Boston Scientific Investor Day – Transcript

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Boston Scientific Corporation (NYSE:BSX) Investor Day Conference Call November 19, 2010 8:00 AM ET


Jeff Capello – EVP and CFO

Ray Elliott – President and CEO

Hank Kucheman – EVP and President of the Cardiology, Rhythm and Vascular Group

Joe Fitzgerald – SVP and President, Endovascular Unit

Mike Phalen – SVP and President, Endoscopy Division

John Pedersen – SVP and President, Urology and Women's Health Division

Mike Onuscheck – SVP and President, Neuromodulation Division

Keith Dawkins – SVP and Chief Medical Officer, Cardiology, Rhythm and Vascular Group

Larry Newman – SVP, Restructuring and Integration

Ken Stein – SVP and Associate Chief Medical Officer for CRM Group


Mike [ph]

Rick Wise – Leerink Swann

Bob Hopkins – Bank of America Merrill Lynch

Adam Feinstein – Barclays

David Lewis – Morgan Stanley

Kristen Stewart – Deutsche Bank

Tim Lee – Piper Jaffray

Larry Biegelsen – Wells Fargo

Brooks West – Craig-Hallum Capital

Tao Levy – Collins Stewart

Joanne Wuensch – BMO Capital Markets

Derrick Sung – Sanford Bernstein

David Roman – Goldman Sachs

Glen Novarro – RBC


Ladies and gentlemen please welcome Boston Scientific’s Chief Financial Officer, Jeff Capello.

Jeff Capello

Welcome to the 2010 Boston Scientific Investor Conference. We’re very pleased to have you here with us today. We know you have a lot to do. We appreciate your interest in the company and appreciate you coming here today. What I’m going to do is kick-off a few slides to get through our disclaimers and then review the agenda.

So as with all investments we encourage you to have a look at our Safe Harbor statements. It’s listed here on the screen. It will also be on our website and it’s attached to all our public filings. In terms of additional disclaimers, we’re going to talk about a lot of our new products that are coming out. Some of these products have not yet been approved by the FDA. Therefore they’re not yet for sale in the US. In addition, we’re going to talk about release dates. Those release dates are estimates at this point and are contingent on a number of different variables.

Finally, the numbers that I’ll share with you in my section as well as some of the other sections will all be reconciled to the non-GAAP measures within our filings on our website. Now let me just spend a minute on our agenda. We’re going to start the day with our Chief Executive Officer and President, Ray Elliott, who is going take us through our strategic direction. We’re then going to have Hank Kucheman come up and talk about our CRV business, and then we’ll have Joe Fitzgerald talk about the Endovascular business. With that we’re going to take a very brief 10 minute break after which Mike Phalen is going to come up and talk about our Endoscopy business.

We’ll then move to Urology and Women’s Health where John Pedersen will have a discussion on those products and our outlook. And then Michael Onuscheck will wrap up our business unit discussion with the Neuromodulation business. We’ll then ask Dr. Keith Dawkins to come up and talk about a number of clinical trials and issues in that area. And then I’ll come up after a short break and talk about the finance section, and then Ray will wrap it up.

I just need to remind you that we are webcasting this event, so we are going to stay on time with 10 minute breaks, so if you get back in your chairs after 10 minutes that would be greatly appreciated. With that let me ask our President and Chief Executive Officer, Ray Elliott to come up. Ray?

Ray Elliott

I hope you appreciate the song that Sammy Hagar and Eddie Van Halen and I wrote just for the opening. It’s pretty upbeat. I want to welcome you obviously to actually the first investor meeting we’ve had in 4.5 years. Why so long? I can’t obviously answer that. But at least for this meeting’s goals, we’re going to temporarily do three things, and simply convince you that in the near-term we can drive EPS, in the medium-term we can drive sales and we’ll talk about what that means and that this executive team can deliver on that.

I think as we in analyst meetings and go through the process of talking with people, probably people don’t really believe or at least haven’t been given enough material to believe that we can deliver growth, but I think quietly and carefully we’ve put a plan together to do actually just that. And not just with acquisitions although that gets to be a lot of the public talk, but rather starting with 2010 and you’ll see them today over 150 new products in a very much rebuilt strategic plan pipeline.

Our mission that’s been in place for a long-time really hasn’t changed. This is still our guiding principle. I won’t read it for you, you’ve seen it many, many times. It’s based on the fact that we will always put the patient first, as based on the fact that for many, many years now our growth rate is really in less invasive or at least invasive or less invasive if we can do it.

This slide I will read it, it’s not a mission and it’s not intended ever to replace our mission but rather a methodology for success. So Boston Scientific will pursue priority growth initiatives by buying or building products we understand, to be sold through sales forces we already have. The products will be least or less invasive, cost and comparatively effectively and, where possible, reduce or eliminate refractory drug use. Today we need to be able to grow. Today we need to be able to leverage our earnings in the near-term and today and most of it in the future costs, meaning cost of products are really going to matter.

Defining tomorrow, today is a new tagline. The colors you see within the text area, you see the new logos, the division logos. You’ll see more of it today. But it’s not just about looking different, anybody can do that with a little bit of marketing and advertising. We’re going to be different. Defining tomorrow, today, it doesn’t make it different but delivering on it really does. Why are we doing that? We’re going to return back to the company’s routes. We’re going to return to innovation and a very, very full pipeline to cross augment that with some of the M&A that’s been talked about.

My friend Mr. Gretzky would say that the secret of success at least on the hierarchy is not understanding where is the puck is now, but rather understanding where the puck is going to be. And a big part of what we’re going to do is just that. I’m going to talk about the near-term and for reference here, you’re going to see near-term, medium-term, long-term. Near-term for purposes here is a couple of years, medium-term is kind of two to four, so you can reference your thinking as we present.

But in the near-term, we want to increase our profitability and optimize organization. It’s all about our new power strategy, that we’re going to show you and you’ll see it referenced a number of times in the presentation. In the near-term, sales can’t grow much more than low single-digits. You know that and of course we know it as well and often confirm it. However I would point out the same is not true for profitability. We have a number of opportunities and this is sort of an expected near-term EPS. And we’ve taken out and washed out all the other things. This is obviously a simple product chart. So price is going to be somewhat a negative in some of our factors, but we have other positive staff set aside of that [ph].

So I wanted to highlight the net effects if you will. We have about $750 million, again this is in the near-term and opportunities to grow operating profit that is solely in our hands to execute. It has nothing to do in effect with customers, it doesn’t have anything to do with securing M&A deals. It’s strictly our ability to flawlessly execute. If we do it and we expect to, that’s $0.40 rough numbers today of OI at a multiple that I think will be above today’s multiple or at least we hope so. If people believe our growth initiative story, this will happen.

In the medium-term, we want to accelerate that sales growth and improve and increase the operating leverage. We need to be able to execute key strategies flawlessly by an energized and passionate management team and as you’ll see from the folks that I’m fortunate enough to work with every day. We’ve got just that.

Take a minute just to read these, they’re important and you’ll see them come up repetitively as our folks get into the details. Focused on product costs, comparative, less invasive and leveraged sales forces, I mentioned that. Reallocating R&D resources to growth initiatives, you’re going to see a good deal of that today, and it’s important in our strategy. Transform corporate efficiency, effectiveness and value added. We’re going to show you how we’re going to do that. Change portfolio to growth through M&A, obviously gets a lot of chatter as it is. And then reinvesting a part of our savings into substantial opportunities we have in some expanding emerging markets growth opportunities.

We’re global leader in about $30 billion marketplace. And we’re pretty blessed as a company when you think about it, because if you look at these great markets, all of them individually of all these marketplaces we’re in, and at years about 28 of them. They all exceed a $1 billion in individual segment value. Obviously some are growing more than others, some are not growing at all, but of course that’s not true for procedures since – as we look at market valuations, market growth it’s usually done in US dollars. Some are obviously softer markets in the US, but the same is not true for emerging markets.

If you look at this first slide and think about where we need to get to, it’s the part that I’ve referred to many times as I’ve talked with people at analyst meetings or presentations and it’s the solving for X. If you understand what’s in your base business, what kind of growth markets do you have to get into that? What growth rates to get to 6% or 7%. Now growth markets that we’re going into and you’ll see them today, we expect to be sustainable in the near-term and that 6% or 7% demand [ph] effective med devices at least in this country become the new double-digit.

If you look at little longer-term take the same exact growth markets and work our way through them, we believe that those are sustainable through the longer-term. So if you think again, couple of years is short-term or near-term. Medium-term is two to four and then four plus would be longer term. We’re very comfortable we’ll show you why that we believe that not only are these the right places to be, but in fact they will have excellent rating rates both procedures and sales growth.

Now this is done on purpose. Actually you can – and the size of slide is not that you can read a bit of it. It’s not intended that you really read it particularly. But it wants to point out that it’s an anatomy of strength. We don’t begin our new life from the position of weakness. We have 24 – these are major segments in medical devices, they’re simply based on us as the base. And we have 24 number one, or number two positions globally. We in fact have leadership in 75% of our global categories. The I-chart here is intentional but focus on the grey areas. If you think about the world that we’re going into, a marketplace will demand more from us with GPOs and hospital mergers and combined purchasing.

It’s really the grey spaces that matter. It’s our deep belief that in that economic environment of facing competitive grey spaces, I promise you we’ll prove fatal to them versus our combination. We do have some pressure from the current health care system. There is no doubt about it in that that real economic environment looks something like this and this is very, very different from the history that most of us have grown up in med devices. Physician institutional alignment, in fact the bars you see on the left of the chart are in fact the changes overtime of physicians becoming employees or single relationship. And that alignment changes in terms of the value proposition that many of us and the interrelationship between all the components of health care.

Doubling of PCIs to outpatient by 2013. Rise of the economic customer and payer power. New care delivery models. This isn’t new in terms of being written about, analysts are writing about it or people are talking about it. But the question is how do you win in that environment? That’s the secret of the game. And of course on a global basis, focus on tenders, reference pricing, DRGs and then Asian Pacific countries particularly China, government is investing in their own country.

The key is for us is don’t long for the good old days, to go how to make patients, providers, shareholders happy in this new environment. In the short-term we just do our own study and had a long chat with a lot of administrators. It does appear at least in the short-term, there may be some positive outlook at least from the administrators. You can see the comments on here positive I should say procedure growth for 2011. Some moderation with shifting to patients, but of course less than 30% of our revenue comes from segments that are impacted in any form by elective procedures.

Demographics will support our growth. We have chosen our growth initiatives and the disease states that we want to enter into with device solutions very, very carefully. In fact shortly after I joined the company, we spent more than two months with the top 30 executives in this company defining precisely what our future needs to look like, the diseased states, in areas we want to enter and what those devices might be. And our desire to approve these diseased states with devices and reduced refractory drug uses in the example is supported by demographic – both demographically and economically. These are great places to be, and they’re going to continue to be strong growth markets in the future.

So what is this power plan and why will it succeed if flawlessly executed? And it’s all about, at least for us these five components, preparing our people, optimize the company, win global market share, expand our sales and marketing focus and realign our business portfolio. So let me start with the first one, and I recognize often times this can be considered the soft areas, the fringe areas [ph] to prepare our people. Economists and mathematicians and market markers and so on don’t always get comfortable with this part, but it’s essential for us. It always starts with people and always starts in fact with leadership.

I think as Jim Collins, so eloquently put it, right people on the bus, wrong people off the bus, right people in the right seats. So we’re seeing again for us at least it starts and is all about leadership. If you take a look at what we’ve done and you can read the bullet points, so I’ll just comment on them for you. If you look at the top 50 physicians and you go back a year or year and half and take a look at the top 50 physicians in Boston Scientific, you’ll see that we’ve changed 80% of the roles or the people, during our last 15 months. And in many cases its role expansion, role changes, not necessarily obviously that level of turnover, but substantial change in how we’re doing things.

We took a blank piece of paper and redeveloped our own set of leadership competencies that connect every employee in the company and it’s presented to all 26,000 people generally speaking in their own language. We win by being inclusive by including everyone. We have a major diversity and inclusion program. We’ve changed compensation massively in the last year and redefined how we compensate people, essentially realigning it and aligning with shareholders. And we actually made every single of those 26,000 employees a shareholder by voluntarily cutting top executive bonuses.

And then lastly, people don’t just wake up in the morning and be leaders. So in order to augment that, we built a school. In March, we selected over 80 people with maximum performance, potential scores and the ability to be promoted twice in two years or less. We’ve built an office to plan their careers and mentorship. And our new leadership, meaning myself, us and the folks you’ll see today, we personally teach them without – we bring in a few outsiders, but most of this is created by us. And just to give you a feel for that 80 people. We started this about last April and in that timeframe between now and then through the first module of the first courses of Top Gun School, 28 people have already been promoted and/or rotated to much expanded roles.

Optimize the company. We’ve got – this is an interesting one. We’ve got enormous opportunities to reduce COGS and SG&A. Now the feedback we often get is that we don’t have that opportunity because our SG&A ratios are lower than industry standards and that is true, certainly from a technical calculation point of view. We actually believe though that that theory is wrong. And that the other guys, our run-on competitors are going to get caught in the changing world with SG&A and with COGS that are way too high. So do we look lower now and we get much lower? The answer is yes. From scrap to sales models to corporate overheads, we can get a lot better than we are today.

This month we’ll launch corporate zero-based budgeting program to seek value added and eliminate bureaucracy in the corporation worldwide. And this could take 40 fulltime people, about six months to run this whole project. Project transformation, this is a great one. One of the things when I joined the company is talk to people about, how do we produce on-budget, on-time? What kind of dollars are we wasting? How much time are we wasting? Do we have target costs for products, or do we just produce things that have features and benefits, and the cost of our product becomes the cost?

Project transformation, we’ve newly put in place and this is one of the single largest opportunities we have. We believe there is $200 million of waste in our R&D system. Essentially, we believe that we can accumulate and recover that waste from 2010 to 2013. The product development and knowledge based systems that we utilize to build products are being overhauled by more than 30 fulltime people. Their goal is give the right product, right time, right cost. Any project that starts at Boston Scientific today that’s $5 million or higher must have a target standard cost in order for us to proceed. We can no longer afford to bring our products that while they’re nicely featured and benefit to 10% or 15% or 20% more than the predecessor product that they replaced.

Other opportunities and these are just three quick ones. We’ve got a lot of them. Looking to your left first, our distribution centers compete [ph] from the 1970s. So we’re taking $40 million and putting into flexible, scalable, automated and robust. And as we speak today, that system is being changed right now starting with our Quincy operations in Massachusetts and then moving over to the Netherlands to Kerkrade

In the middle picture as you see it there, our view is 2012 [ph] plants are too many, in fact still is 17, but 12 or about half or more we started just about right and those 12 plants what we’ll get to. And then UNITY is a major IT program that we put millions of dollars into in the last year. And in fact we shut down and replaced more than 20 legacy platforms in the corporation particularly as you think about legacy Guidant and legacy Boston having the opportunity to work and talk together more efficiently.

