in the next 30 days, we'll have other companies reporting, and we'll get a better handle on it. And so we really don't know whether we grew less than the market or whether we grew at the market or slightly more than the market in the third quarter, but it was all within a very narrow band. No matter what the details turn out to be, there isn’t going to be a lot of difference by way of numbers. And then, Derrick, you had a third point, and I didn't take the boot [ph] on it.

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Yes, the FDA, the FDA guidance around the furloughing [ph] of all Riata leads and the post-market surveillance studies as well.

Daniel J. Starks

Yes, Eric, what -- do you have any insights you'd care to offer on that?

Eric S. Fain

Sure. Obviously, people are focused on understanding what the communication was and working through that. But in and of itself, I wouldn't say that, that had any significant impact.

Operator

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

David R. Lewis - Morgan Stanley, Research Division

Dan, just a quick question. Sorry to follow up here on the warning letter, but you made an interesting comment, which was you've been pretty clear about what you expect the outlook to be in 2013, and you talked a little bit about how you would not expect this recall -- I'm sorry, warning letter to impact the current business. You did make another comment about your 2013 expectations, but we don't have those expectations. So just sort of thinking about spending, do you have a good sense of sort of the spending associated with whatever the outcome of this 483 could be and what that impact would be sort of for 2013? Because if this is documentation-driven just because of the environment, the spending impact would likely be somewhat modest, and that was sort of our sense, but wanted to get a better sense from you.

Daniel J. Starks

Yes, David, I've had a little bit of -- I'm going to struggle a little bit on exactly how to answer that because we -- the answer is a little bit premature here, given the fact that the FDA inspection has not closed out, but I will tell you that we -- that I do believe that we have a good handle on it. I think the way you're thinking about it is on the right track. I'm not in a position to really say more, given that we don't have all of the final detail here yet, but we certainly have a good handle on the level of resources and level of commitment that we need to continue to apply to our quality systems throughout the organization, including in our CRM business and including in our Sylmar site. So -- and we see nothing unexpected with respect to resources that will be required to correct any deficiencies that might be cited, and if deficiencies ultimately include issuance of a warning letter, it’ll probably take -- typically, it takes 60 or 90 days from close-out of an inspection to find out whether a warning letter is going to issue, but sometimes, it's sooner, sometimes, it's later, but typically, 60 to 90 days. And if a warning letter is issued, we have already taken that possibility into account here in our resource allocation. We are fully taking into account in our 2013 operating plan. And on a resource level, it would be a -- it would not be a new development for us or a material event.

David R. Lewis - Morgan Stanley, Research Division

Great, Dan. It's very helpful. And just one last quick one. You were kind enough to share with us, I think, 6 months ago some qualitative characteristics around your lead-to-can ratio, and I know you were not going to do that all the time, but could you help us out just sort of here in the back half of the year? Or have you seen -- what changes you've seen on your lead-to-can ratio? Would you describe that as still declining, declining at a slower rate, more stable or improving?

Daniel J. Starks

The lead-to-port ratio has definitely declined and continued to decline in the third quarter. So that's been -- we have lost share in the high-voltage lead portion of the ICD market, no question about it.

Operator

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

Kristen M. Stewart - Deutsche Bank AG, Research Division

And I guess one on the warning letter potential, and then I have a couple other follow-ups. I know you had just mentioned that it typically takes 60 to 90 days after the close-out of an inspection. Any visibility on just kind of how far along the FDA is in their inspection? And I know it's difficult to gauge, but any sense on when the inspection might be completed?

Daniel J. Starks

Yes, very soon. We -- it's near its end.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay, great. And then, also, you had mentioned, obviously, you guys are preparing for the performance report update that should come out next month. I would have to imagine it takes time to gather all the information and materials. I guess, based upon what you guys have gathered and are seeing, are you still confident just kind of behind the performance of Durata and the Optim coating?

Daniel J. Starks

Absolutely, absolutely.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay, perfect. And then the last question is just more on some of your commentary just around 2013 and the restructuring. You had mentioned that there's, I think it’s $50 million to $60 million pretax in savings. At the Analyst Meeting earlier this year, you had quantified the potential full savings, I think, something on the order of $150 million. So can you just help me understand, I guess, what the full savings rate will be in 2013, given that you've had a couple of restructuring programs along the way? And just how to kind of frame what your ultimate savings may be?

Daniel J. Starks

Let me start, Kristen, and then let me ask John Heinmiller to help me. The -- so just -- and I know that you are completely tuned into this. I want to make my comment for the benefit of others on the call who aren't so close to the information. So we've made a comment previously about the cumulative savings of, as I recall, 2 years of cost reduction and productivity gain initiatives that included -- our transfer of manufacturing to cost-advantaged locations was a significant amount of it. It included a number of component -- a number of additional components to the total cost reduction and productivity gain program. So the restructuring that we announced in the third quarter was an additional initiative that was beyond the scope of what we were addressing in our previous comment about multiyear savings, and so that's a starting point. And let me ask, John, what else could we say about this that might be helpful?

John C. Heinmiller

Yes, I think that, that's exactly what I was thinking, what Dan was mentioning is that, Kristen, we've talked about this as a multiyear program when we summarized what we expected that -- and it was entering into our income statement as we were making progress on those various initiatives that Dan had mentioned. If you look just, for example, last year, our income tax rate was 22%. This year, it's 21.6%. So we're beginning to see that play its way into our income statement as we do more manufacturing in tax-advantaged locations, and this latest initiative is a new initiative that's incremental to that -- those previous discussions that we've had.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Okay. And should we look at this, as it looks roughly to be approximately the same size as the device tax, as something that would give confidence in growing kind of double digits? Because I know you've talked about that goal in the past of going double digits despite the device tax. Does this kind of help get you there?