We completely the work this August after 70,000 man hours of effort to make us into one system. Win global market share. Many of our OUS served markets grow double-digits. That’s certainly not true for the most part in the US. This is one of those slides that sort of invokes that that glass half empty, glass half full thought vision. Our view is obviously that its half full. Boston Scientific and I’d just use DES here as the example, served market share in developed markets is 31% compared to 6% in emerging markets. And you can see from the overall slide that about our EM exposure, emerging market exposure is about 3% compared to the other well-known names that you see.

It strikes me that 3% in emerging markets with our brands doesn’t make any sense and we’re taking steps as we speak and I’ll show you some of those to get after what is a huge opportunity by expanding our footprint globally. This is kind of our world as we see it between advanced markets and obviously emerging markets. You can read the boxes but I’ll just repeat the quick highlights, $30 million to $40 million is going into emerging markets as we speak. It’s going into sales reps, I’m going to give you some individual company examples, product registrations. In many cases, the great products we have weren’t even being registered in those countries. So you’re certainly not going to sell them.

Clinical trials, investor-sponsored research, Dr. Dawkins is going to talk about that in a few minutes, distribution, infrastructure, product launches which you will see, R&D and manufacturing. If we look at those, I’m just going to look at three of them because this is a lot of places where we’re doing investments but there is three substantial ones. Brazil, product launches, PROMUS Element and WALLFLEX may not be [ph] to made it to registration. It’s expensive to register, get that, put together. We’re doing that. We’re putting in place an economic buyer infrastructure down there, very similar to the corporate sales and negotiation strategy that we have in the US. And in fact our folks who are down there a lot.

Increasing PES – DES, I should say penetration. The CRM market is non-existed. We virtually have no sales there. We put together an infrastructure, sales management team, sales folks and in some countries a distribution system, in South America to go back after that opportunity. And then of course we’ve got proprietary technologies that we can train and build our physicians on. China, double market share to more than 20% in the products we sell. Again I was talking on the phone about two or three months after joining the company, I was talking to our General Manager in China. And I said, are you going to make sure you use the experience launch capabilities of the US team and the European team when you do PROMUS Element? And he said we’re not doing PROMUS Element, because we never registered. And now we’ve registered it and we’ve registered WALLFLEX and ALTRUA and making sure that these products have an opportunity in those marketplaces, and also advancing more of CRM, EP and so on.

Huge investment in the sales organization. We’re increasing it by 35% the number of reps in 2011 alone, and now moving ourselves into tier-2 hospitals and cities. We have not left tier-1 cities in all these years that we’ve been there. We’re building an institute in Shanghai. We have a partnership with Ministry of Health to do physician education. And we have a very real expectation that our revenues by 2015 should be above $400 million. India, even broader opportunity, and in some ways more interesting. Same 20% market share we’re going to get to. The organizational investment is adding 60 direct sales people in all divisions starting now for both tier-1 and tier-2 cities creating marketing and support function of 25 more people.

We spent all this time in this huge, huge marketplace. It’s a $1 billion CV marketplace and Boston Scientific’s average number of employees there in the last three years was three. Our expectation is obviously not to have three, just to have in the hundreds and to shift some of our investigator-sponsored research there. Revenue goal, about $200 million. So if you think of packaging these countries together, its $500 million or $600 million, where today we do virtually nothing.

E, we obviously think that there is a lot of work to be done in sales and marketing. I think our divisions have always been very sales focused. I’m not as convinced about the corporate head office and how we approached our attention to sales. Success for us will come with intensity. And a focus on sales, structures and also tools, that can make us unique. I won’t cover all of this, I’ll just do it quickly, but if you look to the left, we have a corporate sales leadership team and a best practices team that’s combined on this slide that we’re now taking globally. So what used to be once the classic US corporate sales team calling on GPO is now spends as much time in Germany and Brazil as they do in the US.

Sales analytics, RAINMAKER pricing. The analytics are so good that we have on this, we can daily control down to analysis of individual rep on a daily basis by a hospital by segment. Vantage Partners, they are the professional trainers of us to negotiate. And they’ve done everything from hostages to peace treaties and they now work not exclusive with us obviously but now do a great deal work with us in terms of GPO negotiation dealing with specific countries. And then lastly in eMarketing, there is very few budgets at Boston where we’ve doubled their spending for them for the 2011 plan. This happens to be one of them.

We’ve just purchased 2,000 iPads and we’re beginning the process for our sales force of downloading more than 20 specific both product apps, and an opportunity to get into pricing, time efficiency, expense reports, filling out requests and all the other things that we manage to do to take time away from the sales force. And then of course down the bottom, I’m only going to touch on this very briefly because Hank is going to talk to it, but I’d be remiss if I didn’t cover CRV CrossCare.

Again as an outsider coming in, we spent four years after an acquisition essentially not integrating the two businesses and the shame of it was the non-integration. The only people we ever helped in not integrating was our competitors, because if you put the two businesses together and you run them well as a single unit and you remember that that I-chart and grey space I showed you, that combination is unstoppable and that integration is, while not 100% complete is virtually complete as we speak.

You can sell but you can’t just sell and not in this business. You also have to teach and train. So we’ve dramatically ramped up our wholly owned OUS institutes in Paris, Tokyo and Shanghai. We’ve partnered with groups such as the Bladder Health Network and of course we have our own very highly acclaimed Boston Scientific Pelvic Floor Institute. And then lastly realign our business portfolio. We can’t be sustainable growth company without the execution of our growth initiatives. It’s not going to work. I’m going to introduce them here briefly only because our five division presence are really going to take a much closer look at each of these categories in their presentation.

AMT, Autonomic Modulation Therapy. It’s a stimulation of target nerves to reverse heart failure for patients or an out cardiac for synchronization candidates. It has the potential to be multibillion dollar marketplace. AFib you know, we think we can improve upon current treatment techniques that our RF energy to isolate the areas of the heart that cause the upper chambers to quiver. We’re investing in technologies to enhance the physician’s assessment and understanding of the lesion creation. And of course Coronary Artery Disease, as the current global market leader in the US, we’re working on the next generation technology called SYNERGY, which uses a bioerodible polymer with marketing leading drug Everolimus on enhanced delivery system. And we’re going take you through that.

Deep Brain Stimulation, we’re exploring the use of electrical pulses to treat a variety of conditions including Parkinson’s disease, depression and recently announced historical enrollment in our VANTAGE trial and Michael will take you through more detail on that. We’ve got a couple of epidemics in here. And when we spend our time building our target disease areas and device categories, we did focused in some ways on these epidemics, Type II Diabetes and Obesity have reached literally epidemic proportions not only in the US but in other parts of the developed world. Less invasement treatment options including neuro-stem and stents, this market could easily exceed $3 billion.

Endoluminal Surgery, we’re working on a less invasement advancement endoscopic surgery which is the scope is through smaller recessions [ph] or natural body openings in order to diagnose and treat disease, and Mike will give you a look at that. Now of course this original slide had a picture on the left of lungs and of course it’s nice that we’ve able to change that and actually put the ALAIR product line on. This is about six million patients worldwide that have severe asthma, that require frequent hospital visits and can only be treated by oral steroids. Our recently acquired Asthmatx ALAIR system reduces asthma attacks, ER visits and hospitalization.

Hypertension, the second of the worldwide epidemics. And this where available drugs don’t work for everyone. This includes about five million people in the US and we have both internally and externally focused on unique innovative alternative treatments including Renal Nerve Ablation and Electrical Stimulation. PR and Peripheral Vascular Disease, we’re applying our drug-eluting balloon and stent expertise to peripheral vascular disease which affects about 10 million people and have several treatment options but as yet no goal standard.

And of course Structural Heart getting so much in the write-ups these days, this grouping actually includes several areas, aortic valves, mitral valves, left atrial appendage occlusion, PFO. And they represent sizable markets and as I think that sort of having started in this area back in the early 70s with low [inaudible] it’s kind of interesting to be standing up on the stage and talking about how we’re actually going to do this and change methodologies and help people across all these areas that we’ve reached that point in our time in the industry. Specifically on the aortic valve,, these obviously as you know degenerate to become obstructive by calcification. Mitral valves can be compromised due to valve degeneration or even in the large hearts and in AFib patients blood clots can form in left atrial appendage, dislodge and cause a stroke.

So these are very, very difficult areas to sell. I want you to know that we are very active in creating a special place for us in each of these marketplaces. And we’ll try and share what we can with you on that. And then sudden cardiac arrest, this is more than three million people worldwide still die every year from sudden cardiac arrest. And we’re committed to investing in innovative alternative approaches to the fibrillation that improve effectiveness by ease of implantation and reduce cost globally hopefully through safer and even needless intervention.

In Women’s Health, we’re addressing women’s health issues worldwide to address conditions such as in incontinence and excessive bleeding. We believe our less invasive treatments will allow women to return quickly to normal healthy lives and our clinical study investment over a $1 million to correlate the unique contribution of our HTA device to fibroid solutions, and John is going to cover more in his presentation.

So these are the categories that our folks are going to get into. We’ve got about $750 million in cost reduction improvements as I mentioned that are in our hands. We control that, we control the execution of it, and we can expect to deliver on it. It’s subject to our execution, but we can certainly make more money. But without the successful execution of what you see on this page, we can’t grow sales at 6% or 7% and we need to if we’re going to win.

So as you look and think about where we started our strategy out before the divisions take over. We’ve got to continue to lead in our existing markets. We’ve got to expand on margins. Jeff is going to talk to that. We’ve got to drive stronger cash flow and we drive strong cash flow right now. We’ve got to execute on portfolio realignment. We’ve got to enhance our solid credit profile which we’re doing.

Transition time in-between, we’ve got to invest our SG&A savings. We can’t take them all to the bottom because we have places to grow and things to do. We’ve got to reallocate our R&D for the growth initiatives. We’ve got to complete the acquisitions we have targeted. In order to do that and combine with divestitures, we want to de-lever our balance sheet. And of course we want to build an emerging markets infrastructure. Medium-term it will lead to higher growth markets, that’s where we need to be.

We can accelerate our margin expansion and we can leverage our free cash flow. I believe if we do all these things well, the $750 million in cost structuring, the growth into the new markets and the initiation of the growth initiatives, I believe it will attract us certainly a higher multiple than we have today. And if you translate that, this is our goal to deliver – from this approximately $5 increase in value for common share over the next three years.

On that note, it’s my personal pleasure to introduce our Executive Vice President of Boston Scientific and the President of the Cardiology, Rhythm and Vascular Group, Hank Kucheman.

Hank Kucheman

All right. Well let me start with a very brief overview of CRV just to make sure that we’re all calibrated on what it is. Oversimplified it is a business combined within BSC, that approximates about $6 billion annually. The leadership team has over 220 years of device experience, 18,000 employees worldwide with about 6,000 of those employees in the Twin Cities. More than 1,300 engineers and scientists. We are present in more than 100 countries around the world with 3,000 plus sales people. And across the bandwidth of the entity, we have a very strong what we call CV healthcare system service line portfolio with relatively very strong market share positions. We’ll talk more about that in this meeting.

But in August of this year, we brought the two major campuses in the Twin Cities on the CRM side and CV side about 6,000 people together, in the Minneapolis Convention Center. What we really focus on what we call the power of the people, the what, the why, the where behind the CRV vision that you see at the bottom in this slide. And this really was a transformational event that really helped the CRV team understand that CRV is a strategic response to changes occurring in the marketplace. And the three reasons that we articulated to the team of why we did, what we did are depicted here.

First and foremost to enhance our innovation power by creating one integrated R&D and program management team. We had historically key centers of excellence, technology centers of excellence between the two campuses within the Twin Cities, but we really didn’t talk to each other that well. Today we are talking together very well and integrated in a way that here before we have never have been. And the second reason was to set a new standard for integrated cardiovascular care by leveraging both, the critical and strategic mass that exists between CV and CRM. And I’m going to talk a lot more about that in my presentation. And third, to better position us for the future by developing safe effective and cost effective technologies for CRV clinic disease states in therapies which as we all know continue to grow. And this slide depicts some of those disease states that are prevalent in my field.

And I think as we all know about 60% on the DES globally, can be attributed to some form of chronic disease for cardiovascular disease being the number one cause of death. In fact every 38 seconds here in the United States somebody dies of heart disease. So certain of these market segments are projected to grow faster than others due to certain market dynamics. And we estimate that in our core CRV markets, they’re going to grow about 3% compound and annual growth over the next five years and moving on to about 4% compounded annual growth between now and 2020 and what we estimate to be around $28 billion market.

Now the traditional segment in blue called as existing markets on this slide are really comprised of coronary artery disease and sudden cardiac arrest for the most part. As you can see we’re going to be basically flat over this time period. And the growth really in this area is going to come from market segments that are relatively small today that we’ll grow fairly dramatically over the next five to 10 years. Now our goal within this overall market context is really three fold. First, to grow greater than market in the traditional segment. Second, to enter the new growth areas in terms of the emerging areas of interest that Ray covered with you. And then concurrently with those two things is to effectively address the changing landscape of med device purchasing, which is depicted here. And I think for those of you that have followed this space for a long period of time, historically competitive success was pretty much of function of basic criteria involving clinical features, safety and efficacy, performance, how well the device performed acutely in the procedure and some degree a product cadence, in terms of continuous improvement or derivative introductions of technology overtime.

Now with the increasing alignment of physicians in hospitals and the advent of value based pricing or capitative pricing for an episodic care that’s slated to 2012, we believe that the added criteria for success in this space is going to be deliver cost effective or comparative effectiveness in support of technology offerings. And this is becoming an increasingly important dimension for comparative differentiation and success with any healthcare systems of cardiovascular service line which at a very level is depicted here.

I think some of the key points that are implied today are listed at the bottom of the slide but a cardiovascular service line is absolutely essentially to a healthcare system’s economic health and profit, hospital administration we are experiencing is creating a lot more influence today on purchasing decisions. Product costs and procurements are becoming much more important in an era of compressed margins. And the consolidated supply of physician preference products are becoming increasingly attractive for these healthcare systems.

Now as a result, we developed a value proposition that we call the Cardiovascular Care Continuum. Now this in essence is a contractual bundling of a set of products and/or services depending on what the healthcare systems needs or desires are, that range from disease prevention and identification to physician training and education, the full line of products onto research and science as well as patient education and compliance. And this is where a healthcare system enjoys the economic benefit based upon a committed purchase of our entire cardiovascular service line portfolio, and in return we enjoy primary vendor status as well as revenue growth.

And we call this program the CRV CrossCare program. And the significance of this program, there is really three kind of key takeaways on this slide. The first one being kind of in the upper left. If you look in our CrossCare accounts, our revenue growth compared to non-CrossCare accounts is about 7% greater year-over-year. And that translates to tens of millions of dollars. The second key takeaway is that our plan for 2011 is to double the number of CrossCare accounts that we have in play today. And the third key takeaway is noted at the bottom of the slide, and that is we currently enjoy year-to-date what we call four to one competitive win ratio. And oversimplified what that means is that for every contractual bid situation we lose we win four.

And I think this success that we’re enjoying to-date is in part driven by our service differentiation. And this is where we lead the field with programs like Close the Gap, which is a program that addresses the disparity and treating cardiovascular disease in women and minorities. And this is a program that has been heavily adopted by many healthcare systems across the nation and taken into their local communities. And it’s also a program that where we have key affiliations and partnerships with associations like the Association of Black Cardiologists, the NFL, the Major League Soccer as well as the Women’s Heart Coalition. It also links to physician training programs for example our EP Fellows Training program is rated consistently by EPs in the nation as being the best training program available from industry today.

And it also links to research and science, whereas recently as last week in this city, a senior FDA official commended BSC for the endorsement and sponsorship and advancement of clinical trials that have actually changed the practice of medicine both in the fields of CRM as well as in CV vis-à-vis MADIT and SYNTAX. And last but not least, it links to patient education programs for example our Stentplus program is the program that we introduced some years ago that impacts over a half a million people today in terms of addressing the burden of doing a platelet therapy associated DES regardless of the brand of DES that’s implanted in that patient.

I also believe our success is driven by a market leading cardiovascular service line product portfolio. This is a portfolio comprised over a 120 unique products in about 60 cardiovascular service line categories. Fortunately, where the majority enjoy their number one or number two share position, and I think this is a reflection quite honestly in part of the trust that a physician has in those products, because in this industry you do not earn a number one or number two share position unless your product works in the hands of the physician. It is also enabled when some have entitled or called one-stop shop for a physician preference products from CRV.

And another way of depicting this is on this slide. This is a slide that’s a subset of what Ray shared with you earlier. But if you’ll note we’re the only company today to offer a complete cardiovascular service line in the categories depicted on this slide. Another important point to note is that the BSC number one or number two share rankings compared to the combined number one or number two share rankings from all of our four major competitors are about the same. And I think this is one of the key reasons behind the four to one contract win ratio versus our competition, that coupled with a very integrated, motivated and I think we’re one of the best commercial execution teams in the industry.

So now let’s turn to how we intent to stay competitive in our traditional segments by looking at our future pipelines. The CRV pipeline we believe is going to drive continued market relevance, competitive product offerings and sustained worldwide share growth. And I realize this is an I-chart but basically if you look at the key at the bottom of those slides you can see how these product launches are targeted to enter the various regions of the world. I would encourage you to take advantage of the product there out and for you here, where you can see a lot of these products, I’m not going to cover each of these in detail. That said, I am going to cover several of these which we view as key growth drivers starting with DES, where we are approaching our 27th consecutive quarter of leadership within DES as well in the cardiac lab.

And for those of you that have followed us and followed this space in the cardiovascular world, you know there is pretty unprecedented. We see the 2014 worldwide market about the same size as it is today, thus it’s still a very important market. And we see worldwide volume, and Ray kind of alluded to this and especially in countries like India, China and Brazil offsetting some of the ASP pressure that we see today. The future key market factors are depicted on the right. I think it’ll be very important in the future DES market that you have technology that lowers or reduces the Dual Anti-Platelet Therapy burden DAP, lowers Late Stent Thrombosis and as always in this space works are designed to improve the acute performance of the device.

I believe that we have the best DES pipeline in the industry today that addresses these factors and thus we will sustain our leadership for years to come. And I believe that that starts with our Platinum Chromium platform or Stent Series that you see depicted on this slide. And the success that we’ve enjoyed in Europe for example is depicted in peripheral. And the aspirational goal that they have for in terms of how they intent to grow the overall share within this platform is depicted on the right side of the bar graph. But one of the unique things that I’ve heard being in this space for about 20 years and its very rate that for the first time I’ve heard it and that’s where consistently the worldwide DES thought leaders not one or two of them, but most of them are saying that the Element series is the best commercially available stent platform in the world today.

And I think that’s in part due to the product features that are listed in this slide. Now what these worldwide thought leaders sight specifically and most frequently are the improved visibility or radiopacity, the radial strength and reduced recoil compared to the latest versions of competitive DES stent offerings outside the United States. Now Dr. Dawkins is going to take you through this lot more detail but at the end of the day I think this bodes very well for the US introductions of both the ION Stent which is known outside the United States as TAXUS Element as well as PROMUS Element.

Now we are targeting ION to come in the US about mid ‘011. This was the Element platform or Paclitaxel, ten years clinical experience over six million stents implanted in US. We believe that this stent platform in the hands of the commercial team here in the States will result in our overall DES share position improving in 2011 versus 2010. And then obviously with the introduction of PROMUS Element in mid-2012, that is a major platform for us for all the reasons that everybody here appreciates that will enable us to enhance our annual margin benefit by about $200 million plus. The Element series is going to be followed by the SYNERGY DES program.

Now we believe that this program will effectively address the future requirements that we’ve talked about. In other words, this is the stent were only the luminal side or the side of the stents facing the vessel is quoted with the polymer, both the polymer and the drug dissipate or disappear within six months. So in other words a product where the patient enjoys the benefits of DES clinical performance in terms of safe and efficacy but without the extent of that compliance or cost burden that they are experiencing today. Now if you think about this, especially in a world of two or three years from now a world where healthcare systems are going to be focused on a capitated environment for an episodic care, we believe this program – if we hit all of our design goals it’s going to be a very compelling offering.

I’m going to again let Dr. Dawkins cover this in more detail in his presentation. Let move onto to a couple of core CRV growth drivers starting with KINETIX Guide Wire. This wire has been recently launched. It’s designed as front line wire. I think the key attribute and product feature that we are hearing a tremendous amount of feedback on is the torqueability response within this wire as its compared to the other wire systems out on the market today. And this is a technology that some of you might know that we leveraged from a Neurovascular Division. And that we believe it has potential to be a leading wire within the cardiovascular space. So much though that in terms of a year-over-year 2011 revenue growth, we have a goal of increasing revenue year-over-year by 20% plus for this particular product segment.

If I move onto to our non-compliant post-dilation balloon called NC Quantum Apex, we’re receiving a fantastic reviews from around the globe on the performance of this portable [ph] balloon. It’s the flagship brand. We have the broadest product matrix available in both Monorail and Over-the-Wire. It comes in various offerings, we call it Push and Flex. But despite the worldwide ASP pressure that we are experiencing, we project our share gains with this product based upon the experience that we’re seeing today to drive revenue growth in the high single-digits for this particular segment.

So let me transition a moment to CRM starting with Tachy. One of the ProGenic platform which was announced in terms of its CE mark this morning to embrace INCEPTA, ENERGEN, PUNCTUA, ICDs and CRT-Ds, with a 4-SITE system. This system is going to continue the BSC advantages we believe in size shape and longevity. Advanced algorithms to reduce and minimize RV pacing and inappropriate shocks are available in the higher-end model called INCEPTA, as well as heart failure diagnostics. And as I think everybody knows we’re the only company today with an FDA approval for CRT-D in all classes of heart failure.

Now if you adjust for the year-over-year impact of the 2010 ship hole, we’re planning for worldwide 2011 Tacky revenue to grow in the low single-digits year-over-year. So let’s move on to CRM Brady. With the launch of the INGENIO platform – the INGENIO platform really sets up a cadence of launches commencing in the second half of next year of pacemakers and CRT-P launches for several years to come. Now those of you that follow us know that remote patient monitoring and management is an important aspect and a growing component of the Brady market that really we have not been able to effectively compete in today.

And we believe that this launch closes some of the key competitive gaps that we have in terms of RF Telemetry, remote patient management as well as MRI conditional over the next couple of years. And because of that, we believe that this launch is going to transform basically BSC’s brand from being perceived as primarily a Tacky both as company to a CRM focused company and deliver a very competitive growth oriented Brady platform that again that we’re projecting year-over-year worldwide growth in the low single-digits.

So let me transition now to the new market growth initiatives that my team is particularly focused on. They are a subset of what Ray covered with you. They are depicted here on this 3slide. Since, we’ve already talked about coronary artery disease vis-à-vis Element and SYNERGY, I’m just going to highlight the areas in peripheral and then I’m going to ask Joe Fitzgerald, the presenter of the Endovascular unit to complete the CRV story and focus on those areas in black.

So let’s start with Autonomic Modulation Therapy or AMT in short. AMT by definition is the modification of the autonomic nervous system for the treatment of CV disease. And research suggests that the stimulation of the vagal nerve maybe an effective method to treat heart failure, in fact there is several Japanese studies that have been done that demonstrates that vagal stimulation resulted in about a 74% reduction in the mortality or heart failure arrests. So we have internal program that’s progressing, we’re very pleased where it is in its development cycle. We see this as a very promising area especially if you think about a world of capitated payment systems and healthcare systems focused on the management of the cost and quality of care for an episodic care, especially when the 30 day re-admission rates for heart failure in the United States are estimated to be approximately 50%.

So this is a key area of focus for us. Another emerging market that we’re very focused on is PAVR or Perc Valve. Edwards Lifesciences and I think a lot of the analysts in this room estimate that this market will be a roughly about a $2 billion worldwide by 2015, 2016. We don’t disagree. In fact we see it growing to about a $3 billion market by 2020 and, it’s an area that clearly refers in some unmet clinical need in iporeable or high risk surgical patient. In interventional cardiologists it’s interesting that when you talk to them, they are exceptionally excited by this technology because basically it moves them from primarily reducing recent analysis [ph] and improving patient quality of life to actually preventing death with this technology.

Another closely related area is Percutaneous Mitral Valve. There appears to be a very strong tie between heart failure and progressive mitral regurgitation. It affects roughly about 2.5 million patients in US alone. No therapeutic option exists today, but there is several catheter-based technologies to treat functional MR that are in early development. And we believe that one or more of these will emerge in the years to come and eventually create what we predict to be about a $1 billion market by 2020.

The other segment of the structural heart space that we’re focused on is LAAO or Left Atrial Appendage Occlusion, 1.4 AFib patients with suboptimal drug therapy today. And although LAAO does not share AFib, it is an alternative to oral anticoagulation therapy or O for short for reducing stroke risk. And LAAO would be used in those patients with minor to high risk of stroke for home procedural risk outlays the bleeding risk associated with O. So we see this as a very strong fit for CRV especially for EPs and ICDs and then alliance kind of directly with our strategy of cardiovascular service line.

Now although on the structural heart space, we’re not going to be first to market in each of these segments. We plan to execute a strategy consistent with past successful BSC strategies ranging from the early days of Plain Old Balloon Angioplasty or POBA to the current era of DES that I call kind of an effective market follower strategy. And what I mean by that is we come to market and we’re going to come to market with a better mouth strap [ph] or widget even in terms of safety, efficacy, ease of use for how the device performs acutely in our physicians hand and you couple that with the strength of our commercial team, I think we can garner overtime like we’ve proven and we have been able to do in the past number one or number two share positions within the market.

Finally, let me focus on innovative ICD solutions. Ray touched on this. There are 750,000 people in the US at high-risk for sudden cardiac arrest that are indicated for an ICD but are not protected today. So we remain very focused on innovative solutions that can reduce the current barriers to adoption. We believe that future innovations must continue to remove those barriers but they also must add value and that value could come in the form of alternative Defib approaches or it could be a combination of AMT plus ICD that are also comes in the form of coming up with different ways to reduce the cost to increase global acceptance or receptivity of current devices especially with the launch of our ProGenic platform.

So when you add all this up in sum, we think it’s a strategy that spells growth. Growth driven by a plan to grow greater than market in the traditional segments vis-à-vis CrossCare with our value proposition of Cardiovascular Care Continuum coupled with growth that will enable us to have product launches that takes share in some of the core CRV markets as well as new technologies that change the game in those core markets. So that’s how we untune to really address the traditional segment of the CRV marketplace. And when we’re doing that concurrently, we want to transform CRV by entering the new growth segment that I’ve articulated. In short, to execute a strategy that quite frankly has been a proven recipe for success in BSC historically.

So on that note, let me ask Joe Fitzgerald the presenter of Endovascular, my right hand guy to come up here and complete the CRV story and talk about in more detail what’s happening on that side of the things. Joe?

Joe Fitzgerald

Thanks Hank. Let me begin just by introducing you to the Endovascular Group. We created this group simultaneously with the creation of CRV. So in this endovascular group of businesses, we have three business units and one product franchise. The business units are Peripheral Interventions, Electrophysiology and Neurovascular. And the product franchise is the IVUS group of products both hardware, software and disposable single use devices that serves interventional cardiology, peripheral and the EP groups.

Obviously Hank touched on IVUS in his presentation on the interventional cardiology side. We will not discuss neuro today due to the already announced planned divestiture. And we’ll focus this presentation on PI and EP group of businesses with north of $800 million in revenue. And with that let me go to the next slide and talk about sort of first the prevalence in the disease states within these businesses. What you’ll notice across both Peripheral Interventions and Electrophysiology, our existing business units. We have very large prevalent patient populations globally and the tens of millions of patients that have the disease.

The second thing I’ll note on this slide is that we have a very low penetration of the number of people who have the disease who actually get treated. And that’s been the – that has been the same for the past two decades. So in terms of opportunity just based on market growth and our market position, we are very excited about where we are at in these two businesses and the future trajectory of growth. Now for the first time we’re going to talk today as well about hypertension, the interventional management and/or treatment for medically refractory hypertension. Again similar to PI and EP, you’re talking about a patient pool of medically refractory patients that is probably greater than 10 million worldwide in developed markets.

Next what I’ll talk about on the next slide later is these markets in total today probably represents just north of $5 billion where we play. There are things that we do not include in our capture of the peripheral intervention space things like AAA, Venous Access and Venous Interventions, Venous Insufficiency that are excluded from this.

So with that let’s talk about where the markets are today and where they grow in our view over the next five years. We believe the base business for PI and Electrophysiology will look at a 7% CAGR over the next five years through 2015. We believe when you add some of these other growth opportunities that Hank and Ray already alluded to, mainly hypertension drug-eluting solutions for Peripheral Intervention and AFib. This market will be a strong double-digit growth in the 11% range over the next five years.

When you look at it from a decade standpoint, a decade from today, we see again consistent 7% CAGR in our existing peripheral and EP businesses that’s largely again traced back of the prevalence and the treatment rates in those businesses. But this market growing from $5.5 billion to $17 billion and when I get into some of the growth slides you’ll understand where we think that growth rate comes from and I’ll get more specific about the hypertension opportunity.

So similar to the chart that Ray and Hank put up, this is our position in the major product segments in both Peripheral Interventions and EP. Again the EP category – or the PI categories of stents, PTA, Vascular Access and IO that represents a worldwide market in excess of $3.5 billion from our estimations. We have solid positions for our Peripheral Interventions business. We’re particularly of our number one position in PTA and Interventional Oncology. We are not particularly pleased with our number three worldwide position in stents that’s not a typical position for a BSC business unit.

And then in Vascular Access, CTO atherectomy we have a third place position in that particular category. There are parts of that market that we do not participate in at the current moment. On the EP side, you can see that we have a number two position in RX which is the therapeutic RF ablation catheter segment of that market, DX stands for the Diagnostic or Mapping catheter market within the EP space and ICE is the Intracardiac Echo or otherwise known as IVUS for imaging in the right and left atrium. From that foundation of growth, we believe we can grow at or above market growth rates in the near-term via internal development and launch of our technologies.