Daniel J. Starks

Absolutely.

Operator

Your next question comes from the line of Larry Biegelsen with Wells Fargo.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

Just a follow-up on Kristen's question earlier. Dan, on the last call, you talked about a sticker shock regarding 2013 guidance, and now you just said -- I think I heard you say that with a $50 million to $60 million restructuring, you think you can offset the device tax and grow EPS double-digit in 2013? I just want to make sure I heard that correctly.

Daniel J. Starks

No, Larry. You heard it partly correctly, but I didn't say that we're -- I've not suggested what our EPS growth guidance will be for 2013. I did not suggest that. And if I misunderstood Kristen's question, then I apologize for my misunderstanding. I heard her say was this going to help us get toward that goal of returning to double-digit EPS growth, and clearly, the restructuring benefits will help us get toward that goal. But if Kristen was asking me if we're going to -- if our guidance for 2013 is going to be double-digit EPS growth, then I misunderstood the question, and I apologize. So we're not giving guidance for 2013 on this call, and so -- but we will give guidance next quarter and -- but this restructuring that we announced in August of this quarter, of the third quarter, in August of the third quarter, clearly helps offset the expense of the medical device excise tax.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

I'm sorry if I misunderstood. And then on -- just on the pipeline, the U.S. IDE status for Portico and renal denervation, also transapical CE Mark trial for Portico and the 26-millimeter valve, do you still expect those approvals in the second half of 2012? And I just have one other follow-up.

Daniel J. Starks

No. I'm thinking, on the CE Mark approval of apical and 26-millimeter in the second half of 2012, I don't think that's been our -- I don't think we've ever created that expectation, and that's not our expectation...

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

I meant 2013, Dan. Sorry to interrupt. I apologize.

Daniel J. Starks

Yes, okay. Yes, all right. So what I'm going to do is I -- what I would like to ask for is I'd to like to ask for the indulgence of people to just wait until next quarter, and then there will be a combination of the January earnings call and then the Annual Investor Conference that follows right on the heels of it. Just wait for that opportunity for us to provide a complete update on product flow for 2013, but I will say that the whole Portico program is -- has been advancing nicely and is on track, and I'm not aware of any disruptions or delays to it.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

The U.S. timing, we have to wait until February for that? [indiscernible]

Daniel J. Starks

Yes, I'm sorry, Larry, I'm just not completely prepped on everything that a person might ask, and so I just don't have that data in front of me, and I'd rather just defer to a complete review of the status of new products early next year.

Lawrence Biegelsen - Wells Fargo Securities, LLC, Research Division

All right. Just very briefly, in your prepared remarks, you didn't talk about the U.S. filing for RESPECT. Is that still on track for Q4 2012? And I'll drop.

Daniel J. Starks

You've caught me a touch unprepared. So I'm sorry, I can't answer it, and I apologize that I can't. I do know that we are making good progress to file in the United States, and I'm sorry I'm not more up on the exact details of that.

Operator

Your next question comes from the line of Brooks West from Piper Jaffray.

Brooks E. West - Piper Jaffray Companies, Research Division

Three quick ones. Just relating to the lead-to-port ratio question. Is it fair to say that most of the diminishment around your expectations for share gains is coming from leads? Or are you seeing that pull through to cans as well? I was wondering if you could comment on the Aortech dispute that's been in the headlines. And then just shifting away from CRM, I wonder if you could comment on the Abbott co-marketing agreement. The performance of those products seems to be going well and just -- is that living up to your expectations?

Daniel J. Starks

On the question about the lead-to-port ratio and impact on market share, that's clearly where we have lost market share, and there are other parts of our business, we have continued to -- other parts of our CRM business, we have continued to gain some market share. So it's -- the big negative is clearly on the high-voltage lead component of our total CRM revenue. On Aortech, I don't have any particular comments other than to say that there's nothing material to our business involved in their publicity efforts and no merit to any of their claims, but that is -- I believe that's -- that those communications between us are really covered by confidentiality agreements is my understanding. So I'm not in a position to say more, other than to say that it's not material and no merit to anything negative. On the Abbott co-marketing, I -- that's something that I'm not so close to, to offer any precise comments, and again, I suspect that the companies probably have some confidentiality agreements, and I'm not close enough to the details to know exactly what they are. So I don't want to comment other than to say that the co-marketing relationship we have with Abbott is a valuable one for us, and I've heard only good things about it.

Brooks E. West - Piper Jaffray Companies, Research Division

And then maybe, Dan, if I could just follow-up on the Aortech, so is there -- because I get this question, is there risk to your access to or use of the Optim coating if that relationship dissolves? Or could you just give us some comfort there?

Daniel J. Starks

We have -- there is not risk. We have a good supply of material, and we have contingency plans in addition to that. So there's no risk.

And we let today's call go a little bit long. I think it was appropriate to do so. Thank you, everybody, for listening, and we look forward to our call next quarter. And with that, I'll turn it back to Christie for concluding comments.

Operator

Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern. The dial-in numbers are: U.S. (855) 859-2056 and, internationally, (404) 537-3406, and enter pin number 33939551. Thank you. This does conclude today's teleconference. Please disconnect your lines at this time.

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