Again I have the same I-chart as Hank. I won’t go through this slide in detail but I do want you to take away from the slide, the strong commitment to new product innovations in R&D that this represents. Whether you look at first, second or third generation products that are in the pipeline today with their follow-on products, we believe that we – this will form the basis for our market share either defense or market share gain over the next five years. On the next couple of slides, we’ll selectively look at some of those product launches. And in particular this focus will be on near-term product launches in both PI and EP.

Let’s talk about PTA balloons in the Peripheral Interventional space. Today that’s about a $500 million segment. BSC has been number one in that segment for 25 straight years. That includes a number one worldwide brand called Sterling that’s our Over-The-Wire and Monorail 18,000 Guidewire platform. What you’ll see from us in 2011 is the launch of two totally new balloon platforms, first of which is Mustang 035, that’s an 035000 Guidewire compatible PTA brand.

This will consolidate nearly six brands that define our [inaudible] 035 PTA segments. And again that targeted launch is for mid-2011. The next one I’ll talk about is the Panther 014 PTA balloon. To-date we have not launched a dedicated purposeful built BTK or Below-The-Knee PTA product. So we have taken our interventional cardiology expertise with Maverick, Apex, Quantum Apex and our Peripheral Interventional expertise over the years in 018 and 035 product categories. And I think we’ve done a great job with this in terms of best-in-class profile, best-in-class deliverability, significant rate inverse pressure and a full matrix. Something I should mention as Mustang as well.

One gap that we’ve had in our portfolio over the past few years which has limited our growth in the PTA segment is the lack of long balloons. So with the launch this year of Sterling long balloons, PolarCath long balloons, Mustang which comes in full range from three to 12 millimeters although we have up to 200 millimeters in lengths or 20 centimeters, as well as Panther which comes in a full complement of BTK sizes and lengths out to 220 millimeters, get those very excited and very confident that we can continue this run of 25 years’ worth of leadership in the PTA segments.

Now turning to stents, you heard me say earlier that we have a number three position in this particular category. This is the largest category within Peripheral Interventions. Its $1.4 billion via our estimate. We do have a strong number one position in balloon expandable stents across the world. We unfortunately though enjoy a number five position in self-expanding stents. So I’m very pleased to talk about two products one of which we’ve already launched in the EU. Let me begin with the EPIC Vascular Stent. This product was launched in early 2009 in the EU and the other OUS markets.

It is a workhorse Iliac SFA and Popliteal design. We are in the process of executing our ORION US IDE trail. And in Europe where the product has now been on the market for just short of 18 months. We’ve picked up approximately 20 share points as we’ve disclosed previously. So we’re very excited because this demonstrates that the technological competence that we have so strongly in balloon expandable stents that we can enter and take share in the self-expanding stent market.

Next let me talk about the INNOVA Self-Expanding Stent. This stent has been in our technology labs under development for five plus years. It is a purposeful built from day one, designed and engineered to sustain itself in the SFA environment. It’s important to note that many stents that were on the market in the Peripheral Interventional space have to compromise on particular unique features or technical points. We believe with the INNOVA, we have an outstanding balance of what is needed in the SFA, that being radial force, flexibility and factual resistance. As well similar to our PTA launches that are occurring early next year.

The INNOVA Stent will launch into the European Union in mid-2011. So again we’re not talking about something that we have deep in the valves of the technical team. This is something that is gearing towards in the EU launch mid next year. This product as well as our PTA products that I talked about before, all conserve as a foundational platform for any of our peripheral drug-eluting solutions as well.

And then lastly I’ll just mention that we are in the process of organizing our SUPERNOVA SFA trail for eventual entry via the PMA pathway into the United States and other markets like Japan. So bottom line, our goal here with our strength in balloon expandable stents and are also on progress with the EPIC Vascular Stent and the INNOVA SFA Stent is to significantly improve our number three position in the $1.4 billion peripheral stent market.

Let me turn now to category that we’ve not talked about a lot. This is the Interventional Oncology segment within Peripheral Interventions. This is approximately $900 million segment worldwide. We enjoy for the chart that I showed you earlier, a strong number one position in this market. There are many different components to the Interventional Oncology market that I won’t go into, but I’ll focus on two here on this slide. And these both are targeted towards the peripheral embolization market. So this is the pre-embolization either preoperatively or from a curative standpoint of tumors takedown of vessels from a vascular occlusion standpoint.

So the first one I’ll talk about is Interlock 035. This is a product that is planned for a launch again in mid-2011. It is waiting for long [ph] in its product development and scale up of the plant. This leverages a large amount of technology from Interlock A team or 018 which is more of a microvascular occlusion device. So we believe this Interlock 035 with multiple shapes, lengths and a heavy fiber content will take meaningful share in the peripheral vessel occlusion market once we launch it in mid-2011.

Another launch, this one will happen in the early part of 2011 as a system combining the Renegade HI-FLO Microcatheter, the number one microcatheter for peripheral embolization in the world with our Fathom 014 Microcut Guidewire. So we to-date, this has been a void and we have not have this product combined into one preloaded system. And again we will launch this in multiple markets in the first half of 2011. The key here is to take these two launches and then the other launches that I’m not talking about today but you can read about on our product cadence chart and maintain our number one position in a $900 million market segment that is growing from our estimates in the double-digit category.

Next let’s – I’m going to switch our attention for a second to some of our products within the EP or Electrophysiology category. As I showed you on the earlier slide, we have a strong number two position in RF ablation catheters. In fact if you look at open lab systems, so those accounts and those hospitals that are not tied in the razor/razor-blade model with the cardio mapping system, we’re actually number one in ablation catheters worldwide via our Blazer and our Chilli platform. Chilli is our closed-loop irrigated cathether that several years ago we converted to Blazer platform.

So we have been very happy with our technical team’s progress on a Blazer Open Irrigated RF catheter. This leverages our decades of experience with our Blazer bidirectional steering torque response and tip response as well our experience with Chilli over the past decades. What this actual design gives is optimal tip cone which we believe is a key unmet need with other Open Irrigated systems in the United States, again leveraging the Blazer bidirectional steering and/or exceptional tip control. Both, this product we’ll launch shortly in the EU and we have both Flutter and AFib trials planned for this product to support approval in the US, Japan and other key markets.

The goal here is to get from the number two position that we have and to leverage this type of technological innovation to become the clear leader in RF ablation catheters for AFib, Flutter and other SVTs and DTs. So now as Hank said, I’ll cover three of the growth opportunity areas that we’re on his and Ray’s slides. And I’ll specifically focus first on Atrial Fibrillation natural follow-ons to the Blazer Open Irrigated, then I’ll talk about drug-eluting solutions or Peripheral Interventions and then I’ll close with hypertensions.

It’s important to note that collectively across each of these areas, we’re talking about five year near-time market opportunity in these spaces north of $5 billion. So first AFib, we believe will be a $3 billion market by the time we close out 2015 worldwide. We believe hypertension to be a $1 billion new market opportunity. And we believe that drug-eluting solutions can be a new $0.5 billion segment within the Peripheral Intervention space.

So let’s talk about AFib. So building on what I talked about on the Blazer Open Irrigated platform, we have multiple what we call, lesion assessment technologies whether they focus on improved mapping, real-time lesion assessment or visualization and contact sensing, all of which we believe will play a role in improving the safety, efficacy and efficiency when you’re ablating in the left atrium for AFib. So again that market $2 billion today approximately grown to $4.5 million and we believe we have both the internal and external focus to bring additional technologies onto our market leading Blazer platform.

Turning for a second to peripheral arterial disease and talking about drug-eluting solutions and drug-eluting balloons in particular. Again I said earlier that we believe that this is a $1 billion opportunity in itself, and I’m talking about drug-eluting solutions in PI for 2015. We believe that can grow to north of $5 billion when you look at the progress of this over the next 10 years. This is largely driven by and it’s a commonly held belief there is no gold standard when you’re talking about treatments in the lower extremities, whether it be SFA, Popliteal or Below-The-Knee Tibial interventions.

If you compare the current outcomes with what we’ve achieved in PCI, with DES, we have a long way to go in Peripheral Interventions and we believe we can leverage our technology, again our number one position in PTA and a world-class drug-eluting team that fortunately we’re able to borrow from the interventional cardiology space with Hank’s approval of course. But again no gold standard. This obviously will be targeted right at TOR, right at patency rates, right at reducing amputation rates as we progress down the SFA, Popliteal and Tibial indications.

Next and last on the growth opportunity, let’s talk about interventional hypertension. I said early in the presentation we believe that this is a very large potentially massive patient pool of people who to-date have not been treated from an interventional standpoint, whether it be ablative therapies or stimulation therapies. We all understand this link between hypertension and other cardiovascular mortality and morbidity. Its commonly known that if you each 20 millimeters of hemoglobin that you actually increase your blood pressure, you get a two fold increase in CV mortality.

And we know that in this 10 million patient population these are people that are in the system, they’re currently seen by their primary care physician or their cardiologist. They’re on multiple medications, and yet they still have uncontrolled hypertension. Going back to the numbers, again we saw this – we see this as a $1 billion opportunity in the next five years growing to a potential – greater than $5 billion as you penetrate the medically refractory patient population.

And I think from our perspective whether it be a catheter approach, an ablative approach or stimulation approach, those are key core competencies within Boston Scientific, Electrophysiology, Interventional Cardiology, Cardiac Rhythm management or Peripheral Interventions. We’re obviously very excited about the potential for this new therapy for previously untreated from a minimally invasive standpoint patient population.

So in closing, I talked about our short-term priorities and I’ll focus on PI first. Our priorities are to growth stent share. We’re not happy with the number three position, and we believe the worldwide launches of EPIC and INNOVA over years will help us there. And we need to defend our number one positions in PTA and interventional oncology in those two markets combined are in north of $1.4 billion today. We also need to enter and lead in the interventional management of hypertension and in drug-eluting solutions.

On the EP side, again talking about our Blazer Open Irrigated, that has been a big void in this business unit’s portfolio. We’ll launch early in 2011 with the Open Irrigated into Europe. We need to expand indications for our ablative therapies in the US and we also need to expand for what, Ray and Hank already talked about our OUS presence. So that we’ll do that the way you probably have already guessed more feet on the street, more sales, more clinicals in key OUS markets. And then we have to go beyond our Blazer Open Irrigated platform and get into lesion assessment, contact mapping, etcetera. And those are all in our current internal development plan.

So with that I get the distinct pleasure to move everyone to break, right outside these doors. I’ve been reminded by Jackie and the team that it will be a strict 10 minute break. So we will begin again in this room in 10 minutes. Thank you very much.


Jeff Capello

Before I introduce our next speaker I just want to let people know that we are planning to do about of Q&A session after Ray wraps up his concluding remarks so if you could keep you questions ready to go including the people on the web cast. We will do our best to get to most of the questions. Let me now introduce our president of Endoscopy business Mike Phalen.

Mike Phalen

Good morning, so I’m going to follow a very format and provide you a little overview of the endoscopy business. Just to put some clarification this is a business that is involved with the use of flexible endoscopy so we are both GI and Pulmonary business. It exceeded a little over $1 billion last years and one of things that I think you will take away from this business it’s very balanced with revenue approximately 50% from the US and equal contribution from the international side and yet similar to the presentation this morning. We see very significant potential in the international business particularly in these emerging markets. We do have a very powerful GI device product line. We have market leadership throughout the world and I think that line similar to our CRV business represents a very compelling service line opportunity especially in light of GPO IDN pressures that here in the US and increasing in outside market outside of the US.

This division has benefited greatly from the accelerated investment in our business particularly in our R&D area and when you combine that accelerated R&D investment with I think significant business development opportunities we really look at an opportunity to continue to drive high growth in very core in strategic markets. Our vision is really about sustaining, growing and continuing our global market leadership. We are going to do that through accelerated investments and sales and marketing capabilities particularly outside the US. And that has really complimented nicely by a very attractive and innovative device portfolio combined with real market expansion opportunities in the business we are in today. And then I think as you will see in this presentation we are surrounded by some very interesting market opportunities that I will take you through.

Now we compete in a very broad large and diversed array of diseases. When I talk to folks about endoscopy you often think about it as a primary diagnostic tool for patients with GI or pulmonary cancers but in fact we have a broad array of tools and devices that go across a wide variety of disease. On the recent acquisition of Asthmatx we bring the refractory asthma market into play. This is a compelling opportunity for us, I’ll detail a little bit further in the presentation but it really represents that refractory drug use market that Ray pointed out with an interventional minimally invasive solutions. Of course GI and pulmonary cancers are prevalent and we have a portfolio of devices that are used predominately in the diagnosis treatment and in some cases palliation of those diseases.

One of our biggest business is our pancreaticobiliary disease intervention. This is the diseases of the bile ducts, the liver, the gallbladder and this is a very interventional portfolio of devices that are used to gain access and to treat those diseases. We also compete in an area we call GI bleeding, this is an important area because there is a tremendous amount of endoscopies being done throughout the world and GI bleeding is a disease that can be very deadly and endoscopist today have the first line of therapy in preventing bleeding and preventing those patients from going to surgery. And then an area that we don’t talk a lot about but it’s important particularly in key markets outside the United States like Japan for example is nutritional support. So this is an area where patients cannot see themselves they either disfasia, can’t swallow and we make an array of instruments devices that are used to help provide nutritional support for those patients.

All in all you are talking about cancers, you are talking about cure and quality of life disease and I think Boston Scientifics portfolio offer both diagnostic, palliation and therapeutic intervention using our mission of being a minimal invasive company.

So here is how we see the markets, the blue kind of represents the core endoscopy market as we describe it today and we see that business growing around 5%. Those markets growing around 5%, we color the green and this represents these emerging markets that we think are really going to be important for us areas like the Asthmatic market things like obesity and diabetes that would manifest itself in an endoscopic intervention. And then a third area that I think is a really compelling and I’ll take you through it in a few moments is an area we call endoluminal surgery, your surgical endoscopy. And what we like about these things as we fund we make moves to this markets, we see that this markets have the potential to really, really grow in the next five to ten years. We believe that we have a plan to lead and to innovate and be a part of both of these sections.

Now similar to the slides you’ve seen this morning, we have a very strong product portfolio with a very enviable position of leadership in every single category that we compete in and I won’t go through all the details of these areas but I think the real takeaway here is that when you have a broad array of tools and devices and you have leadership like the endoscopy business has. It provides a very compelling opportunity for servicing value similar to that which we see in the CRV model so with the number one position in almost every category we are an attractive place for the economic buyers and obviously we have a tremendous opportunity to leverage the breadth of that product line in these markets.

I mentioned the opportunity of international growth and we have and we intend to make further investments in our global business stocks. These are markets that still has tremendous growth and opportunity, Asia particularly represents an area of the world in which Endoscopy the field of flexible GI Endoscopy is exploding so this is an area that we are going to make significant investments and an area that we will execute with lot of the products that are in our bag today plus begin to regionalize some of our portfolio to match up in those regions. We are also making incremental investments in our [inaudible] model which is an area that has continued to be a very strong contributor to our global growth and we look at South America particularly the Brazil market as Ray pointed is a very attractive. There are lot of endoscopy and Interventional Endoscopy being performed in that part of the world. I think the combination of sales expansion plus our service line really provides a winning formula for continued growth in the international regions.

So let me just take you through a few of the technology that have in play the last couple of years just to bring you a little bit closer to the world of Endoscopy. For many, many quarters now we’ve talked about the uptake in the market acceptance of our WallFlex Biliary stent, our WallFlex Esophageal stent and our WallFlex [inaudible] stent. This is the third generation of self-expanding Stent technology that we’ve developed. It’ clearly the market leader we’ve doubled the size of this business in the United States over the last couple of years and what we are seeing now is the beginning of that uptake in key market outside the United States. One of the things that we are most excited about is as we enter 2011 we just received CE Mark in the European market for Biliary indication. So when I talk about market expansion it’s essentially bringing the platform that technology and expanding in the current disease. So we go from being a company focused on tailiting [ph] cancers to a company focused on providing palliation for benign disease and that really will change the game so this is going to be a tremendous growth driver for us in the years to come.

Another technology that we spend a lot of time the last several quarters referencing is our resolution clip technology, this is an endoscopy [inaudible] catheter and it is used at the time of an endoscopy to treat an emerging GI bleed. GI bleeding can be described as upper GI track bleeding or the bleeding in the bowel and what’s so compelling about this platform is 10 years ago if you had a massive GI bleeding in your GI track you would be Endoscoped and then you would be send to the operating room for surgery. Today Endoscopies throughout the world benefit greatly from this technology because they can apply this clips to the bleeding side and essentially definitive hemostasis and as you can see from the grass our business has grown about 61% since we introduced it here in the United States targeting GI bleeding, closure opportunities.

It’s a true interventional tool that enables the Endoscopist to really treat the patient wonderfully. And as we’ve seen with the preference of cardiovascular meds this presents a problem to the healthcare institute because of the need for endoscopy procedures for diagnosis and so we really, really like this platform and I think this will grow beautifully outside the United States and we continue to introduce it into new markets. We have a similar pipeline one of the benefits of the endoscope division in this past few months has been a beneficiary of accelerated investment in our R&D portfolio and we really like this portfolio because it brings a lot of the ideas that we always had now into focus and we think that this product opportunities fill important gaps in our portfolio and allows us to enter some new market and allow us to refresh, re-green and revitalize our already market leading franchisee so it’s really a balanced portfolio of both [inaudible] and new segments.

So let me just take you through a couple of examples of the technologies you are going to be seeing this is one that we are very excited about this is – our first entry into a new market space within the endoscopy business called the expect endoscopy ultrasound needle. This is using an echoing imaging endoscope which allows the endoscopist to participate much more aggressively in the staging, identification and interrogation of early stage cancer. In the GI track this is market that’s one of the fastest growing segment in our core endo business and we expect that this technology will take significant market share. What I’m really excited about is this is the first generation platform that portfolio map you see has second and third iteration that we believe will move from being a diagnostic type of platform to a therapeutic interventional platform. We will be talking about that over the next couple of years. So we are really excited about this particular technology.

Another key area that you will be seeing is the second generation of our market leading SpyGlass direct visualization system just to give you a little bit of perspective on this. The practice of cholangioscopy which is essentially going into the bile ducts and imaging the bile ducts itself has been around for 30 years. We have taken catheter-based technology leveraging some of the work from our EP division with steerable catheter platform technology we brought optical imaging into play and now we are enabling the endoscopist to not only access the bile ducts with catheters and wire but to now to stick an natural catheter that can image and see. And this is a very nice complement to our BILLARY portfolio. There is tremendous opportunities the use of this platform outside of the GI track and we are going to bringing a second generation platform here shortly.

Let me setup I want to show a short video, let me just set this video up you are going to see endoscopy transverse the [inaudible] drop down into the stomach and then exit into the first part of the small bowel. You will see the Pancreatic Biliary and you will see how the SpyGlass platform works. So here is the catheter coming down, it’s going to access the biliary system here in a moment. This is SpyGlass catheter itself now going up into the bile duct and looking for problems either stones or tumors. And this case we’ve identified a tumor and then bring a Biopsy Forceps to take an actual tissue sample for pathology.

Now we are looking at a stone and we are fragmenting that stone with a electrohydraulic lithotripsy and or laser therapy to break up that stone. Now what’s very important about this technology is it’s single operator one physician can do this technology. The old 30 years of cholangioscopy required two physicians to operate the platform. So we are very, very excited about our next generation SpyGlass platform.

Another area that Ray pointed out one of our corporate focus areas is our endoluminal surgery effort in a technology we call direct drive endoscopy system. I think this has a tremendous potential and its potential disruptive technology. Let me just set it up for a moment, this is a endoscopy platform that allows the Endoscopist whether it be a medical Endoscopist or surgeon to introduce endolumine two hands of operation. Today one of the hot areas in the surgical endoscopy arena is singe port laparoscopy. We believe that this technology has the potential to play not in an endoscopic intervention like you see in the diagram but also as a laparoscopic platform. And if you combine laparoscopic with endoscopic then you could put your arms around this area that we’ve heard about for the last several years natural orifice transluminal endoscopic surgery so this is our interventional advanced interventional play.

What we liked about it it brings us to the leading edge of the interventional endoscopic world and it also puts us potentially into the world of laparoscopy in which the market obviously is much, much larger and much more substantial. So we really like the interventional capability that we can deliver with a flexible endoscopy platform that plays in maybe a couple of market segments. I’ll end on the most recent acquisition that we described which is our Asthmatx acquisition, this is a very interesting technology and something that we’ve been watching for several years now. You can see that the markets going to be quite large for us and we are going to have a very unique opportunity to develop this market with the team from Asthmatx. There is about 6 million to 8 million patients in the world that suffer from severe asthma, these are patients that are refractory the traditional drug therapy. They are patients that cost the healthcare system a lot of money, lots of time away from work, emergency room visits, hospitalization etcetera. This company developed I think a clear approach to an unmet clinical need and it’s the first device based asthma treatment made available or approved by the FDA and we think it has the potential overtime to actually reduce refractory drug use.

You see the catheter system which is essentially a basket, a catheter basket and of course the RF box [ph]. I think this is important because this really speaks to the strategy statement that Ray made at the beginning this is technology we understand. It’s a call point that my division is already involved in right and we believe that we have a tremendous opportunity to leverage our market development expertise in bringing the two forces together and really create a wonderful new growth segment for the endoscopy business. They’ve had four clinical trials today this was a PMA and we’ve had very good consistent data throughout all four phases of their trials. The AIR2 trials was the pivotal trials there was about 300 patients with double-blind, randomized and sham-controlled trails and as you can see from the data points the 32% in asthma attack due to the exacerbations. I thought the data was compelling 84% reduction in patients, visit to the emergency room, 73% reduction in hospitalization and obviously a nice reduction in days lost from work or school.

And essentially what you will see here is a device that is going into the airway smooth muscle providing RF Ablation and we believe that has a really positive effects on the ability or restricts the ability to the airway to constrict and therefore it provides a better [inaudible]. I’ll also show you a video here in a moment you will see on the diagram here you have an endoscope this is referred to as a bronchoscopy. It could be passing the transorally or transnasially into the airway and then this particular technology we have three treatment sections which we the lower lobe of the lung in one section, the second lower lob in the second section and then the upper lob in the third section.

And let me share with you a video of that technology so here you see the airway narrowing this is the asthmatic response. Further constriction making it very difficult to breathe, here the endoscopy is advanced into the lower right hand lobe of the lung, a catheter will be deployed through the working channel of the endoscope the lead array is touching the mucosal [ph] or the muscle and now we will step on the RF energy and we will do multiple segments drawing back to catheter slowing in ablating the smooth muscle. And what we believe will have is you will get far less constriction of that and therefore have a very positive on the patient.

So let me end there, I think we’ve got a wonderful opportunity in the endoscopy business; we’ve got some unique growth opportunities in our core business. We have fascinating opportunities around our business I think it adds up to a very compelling story for the endoscopy business of Boston Scientific. It’s my honor to introduce our net speaker, Senior Vice President John Pedersen who runs our Urology and Women’s Health business. Thank you.

John Pedersen

Well good morning; it’s my great pleasure to share with you this morning our plans for growth in the Urology and Women’s Health business. First of all if we can advance the PowerPoint slide – yes there you go. First of all let me explain what we mean by urology and women’s health and it might be useful to start by contrasting to Mike’s business in endoscopy. The endoscopy business for Boston Scientific is $1 billion in sales, urology and women’s health is $500 million yet we serve the same size markets today. Today both those markets – serve markets are two billion, Mike and the endoscopy team have achieved 50% rough worldwide market share, we are owing about 25% market share today in urology and women’s health. And the other thing that really differentiates the two businesses is that Mike’s team has a very balanced sales US and International with about 50% of the sales coming from the US, 50% international, we have not been successful doing that yet and have plans to grow internationally. Right now about 75% of our sales are from the United States market and only 25% internationally. However this is a business for which we’ve gotten significant growth, 12% compound annual growth over the last 10 years. We’ve done that through four franchise, let me briefly explain those franchisees the first is kidney stone or stone management, this is the removal of kidney stone from the urinary tract.

The second is Benign Prostatic Hyperplasia or treating the prostate that leads – due to the swelling of the prostate which leads men’s to urinary symptoms. The third franchise is abnormal uterine bleeding so treating women with heavy menstruate periods and doing it in a minima invasive way that avoids having to do hysterectomy. And the final segment we call pelvic floor and that’s really treating two disease stages that’s stress, urinary incontinence and pelvic floor pro-lapse. So again as all the presenters have said this morning we have – we believe that these markets are poised for good growth and the stone management would share a few fun facts with you in the stone management business, six million patients worldwide. Over six million people experience kidney stones, only 15% of those patients are treated with our technology Ureteroscopy with Lithotripsy and we’ve got great opportunity to expand that penetration by providing easier to use tools and better technologies and you will see an example of that a little bit later into my presentation.

Another interesting fact on pelvic floor side, one million women are surgical treated each year with some type of pelvic floor disorder so it’s a very big market. And then similarly with abnormal uterine bleeding 20% of pre menopause women are affected by that disease. So like I said today we participate in this blue segment which is $2 billion market segment growing at 6%. What I think it’s very interesting is that today markets – adjacent markets that we can expand into today essentially similar technologies than what we saw today, the call point the same customers. Those markets are almost $1 billion in adjacencies and those adjacent market have even rapid growth of 13% so the entire market where we could participate today with the existing channel is growing at 9%. So I believe that this business which is experienced two digit growth in the past can get back to double digit growth really by two things one is increasing our market share in existing markets and entering adjacent market segments through both organic R&D and do business development.

And once again given the demographics in our business over the longer term, 10 year perspective I believe this double digit growth can be sustainable. So now this is our market position slide as you can see it’s a little bit different from the slide you saw from Mike. And this is – the point I was making about our opportunity to expand market share. In the stone management market we are the clear global leader with over 50% market share but for example in pelvic floor on a worldwide basis we are only number three. So I’m optimistic about our ability to take market share due to our technology and our value added programs. For example in the pelvic floor market in the United States we are already the number two players. We’ve already surpassed J&J. We are the number two player in the domestic market with 25% to 30% market share but in Europe in pelvic floor we just began to launch our products and we only have 3% share in Europe. So we are just getting going in other parts of the world similarly with abnormal uterine bleeding we are on the verge of launching some really exciting new technology which I’ll talk about in the market in a moment which I think can enhance our market position well rapidly the number two.

Another thing unique about the urology and women’s health business is we’ve done a lot of deals in the past, these deals have been successful in adding technologies, in creating adding value added services to our customers and we are going to continue to do that going forward. One of the deals that we’ve done is an example of how to add value to a customer other than with new technology. We’ve partnered with a company called the Bladder Health Network, what the Bladder Health Network does is bring your dynamic testing into the physician’s office and the benefit of that is that the physicians without outright buying the capital equipment, without getting having a full time lab technicians and after their patients diagnostic therapy which helps the physicians decide whether or not to do a sling much more accurate. We found in these accounts where we have co marketed the Bladder Health Network, our sling business is two times to three times what it is in our other markets – in our other accounts.

Like I have been saying, leadership is not just about the technology another example of that is how we are using the internet and e-marketing to drive leadership. This is the pelvic floor institute that Ray mentioned earlier, this is the first and most comprehensive user website in the pelvic floor area, what it offers is a consistent set of training materials to learn the techniques to implant our products but it also has surgical videos which physicians are finding very useful to look at and refresh themselves prior to going into the OR. It also has an extensive clinical library and a forum for physicians to exchange ideas and tips and techniques with one and other.

We just launched Pelvic Floor Institute in February in the United States. We already have registered 30% of all pelvic floor physicians in the United States. We believe that number will be 50% by the end of next year and they are just not registering. They are actually using the site. Our statistic shows that these physicians on average use the site about one hour per month. What exciting about this is we will be taking the Pelvic Floor Institute international 2011. This is a similar chart that you’ve seen about product [ph] I guess the real point here is that we have increased the R&D for urology and women’s health by 25% this year and we intend to sustain that level of investment in product development. What that gets us across markets is about five to six product launches. And we are very confident that’s a pipeline capable of allowing us to take market share to growth from 25% player to get to that 50% position that Mike enjoys overtime.

We’ve had a successful track record of previous product launches. In the 2008-2009 timeframe we launched about six new products we launched Uphold System, the Soloist Single insertion sling, the Prosorba shift [ph] for HTA and the Pinnacle PFR kit. In 2009 those product launches contributed to 20% annual growth in our women’s health business and 30% annual growth in the pelvic floor franchise. So we know how to get the technology right, we just need to make the proper investment to provide those superior tools and take market share.

Going forward, in 2010 we expect new product revenue to account for about 20% of sales. Going forward we are going to drive that number to about 30% given the higher R&D investment. Another – one of the exciting launches that we have next year is Pinnacle Light, this is a derivate of our Pinnacle and Upholds families. We are going to launch this light mesh across the entire pelvic floor repair family of products in 2011. Our growth in pelvic floor has been in low single digit this year driven by the economic times and pressure that is put on the elected [ph] procedures we see that recovering hopefully in the back half of next year. And we believe that this product launch will enable us to take share. It also one time unique or interesting about our market not unique to the endoscopy business but unique to some of the other medical device markets is we are still able to take price with new product launches.

So that brings us to Genesys HTA which is one of the most exciting product launches in the urology and women’s health business in quite some time. This is a technology that we’ve spend five years and $35 million developing. The market to treat abnormal uterine bleeding is about $400 million plus market today, we have only despite inherent advantages of the Genesys system we have only captured 10% of that market. And the real reason for that the Legacy Genesys System was really hard to use. And we have significantly improved the ease of use of this system and I think that will allow us to expand our market. We plan to double our sales in AUB at least over the next four years.

I have a video that I would like to use to show you why I’m confident that we can take market share with Genesys, there are three technologies in the market to treat abnormal uterine bleeding. One of the fixed metal array that deliver RF energy, the other is hot saline encased in a balloon and then there is our technology which has free flowing hot saline. And what you will see in the video is that there is some advantages of that free flowing hot saline in terms of the physician’s ability to see the anatomy while they are treating and for that free flowing hot water to circulate throughout the uterus. So here is the Prosorba shift [ph] it’s entering the cervix, the physician is able while the [inaudible] is called to do a diagnostic procedure to look around the uterus and then struck the Genesys to heat the saline. And once again the key takeaway here is as you see the endometrial lining of bleaching is that if that free flowing hot water can go completely throughout the uterus. And what’s important about that is that about 30% to 40% of women have uterus with abnormal anatomy either they have large submucosal fibroid or they have a large uterus. None of the devices including ours are indicated to treat those women today. As Ray mentioned earlier we are going to be starting clinical trials in 2011 to go after those indication because we think we are unique positioned with our technology to successfully treat those 30% to 40% of cavities. So if we just get our fair share of the business once we get that indication that’s a 30% to 40% market share in what will be a $500 million market.

We are innovating in the stone market as well one example of that I alluded to before is the Backstop gel. The one reason why only 15% of the 6 million patients who get stones every year are treated with Ureteroscopic is that we still have some room to go to make the procedure easy for physicians to perform and one thing that physicians today are concerned about when they place Ureteroscopic and use let’s say laser to blast the stone and make it smaller and remove the stone is that the laser energies can sometimes chase that stones back up into the kidney is called to retropulsion. So what the BackStop gel is it is a gel that dissolve the biocompatible gel that dissolve on its own in 45 minutes. It dissolves almost immediately with a flush of cold saline but that gel can be placed behind the kidney stone and used as back stop so physicians don’t have to fear that they will chase that stone all the way back into the kidney so this is a very exciting product for us and we envision going into full launch in 2011. It’s going to I think make Ureteroscopic more simple for physicians and it would give us a great opportunity to sell through our other products.

So finally I talked about there being an almost $1 billion in additional markets mostly in women’s health that involve technologies that we sell today to customers that we sell to today. Those markets include uterine fibroid, hysteroscopy, fertility sterilization treatment, incontinence and overactive bladder. We have both internal development programs and new business development programs and you should expect and hopefully we will enter some of this markets in the next 24 months or so. And once again we can leverage our large sales channel and our strong brand to sell these products. So in summary this is a $500 million business in $2 billion market and when you adjacencies of a $3 billion market we are well poised to take market share to grow our international business and to do some exciting M&A tuck-ins.

Now it is my great pleasure to introduce the President of our Neuromodulation business Mike Onuscheck.

Mike Onuscheck

I appreciate that. Well it’s actually an honor to be able to step on stage and speak to you today regarding the neuromodulation business. This is a new business that we are introducing here publicly so I’m going to spend a little bit of time educating US investor community on why our technology is so important and what it is enabled us to do as we enter into a market space that had leaders in this industry who would been in the industry for 30 years and 20 years respectively and have allowed us to advance as quickly as we have. So as you look at this market, today the SCS market is a growing market we have about $300 million in annual revenue. We’ve been able to capture 30% market share in under five years. We have just started deep brain stimulation program and I’m going to spend some time talking to you about that program, we implemented our first patient in the Vantage trial last Monday in Koln, Germany and we are extremely excited about what these two platforms allow us to do in the neuromodulation space.

It’s quite simple when you think about the opportunity that lies ahead of us and the number of patients who refractory to pharmaceuticals and other procedures. The neuromodulation space is one of the great opportunities to invest in the future of medicine. Today we treat pain, chronic pain for patients and I think if you sitting in the audience today you probably know somebody who is in chronic pain or has suffered pain for a long time. The challenge that exists is there is not a specialty out there like cardiology or orthopedics or neurosurgery that directly address this pain population so many of these patients go without treatment and they get into a drug regimen that actually can potentially destroy your life. What neuromodulation does is it reduces the amount of pharmaceutical intervention that are required and a spinal cord stimulator actually restores the patient’s life gives them the opportunity to get back and have a more productive life. The second opportunity that we are really focused on right now is deep brain stimulation. Now we are starting with movement disorder and the reason we are starting with movement disorder is we can take many shorts on goals here in the brain but why don’t we take one that is proven that we now will be successful in our clinical trials and assure us entry into this and then allows our [inaudible] to point us to the next opportunities that are available and those things that we believe are going to actually bear fruit.

If you look at where the market is today, the market today in neuromodulation is about $1.6 billion. We believe that this is going to grow over the next five years fairly rapidly and that’s going to be combination of growth in the SCS world and the growth of the DBS world and I just want to remind everybody how small the SCS market was when we entered in 2005 it was about $350 million. So we believe that having competition and raising awareness in this markets can drive the neuromodulation segment and as we look forward into the next 10 years the number of opportunities that are ahead of us and the exploration that is ongoing today and the feasibility work that is being done in all these segments leaves us to feel very promised that we can seek growth rates between 11% and 15%.

Well everybody else puts a massive iChart I’ve got this, right, we are in one place. Right now we are the small group we are number three in our market segment I would like to remind you though that we’ve only being in this segment for the last five years and when we started out here I remember sitting around the executive table in Boston joking about would there ever be opportunity for my organization to be number one and I’ve never been closer to a handful of share points to number one in SCS business and I’m today. And during that period of time there has been a number of transition for our organization and what I will tell you is my senior leadership team is unbelievably focused on our mission. And because of that focus its enabled us to really take on very talented organizations that we compete with.

So with that being our history the story that I’m going to tell you about the future probably has some credence. This is currently what we are doing in our market space and you will be able to pick up some of this information in your printed copies. We are very excited about where we positioned ourselves in the last couple of quarters with some new products additions. We believe as we enter into the DBS space down here we have an opportunity to begin selling our DBS product in 2012 in Europe. We are very excited about the opportunity that we are being presented with here in the United States with the FDA and our communication with the agency to start our DBS clinical here in the United States. And I’ll just point out that I’ve got a bunch of stuff that I don’t want to talk to you about yet because I don’t need everybody to know what I’m doing.

So how did we get to where we are, right, you enter third into a market place. Everybody had us pegged at about capturing 50% share when we entered today we are at 30. The only way that you can do this is if you have superior technology that you bring a value proposition to a marketplace and people actually believe what it is that you told them that was going to do, it actually does it. And so when we release the precision system and then the Precision Plus system, the value proposition we brought to the marketplace was precise control because our devices are perceptible which means the patient can actually feel it and report where they feel it. The ability to control current is incredibly important, it is what the patient feels and it is one of the few devices that are in the marketplace in medicine where you actually have a perceptible event that occurs.

So we deliver this system to the marketplace we talk all about this thing called multiple independent current control sources and what happens is it actually works so I want to describe to you the difference between what we do with our technology and what our competitors with their technology. Our technology is a multiple independent current controlled device which means that I’ve got a number of light switches. If we think about this as light switches, my competitors have one light switch it’s either on off or half way on.

If you think about my system I’ve got 16 light switches but instead of them being light switches they are dimmer switches which means that I can control the amount of energy that goes to every single contact that was our value proposition when we walked into the marketplace and everybody said well show us your clinical data. Well we are a small startup company and we didn’t have a great deal of clinical data so we had the guts to just put into the marketplace and I’m going to run a video and this video is a graphic representation of what actually occurs first. Can you run that video for me?

So what’s being represented right now are the electrical contacts of the electrode that’s in the epidural space, this is in the spinal cord. These nerve roots that are coming out are dorsal roots if you pick up one of those its painful stimulation for the patient. What you are seeing is our ability to pass electrical current back and forth until we target the exact and precise area that the patient wants the therapy. I view this as probably the most significant advancement that’s occurred in neuromodulation in the last 30 years. What we’ve been able to demonstrate and I want to say one of the things what’s great about our technology is we can actually go to our patients and we can say what is it that is painful for you.

So if this patient and this is actually a clinical study that we did. Let me orient you to the slides, these are two implanted electrical leads that’s in the epidural column. What the patient does is they draw where they feel the stimulation and right now the stimulation is 100% on the right lead and zero percent on the left lead and the little pink denotes where their pain is being covered where they feel the sensation. Now if the patient were to report that they have low back pain across their lower back and they had pained down their size both in the front and the back. This placement of a lead with one of my competitor’s system, this would be one of the options that you had. But if we advanced the current and move some to the left hand side, see how the pain paresthesia shifts for this patient. And right here where we have 40% of the current on one electrode and 60% on the other is exactly where the patient wants the therapy that’s how we do it.

If we continue to change therapy look what a 50-50 spilt would be. If my competitor did this they would have missed what the patient wanted, if we continue they are going to continue to miss and if you get over here to 100% of the current on the left hand side all I’m doing is picking up the legs on the left hand side. This is a clinically relevant difference between our technology and what our competition does so now I want to talk to you about what we are doing with the technology that’s being so relevant in the spinal column and we are going to bring that to the brain. And I love this analogy because we are in Manhattan today but the real estate in the brain is exactly like Manhattan real estate, it’s really, really expensive. It’s really, really close together and if you do something wrong in the brain your neighbor gets angry and they kick you out of your coop and you are looking for a new place to live. The exact same thing happens in DBS, the target that we are trying to hit is about the size of jellybean. We are trying to stick a small rope of laceration [ph] into that jellybean. If you are off to the side one way or another you get an unwanted side effect. With our technology we are going to be able to stir the current more accurately into the target so today we’ve got $400 million market that we are in. It’s projected to grow to over $1.5 billion in the next couple of years. There is going to be a number of indications that are added to the portfolio. There is great experimentation that’s going on right now, some fantastic feasibility work that’s going on right now and we believe that we have a system that’s engineered specifically for this opportunity.

This is the device. It looks a lot like what we did in our SCS market but don’t be fooled, we had to do a re-up on this software, pharmaware and user interface because we are going into the brain. We had to redesign leads, we had to redesign the programmer so all of this is brand new the advantage is that we bring to the patient is this is a recharge system that isn’t going to require them to have multiple replacements for this therapy. And some of the emerging therapies that are in this market space depression, dystonia our massive power pigs. They require a ton of energy in order to drive them. You are not going to implant them with the primary cell you will be replacing it all the time. So we are very ecstatic about the performance of this.

So now here is my iChart, my iChart is about the opportunity that rests in front of us right. There are so far feasibility studies that have been done in all of these. In several of these, there are existing markets that are sizeable and we have choices at Boston Scientific. Are we going to select into those opportunities or we going to choice specific things that match our technological capability and the ability of my organization. I suggest to you that where this market is heading and how important and instrumental our organization is going to be to the advancement of these therapies is real. Six years ago you could have guessed whether it was real, today I will say with the substantial investment that Boston has put into this the support that I get from the executive team at Boston and the board a lot of this can become a reality for us.

So just to wrap up I would like to conclude by this, we have the ability to capture market share. We know how to go to market, we know how to execute. We’ve gone up against some very good competitors who don’t like to give up share very easily. We believe that the technologies that we have are unique. We believe that we are well protected in the intellectual property. And I’ve got a proven track record that we can take it into marketplaces. As we move into deep brain stimulation I think the world is just about to open for us. I have seen some things and feasibility data that just makes you scratch your head and say if that’s for real this is an incredible opportunity. Our Vantage study is going to put us in a place where we are going to learn a lot about our first generation deep brain stimulator. I think we’ve got a lot right in this first generation product. I’m excited about where it’s going to take us and as we continue to learn about this market. We will learn about how we want to approach it more aggressively.

So at that point what I would like to do is I would like to introduce Keith Dawkins and I would be remissive if I didn’t introduce him properly. Keith has been with us for three years prior to coming with us he was the Clinical Director of the cardio [inaudible] group in Southampton UK. He has studied at some of the finest institutes in the world. He was trained at Guy’s Hospital London, studied at Oxford and also at Stanford Medical Center. I would like to introduce Dr. Keith Dawkins.

Keith Dawkins

Thanks Mike, it’s a pleasure for me to talk to you from the point of the view of the clinical function. I’m representing clinical and over the next few minutes I’ll really address two areas; how we changed clinical and many of you may be aware of this from outside Boston Scientific and touch on some specific trials in the CV and CRM space.

In clinical, we have 577 specialists and I think you would agree that we have a world class clinical operation and we have shown with our trial portfolio that we can leverage global capabilities. The environment and that’s both regulatory and financial for the whole of the healthcare sector is changing dramatically and the changes in the clinical I think you will see reflect that. We are exploring very seriously outsourcing and offshoring a number of the functions within clinical to maximize efficiency and we enabling critical new minimal invasive technologies to be brought out more quickly as a result of that. The clinical redesign that the senior leadership of the clinical team has been bringing about is dramatic.

Three years ago when I joined Boston Scientific, clinical was the corporate function and I was concerned as were the senior leadership of the company and with Ray’s help we brought about a change in that. There was a disconnection clinical and the divisions. There was a lack of accountability between clinical and the devices and it was to my way of thinking a lack of strategic alignment between clinical and the division. During the last 12 months, we brought clinical into the division with a managerial responsibility as to the president of the divisions. And in doing that we’ve obviously amalgamated in the CRV group and with my colleague Ken Stein, CRM side we both together two large clinical organization and we are now focusing on process systems and sourcing.

So often clinical is the long pole in the tent and if we can really nail the clinical trials then we can bring about revenue acceleration by bringing the trials into the market quicker. We had a number of systems that didn’t talk to each other and we used sourcing in terms of vendors and CROs in a rather haphazard non-strategic way and now we have strategic focus on how we are going to use the sourcing that we need to run a clinical side.

Typically Boston Scientific did large trials for new products for PMA and we neglected this wealth of talents around the world with investigators that really can do good clinical science. So what we’ve done with Rays support is to increase dramatically the investment in investigator sponsored research. And this isn’t just going to random research, this is first of all global we have a single committee in CRM that oversees investigator sponsored research for the whole world. And it’s going to be strategically focused. So we are going to let our investigators know the areas that we want investigator sponsored research to be done and we are going to support that with the appropriate funding.

Now as a US nonresident alien, I really tell the senior people at Boston Scientifics probably on a daily basis it’s that US represents less than 5% of the world population and therefore it’s important if Boston Scientific is going to be a successful global company then we should diversify into other markets and you’ve heard from a number of speakers that that is the case. And that is the case for clinical, and we are developing clinical harbors in China and India and increasing our clinical footprints in those two geographic significantly. And this will allow us to undertake trials in those countries which will be IDE type trials to specifically look at those countries to report [ph] local investigators and also to look at CRO outsourcing opportunities in those two countries.

We see China is being particularly important in the CRM space but we are not neglecting drug eluting stent area. In there we are starting the Platinum China trials within the next few weeks to introduce PROMUS Element into China. And in the first quarter of next year we will be introducing both TAXUS and PROMUS Element into India and we have two important investigator sponsored trials in India to support that product launch.

The success of the drug eluting stent franchise is really focused on the PROMUS Element stent and the PROMUS Element stent being investigated in really four trials PLATINUM Workhorse small vessel long lesion and on the right side PLATINUM QCA. And this is the first time that Boston Scientific has done a truly global trial with simultaneous recruitment in the US, Europe, Asia, Australasia and Japan and this allows us to accelerate the regulatory pathway particularly in some geographic like Japan. You will have seen on the right side of this slide the PLATINUM QCA data, very impressive data which has really shown that Boston Scientific could transfer the favorable results of an everolimus loaded stent to new platinum alloy.

The 100 patients were investigated by IVUS, QCA and are now being followed up by 12 months. The QCA results showed the late loss of 0.17 millimeter, very comfortable with other everolimus loaded stent. And the IVUS data we are best in class. And I can share with you now that these patients have been followed out for one year with not a single adverse event following hospital discharge in any patient.

So the next focus will really on the PLATINUM Workhorse trial small vessel and long lesion and the Workhorse trial will drive the IDE and these data will be represented at the ACC in April of 2011. And this is a randomized one to one non-inferiority trial comparing PROMUS Element with the PROMUS stent. In the geographies of the PROMUS Element stent and the TAXUS Element have been launched, these stents are best in class in terms of deliverability. And there is also a number of unique aspects that I would like describe to you, one of them relates to recoil.

And I’m going to show you a short video now which really compares the Element platform with XIENCE platform.

On the top you can see the ION stent TAXUS Element and the XIENCE V stent beneath, both are inflated of similar nominal pressure and a 1.5 millimeter diameter tube with similar external diameters as measured by later [ph]. The balloons are then deflated and even without measurement you can see the amount of recoil that’s occurred in the XIENCE stent on the lower panel compared with the platinum chromium ION stent on the top. If we then line this up side by side you can see that there is 98% resistance to compression with very little lost on the left compared on the right where you get a 11% acute lumen loss with the XIENCE stent. This is important this recoil and this recoil is essentially been taken away by switching alloys to platinum chrome. This is only one of the upside of using platinum chrome as a new alloy, which as you know is unique to Boston Scientific.

So what’s happening moving forward in the DS line, we’re very excited about the SYNERGY stent, this leverages the Element stent platform but we are going to make further enhancement for the commercial SYNERGY stent with an enhanced delivery system. We are going to reduce the strut size back to 29000, same platinum chromium alloy for about 30% of the total alloy.

We have a contiguous bioerodible adluminal polymer very thin, loaded with everolimus. We had great accurate performance, improved flexibility, high radial strength, low recoil which I just shown you in high [inaudible]. This is being investigated in the EVOLVE trial. The EVOLVE trial is recruiting very fast showing how impressed the cardiologist are using this product. It’s 2x over its recruitment rate and in the EVOLVE trial we are looking at two doses of everolimus the PROMUS dose and half dose [ph] PROMUS.

Then to discuss the head-on the difference between the SYNERGY stent and DBS and I and others in Boston Scientific are regularly asked whether we are anxious about the DBS products. The straight answer to that is no, not at all and this really is attest to why I feel as a clinical scientist I can say that. The accurate performance of any stent is key and as the number of procedures worldwide begins to flatten off and the number of cardiologist worldwide continues to go up, the experience of any individual cardiologist is going down. So you rarely see the cardiologist is doing 800 or 900 PCI cases a year. So if the experience of the cardiologist is going down what they really want is the deliverable stent, the accurate performance is key.

We want the radial strength and the fracture resistant and the visualization all of which is superior in SYNERGY. We know from the IVUS data that it is critical in many patients to be able to post dilate the stent to get optimum stent [inaudible]. You can’t post dilate the BVS if you post-dilate the BVS it fractures. We have a full metrics in the Element line of sizes in terms of length and diameters. Currently after eight years of investment in the BVS stent there are only two sizes. We are driving down the low drug load and the polymer load to get as close to Bare Metal stent and reduce the chance of stent thrombosis.

As Hank alluded to there is a very short time for polymer dissolution with the SYNERGY stent whereas polymer dissolution with the BVS stent is two to three years. They have a low particular load which I’m sure would be particularly interesting to the regulators. And the two areas that are worthy of discussion is the return to normal vessel function and the question of short dual antiplatelet therapy. We feel that the attributes here on the left we are considerably superior to BVS. The normal vessel function we don’t have studies investigating vessel function yet with the SYNERGY stent but they are ongoing and the shorter dual anti-platelet therapy is an interesting questions. From my perspective if you have stent that takes two to three years to dissipate your chances of reducing dual antiplatelet therapy to less than a year is negligible. We will be doing studies with the SYNERGY stent where the polymer and drug disappear within a few months to address this issue shorter DAPT so I feel very confident about the SYNERGY stent in this regard.

Just moving to CRM, it’s important for Boston Scientific to have an MRI conditional pacemaker and the INGENIO pacemaker generator with the [inaudible] fulfills that slot. This is are six fixed compatible lead, two types passive and expanded, retractable for active fixation. The initial studies will be in a 1.5 Tesla magnet which actually covers most of the clinical magnets the pre-clinical testing indicates that it’s safety to three tesla and there will be no restriction on scan protocols.

Boston Scientific through the major series of trials has really lead the area in relation to CRT and CRT-D and as you know the Boston Scientific indications for moderate to severe NYHA class III and for heart failure with low ejection fraction and a prolonged QRS. In the September this year we have the traditional unique indication the left front branch block with a wide QRS, low ES and mild Class II heart failures and ischemic or nonischemic or asymptomatic Class I heart failure for ischemic heart failure. So we’ve moved the bar down to increase the number of patients that are eligible for the device which is unique to this company.

We are very excited about autonomic modulation therapy or AMT and this has been mentioned a couple of times already. This is the look at the role of vagus stimulation in congestive heart failure. This is a safety improvement concept trials and the 120 patients EU study will enroll, begin to enroll in the first quarter of next year within a few weeks.

So if we just look where we are going with heart failure obviously Boston Scientific the data that we have through the major series of trials is really being focusing on the right hand side of this chart so the patients who are highly symptomatic with low ejection fraction and a wide QRS as you see in the blue boxes. If we look at AMT, the AMT allows us to move to the left side of the chart and the left side of the chart has as many patients as the right side of the chart and currently there is no label indications for this patients and these are patients we will exploring with AMT. This report is only focusing on AMT in the area of heart failure but AMT also potentially has roles in hypertension and [inaudible] suppression.

So in summary for clinical we are currently following 77 trials with more than 34,000 active patients. We really have radically redesigned what is happening in clinical much of it opaque to the outside world. This is required a huge amount of work but the senior leadership team of the clinical function are absolutely convinced that this is the right way to go to have direct accountability for clinical to the division presidents.

We are looking at outsourcing and off shoring services in a strategic, a thoughtful and a productive way to allow us to flex with the requirement following this numerous trials with even more patients moving forward. Clearly we in Boston Scientific clinical and Boston Scientific as a whole we have neglected the emerging markets and now there is a major efforts in all aspects of the emerging markets which includes clinical and the clinical presence in India and China will improve dramatically within the next quarter. From the drug eluting stent franchise point of view, the PLATINUM trial is key, PROMUS Element is already the dominate stent in geographies that’s available and we are very confident that’s PROMUS Element will be introduced in this country in middle of 2012 in a timely manner and TAXUS Element in the middle of 2011.

We are very excited about the EVOLVE trial. We are exploring the limits of drug dosing of everolimus. We are recruiting well ahead of plan and this will provide the bases for the SYNERGY stent which we will then investigate in this country with an IDE.

New acquisition, new technology like Asthmatx Mike spoke to you will be integrated into the clinical trial portfolio. We’ve obviously leveraged our expertise in the areas that we already know within Boston Scientific once we have those acquisitions in-house. Thank you very much.

So now we are going to have another 10 minutes break and then break into the last session. Thank you.


Jeff Capello

Okay. If you can take your seats, we’re going to go ahead and get started. So as you’ve seen over the last couple of hours, we have an exciting growth story ahead of us, both from a EPS and a top line perspective. I think our leadership team has done a very nice job laying out our strategic direction and focus, a lot of attention played on our leadership positions from a product perspective, exciting growth markets we participate in, our leadership pipeline is coming out in some of our key initiatives. I’m going to spend the next 30 minutes taking you through how we translate that into driving shareholder value.

So as Ray laid this chart out, there’s really two components to shareholder value, there is the near-term component and the medium-term component. In the near term, we have specific initiatives in place to drive above average EPS growth through specific initiatives that I’ll take you through. While we’re doing that we intend to invest in different initiatives from a transition perspective to drive up our growth rate by both executing on our current growth initiatives, reallocating our funds towards R&D activities that will drive higher growth and focusing at business development. Those initiatives will allow us to increase our growth rate and our EPS growth going forward and deliver even more shareholder value with the goal of delivering approximately $5 or more of shareholder value in the next three to five years.

Let’s talk about the growth profile to start. As you can see, we’re in large markets, the Pedersen have done a nice job taking us through those markets. On average, we think the markets that we play in are roughly 3%, and we believe we can grow at or above that rate. The different initiatives we have in place today and we will execute in the next couple of years will allow us to tap that mid bar of $8 billion worth of potential growth. These are real opportunities. And as you’ve seen, we’ve already executed on one of them, Asthmatx. We’ve got one of 12 done and we hope to announce a few more here in the short term. That will allow us to be in markets of roughly $45 billion which are growing at 6%. But once again, we hope that our strong execution will allow us to move from roughly 3% market growth to 6%, growing a little bit more than that.

Now moving into our margin story, which is part of the story in the near term in terms of delivering shareholder value. We ended 2009 with roughly $8.2 billion in sales, 69% adjusted gross margins, and 22% adjusted operating margins. During 2010, unfortunately we had the CRM stop ship issue, but the organization did a fantastic job responding to that. And you can see by the third quarter, we had recovered substantially from that issue are now poised to significantly improve both our gross margins and our operating margins.

I’d now like to step you through how we intend to expand our margins over the next five years starting with gross margins. Assuming we end 2010 with approximately 68% adjusted gross margins, we believe there is at least a 400-basis point margin expansion opportunity within all of the initiatives we have underway. Let me step you through each of those components.

First off, price. I think everyone is aware, and Ray and Pederson have talked about the difficult pricing environment that faces us. We anticipate that over the next five years, the pricing environment will provide a roughly 400-basis point headwind from our gross margin perspective, and I will get into that in more detail in a moment. From a beneficial standpoint, the incremental volume we expect to drive, given our fixed-to-variable cost basis in our factories and the fact that we have excess capacity, will provide an opportunity for us to increase our adjusted gross margins by 200 basis points.

We have a number of initiatives underway in productivity. Specifically we have a value improvement program, which I’ll spend quite a bit of the time on this morning to show you that we have programs in place to actually take out cost within our standard cost which will more than offset the economics presented by inflation of both our components in our labor and our factories to generate a net benefit of 300 basis points over the five-year period.

PROMUS Element, Dr. Dawkins and Hank Kucheman have done nice job to position that product. That product is now up to almost a quarter of the market in Europe. And we expect when we bring that product into the US and Japan, we will convert all of our PROMUS units currently today to PROMUS Element. That will be roughly a 200-basis point improvement in adjusted gross margins. And then, finally, our plant network optimization program will provide another 100 basis points of improvement – and I’ll spend a minute on that – therefore, roughly a 400 basis points plus opportunity to increase our gross margins.

Let me start with price. A lot of them meet about price over the past couple of years. We as a company recognize that the pricing environment was getting more difficult three years ago, and in response to that, we kicked off a program internally we called PAD, and that program was to grow in all of our large markets and study all the implications of price, and not just price as it relates to discounts or rebates, but the complete chain as we relate to the customer. In response to that, we developed this analysis to identify what the leakage points were from a pricing perspective, so let me take you through that.

We analyzed and determined in 2009 that we granted roughly $200 million of revenue equivalent concessions in the form of scrap and returns to our customers. Similarly we also granted $200 million of revenue related concessions in the form of free goods, accessories, samples and demos to our customers. And, finally, there was another $200 million of direct rebates at admin fees and discounts. All told, our concessions to our customers in 2009 were $600 million, and that doesn’t even count the missed opportunities we had to price our products appropriate to start. So truly there is a significant opportunity to look at these price and concessions going forward and help abate some of that 400 basis points compression in gross margins.

Let me give you an example of that. We currently carry quite a pool of consignment inventory to facilitate our business model. As you can see in the middle of the page, we’ve been to the two different programs to manage that. One program is called our Consignment Optimization Program or COPs. Another program is our Spider Automated Handheld Technology. But the COPs program is a fact-based algorithm, based on actual usage and each individual customer location determines the ultimate level of inventory that should be carried at each customer location. We developed that program with the help of the Manufacturing Group in 2008.

In 2009, we implemented that in a number of pilot locations, France being one of them, and we were able to reduce our fields inventory losses or scrap by over a third, saving us millions of dollars, needless to say we are busy implementing this program in all of our major markets, and this is just one example of the things that we’re working on to help manage price as we go forward.

Let’s now move to the value improvement program I referred to. Our manufacturing organization is world class in the area of productivity. This organization is riveted in taking out net 5% cost every year from our standard cost to help us manage gross margins, and they are doing that by identifying, prioritizing, and analyzing and resourcing hundreds of projects each year that are deemed to reduce our standard cost on a year-over-year basis. They also have a very formal recognition program, where annually we have an award ceremony to kind of celebrate our success. I could literally go on to this program for days, because I’m a big fan of the program. But let me instead share an example with you.

Chart on the right – or the picture on the right is a picture of our material handling process for our drug-eluting manufacturing in Maple Grove, Minnesota. As you can see, there are a number of material handlers that are processing the materials as expense are going through 40 different tanks in the stent manufacturing process. The picture on the right is the after picture, after we’ve gone through a value improvement type program where we significantly automated the process. As you can see from the chart, there was a 78% reduction in labor, $1 million improvement in the cost of the process, a return of roughly 70%. This is just one example of hundreds of programs that our manufacturing organization is driving through to reduce our cost base on a year basis and it works.

Let me now go to the second initiative that our manufacturing organization is in charge of, and that is our Plant Network Optimization program. As Ray had said, we’ve done a nice job reducing our facilities from 23 to 17 before 2009. In 2009, we announced our Plant Network Optimization program which is designed to reduce our manufacturing facilities from 17 down to 12 and to consolidate that activity in our second world-class low-cost manufacturing and operation in Costa Rico. The stated benefits of those – of that plant was to reduce our manufacturing costs by $100 million by the end of 2012 or beginning in 2013 and also generate $65 million of tax – reduced tax expense.

I’m pleased to tell you that we are on track with that plant, the second low-cost manufacturing facility is operational, and the plant transfers are occurring as we speak, and we expect to achieve those benefits by the end of 2012. Just as importantly, however, is that we have excess capacity in that second facility, both within the facility and besides the facility to add on. We also have a number of teams looking at other low-cost location in the Far East to complement our emerging markets efforts. So we would hope in the next five years, we’d have additional programs to further reduce our costs which are not yet baked into that 400-basis point gross margin opportunity. That would be incremental opportunity on top.

Let me now transition to our operating expense and tell you about that. Assuming in 2010, that we end the year with operating expenses as a percentage of revenue at 49%, we believe we have an opportunity to reduce those operating expenses by over 400 basis points over the next five years. Let me take you through each of the pieces, starting with the Med Tech Act.

I think as everyone is aware, if the Med Tech Act passes – it’s tough to say – we expect that our share of our that tax will be roughly a 100 basis points of pressure on our operating expenses driving it up. We’ll see if that passes or not, but in 2013, for purposes of this discussion, we’re assuming it does pass. In addition, we’re assuming that inflation in the form of both, the cost to procure nonmanufacturing material as well as labor costs will drive up our SG&A percentage and R&D percentage by another 300 basis points.

We’ve also made a decision as we’ve announced in our last two earnings calls that we are electing to invest a little bit more aggressively in the short term to help drive favorable revenue growth, and I’ll take you through each of those pieces. So those will be some of the negative headwinds coming at us over the next five years which will actually push up our operating expenses as a percentage of sales.

Going the other way, we have two buckets of opportunities, one is volume. We have a lot of the fixed cost infrastructure, leadership and programs we need to run a much bigger company. Therefore, as we generate more volume, we will be able to get some fixed cost leverage on our OpEx which is represented by the 300 basis points. The second pool is really the most important pool and those are our different initiatives that we have currently underway.

The first three I’m going to spend a few minutes on, but I’ll just pick them off very quickly. One is automation, the second one is alignment for growth, which was the restructuring plan we announced at the end of last year, and the third one is our emerging markets initiative. I’ll spend some time in each of those three in a minute. The fourth and fifth are zero-based budgeting and productivity.

Zero-based budgeting is an activity which was just kicked off, which is designed to literally take a fresh sheet of paper and start from the ground up and redesign our G&A infrastructure and look for opportunities to reduce costs, and we believe that will be a very productive exercise.

The fifth is productivity. And this is could fact to the concept Ray was referring to in terms of research and development and a project transformation. But we feel we have a measurable ability to look at the effectiveness and the efficiency of the products development lifecycle of both having our functions worked better together and develop a knowledge based development program to really marginalize and leverage our R&D spend, and so that will provide some productivity going forward. So the combination of those five things will produce roughly 700 basis points of savings from an OpEx perspective.

Let me now step through few of the examples. Before I do that, however, I want to talk a little bit about the investment cycle that we’re in. So as I mentioned before, there is a roughly 200 basis points of short-term pressure that’s built into the model to relate to the fact that we’ll be investing in a number of areas, and I’ll just go through these very quickly, because the Pedersen is [inaudible]. One of the emerging markets, we have a significant opportunity to aggressively expand our sales base in areas like India and China, where our market share is a fraction of what it is in the US and Europe. So we’re going to take advantage of that and put people in.

Dr. Keith Dawkins talked about clinical and the trials we’d like to do to advance technology and science in some of these areas, we’re going to do those. From a field sales perspective, you heard a great description today by Pedersen, of all the exciting new technology we have coming out. Some of this technology is coming out in the mature areas of the world where we are significantly underrepresented from the sales perspective. So we’ve made a decision to go ahead and put feet on the street in some of those areas to take advantage of our new product offerings.

And finally, the economic buyer infrastructure, we have come to the realization given the three-year look we’ve had at pricing that we need to make sure we’ve got the right skill sets and the right tools in place to be able to deal with the new environment. So the collective of these four different areas are going to put roughly 200 basis points of pressuring OpEx, more in the short term than the long term, because these things are going in as we speak.

In terms of automation for productivity, Ray touched on this briefly, but we are in the midst of a major transformation of our distribution network. We’ve made a decision to invest quite a bit of money in a robotic system that will help us with the storage, picking and shipping of our material through our largest distribution facilities, so there is a number of robots that go around and they move the material around within the facility.

This is a great project. This thing will allow us to increase our speed of picking material by over 400% and save well over $10 million per year in OpEx, which does not even count the reduction in scrap and other inventory handling costs as well as actually inventory amounts that we’re going to do by having better technology in our distribution facilities. So a good example of an automation initiative.

Within alignment for growth, this is the restructuring plan we announced back in the fourth quarter of 2009, where we came to the realization that we did have an opportunity to invest more in the investment program I talked about. But to fund that we decided to kind of do some different initiatives, some of which have already been hit, so let me take them off very quickly.

One, was to combine – one, was to combine the CRB Group by combining CB and CRM, as Ray had said the Guidant acquisition has not – had not been probably integrated. And so as we looked at the situation, we realized there were a lot of natural synergies that could be put in place to allow us to further benefit that. I think Hank did a good job of playing that out. Within the Endo Surgery Group, historically, the endoscopy business and the urology women’s health business sat underneath the broader umbrella, it did not as get as much attention and investment as they deserve.

These two businesses have been growing a 100 to 200 basis points faster than market for the last four, five years, and they have excellent growth prospects. So by separating those out, we think we have a much better opportunity to grow even faster. And as you saw from Mike Phalen and John Pedersen’s presentation, they have a number of the top 12 growth areas, and there is no better proof than the fact that the most recent acquisition we did was Asthmatx, which was Mike Phalen’s area in endoscopy.

We also took a look at our international structure, which was very level intensive and not focuses much on the emerging markets. And we took a number of layers out and we actually are in the midst of reformulating Emerging Markets Group complete with the present focused on driving growth in those areas. I can keep going, but I’ll stop at that point on this chart to say that this initiative was put in place to eliminate a 1,000 to 1,300 people and save $200 million to $250 million, and we’re right in a middle of a two-year program and expect to hit those by the end of 2011.

Let me talk a little bit about shared services centers, our emerging market opportunities from an investment perspective. We currently do have a number of small shared service centers throughout the world. These shared service centers are not connected and there by no means world class. So as part of our initiative in terms of looking at cost, we’ve been on a – almost a one year project to look at where there would be areas for us to improve our shared service centers and that’s taken us all over the world.

And we’ve determined there are distinct areas of expertise regionally such as India that have capabilities where we are significantly under represented. For example, today, we have four people working for us in India and none of those people are working on any activities outside of supporting our distributor in India. India currently enjoys a 30% to 50% wage differential from an outsourcing perspective. So this is a significant opportunity for us that we’re in middle of looking at, which we think will bear a tremendous fruit in the next couple of years.

So as you step back and kind of look at and sum up the operating margins picture before I move to cash flow, assuming we end 2010 at 19% adjusted operating income as a percentage of sales, we think there is a 800-basis point opportunity in front of us to increase our adjusted operating margins, 400 basis points from gross margin and 400 basis points by lowering the OpEx percentage. That alone will be a significant contributor to driving meaningful shareholder value in the near term. But operating margin expansion is not the only strength the company has and the opportunities we have going forward.

Cash flow is a hallmark of Boston Scientific. This company has consistently delivered strong cash flow, approximately a $100 million a month and right around a $1.2 billion a year for the last three or four years. Last 12 months in this chart and it shows our ability to convert operating profit into cash flow and we’ve done a remarkable job, we generated $1.6 billion of adjusted operating profit, and we’re able to convert dollar for dollar into free cash flow, even despite the fact that we had a very significant CapEx year – I agree to the fact that we’ve done automation – and we also had interest payments to deal with. So we are a very strong cash flow generator, since we convert at a very high rate.

We also have done a nice job delevering our balance sheet. So as you look at the leverage of the company, if you start in the chart on the right, after the Guidant acquisition, we ended up with roughly $9 billion with the debt. Over the last four, five years, we’ve used strong cash flow in other activities of the company to reduce our debt levels by a third or over a $3 billion reduction, and we did that with the strong cash flow generation on the right. However, I think there is still opportunity within cash flow.

And as you look at our working capital, I’d like to just spend a minute and kind of talk you through how we think about working capital management. The little diagram on the left kind of represents the fact that we hold roughly a 136 days of inventory for the benefit of our customers and we also provide them with 63 days with the finance and which is our day sales outstanding, so that’s what we hold in finance for them, the inventory and the receivables. Conversely we asked our suppliers to fund a certain amount like spending us credit and that represents roughly 29 days.

The net of the inventory plus receivables are our portion of the carrying days, but the amount we ask our suppliers to carry is a 170 days. That is a very big number for any industry. And that is driven by the fact in some areas we have some temporary dynamics that are going on. For example, within inventory, by carrying – by being a two-drug stent manufacturer, one drug of which is manufactured by another source, we are forced to carry more inventory. In addition, as we bring down our factories from 17 to 12, we’re forced to carry more inventory in the short term will alter those transitions.

But there are a number of different opportunities, both within inventory, receivables and payables to contract that number of days. For example, every day – every five days that we contract cumulatively across all three measures generates roughly a 175 days of free cash flow for us. And we believe there are tens of days within the system that we could take out. The working capital management would be a significant focus for us in the next five years.

Now, I’d like to spend just a minute on our capacity for growth. This chart denotes where we’re expected to be in the next five years from a capacity perspective, so let me spend a minute on it. We expect to end 2010 with roughly $1.6 billion of cash. That represents the cash we had on the balance sheet at the end of third quarter, we’re going to add the free cash flow which we will generate in the fourth quarter, we will subtract the acquisition payments for Asthmatx which closed a couple of weeks ago, we also anticipate that the Minnesota DoJ settlement that we had accrued previously will be funded in the fourth quarter, and then we expect we’ll get the net proceeds from the neurovascular divestiture by the end of the year which will generate – which will leave us with a $1.6 billion. Over the next five years, we expect to be able to generate in excess of $7 billion of free cash flow, which will put us at close to $9 billion of potential capacity or cash at the end of the five-year period.

Now we have a stated commitment to reduce our leverage level. We’d like to get our leverage level down to 1.5 to 2 times debt to EBITDA or roughly $4 billion with the debt. So we expect to pay down about a $1.9 billion in the next couple of years to get the leverage to level down. That will leave us worth approximately $7 billion of capacity to invest in the business. Now many of the initiatives that you saw today we expect to have that capacity by virtue of the fact that while the proceeds from neurovascular plus strong cash flow to invest in the business, which is tremendous capacity.

We will also adopt a fairly conservative credit position in terms of leverage, because although we see very comfortable about our exposures or potential exposures from a legal and tax perspective, we will keep a conservitization just in the events an unexpected outcome occurs. But clearly we’re going to have lots of capacity to invest in the business.

We are in record with the credit rating agencies that our goal was to get back to strong investment grades credit, our objective is BBB+, two or three notches above the investment grade level. We are already investment grade rated by S&P and we’re pleased to see the Fitch has taken our outlook up to positive on the heels of intravascular divestiture, but we’re very much focused with the rating agencies to get them back, and we do feel that we’re investment grade now and our objective is get back during the next 12 months.

So now let me wrap up with our financial aspirations both in the near term and the medium term. Clearly, you’ve heard today that we have some exciting opportunities, we have a lot of new technology coming out and we expect to be able to grow at or above the growth rate of our markets of roughly 2% to 4%. We do, although, we will have some pressure in the next 12 months with some of the investments that we’re making. We do expect to expand our operating margins in the near term by roughly a 100 basis points per year over that time period and deliver low double-digit growth with in and off itself presents a very attractive shareholder value proposition.

However, the transition activities and the investments we’re making today and we will make in the very near term are going to put us in a very dramatically different position, is going to allow us to kind of get – get into that $8.5 billion incremental market that the Pedersen talked about and increase almost double our rate of growth to 6% to 8%, that will then allow us to push up our EPS growth from the low double digits to the mid-teens plus and generate more cash to invest in the business. But clearly from an investment perspective it’s a very exciting time for us as a senior management team and for you as investors.

In the short term, we have meaningful margin expansion opportunities which we are driving today to drive shareholder value. And in the medium term, we intend to drive up the growth of the company which will drive even higher shareholder value. Let me stop there and invite Ray Elliott to come with some concluding remarks. Ray.

Ray Elliott

Thanks Jeff. I just want to take a couple of slides here and just summarize for you. I think a lot of this has been covered, but clearly we’re talking about timeframes here.

And as I mentioned at the beginning, we aspire to increase our profitability and optimize organization in the short term, our near term as we refer to that’s coupled over the next couple of years, leverage our product breadths which you’ve seen expand into emerging markets, deliver on the plant network optimization, the distribution center network optimization, restructuring that you’ve seen, standardize – and Jeff has covered – we have a huge number of automation projects, we just gave you a view at a couple of them.

The R&D efficiency that I talked about and others have with project transformation, Jeff just did the work on cash flow and reduced debt, and of course, a big effort on our part to execute on portfolio realignment.

And then the medium term, which our view point is sort of two to four years, if you will, obviously it brings into place the higher growth rates that we’ve already referred to as 6% to 8%. The growth initiatives that we’ll be leveraging, you’ve seen one with Asthmatx, you’re certainly going to see more.

I think one of the things, and it’s a sad I suppose about not doing investor presentations in large context is probably the pipeline. As you go through the bubbles close-up they’re tough to read as we’re presenting here. I think probably people would not have pegged our new product output at a 150 new products and the numbers or bubbles you saw in the charts, I was actually going to really kill you with the chart to take all the bubble charts and overlay them against each other. I decided when I tried that the whole page became purple and green I gave up on the entire idea. But it’s an interesting chart when you do it.

Continued cost reduction, I’ve talked about $750 million, Jeff did as well, that’s the $0.40. And obviously the key to that is we don’t really have to hold anybody else accountable for that $750 million other than ourselves. It’s executable in our hands if we’re capable of executing flawlessly.

Outsourcing has been covered a number of times, both by Jeff, and by Dr. Dawkins, and others in terms of making sure we, in the case of Costa Rica really get the best out of those, now two large plants, and of course India, China, and so on. Capital optimization, Jeff just covered, and of course we’ve got some M&A work to do.

That from our perspective really covers off most of the things we want to talk about, so we’ve got near terms two years, two to four, all those stuff. There are actually some things that you ought to do now and not later. There is not a huge number, but it’s pretty nice tight list of things we want to do.

One of the ways to get at what we’re trying to do is certainly get together with these folks, so it’s a nice opportunity now to share that with you. If you have been paying any attention at all to your Blackberries in the last five minutes, which I know you have because you all have that look in your face. BSC has signed a favorable agreement to acquire Sadra Medical. The purchase price is $225 million upfront and the potential additional $225 million based on the regulatory and sales milestones. It has some early dilution as you can see, GAAP basis of $0.01 or $0.02 as for the next three years and then accretive thereafter.

I want to and I’ll invite Dr. Dawkins up at this point just as I finish this slide, there is a little video here, and he is going to do the over voice for you. But one of the things that we really want to get after here is repositional and retrievable. We are very, very excited about this product and we’ve been blessed with the opportunity to have a very close look at it out now for some time. I think you know the history of the company, so I won’t – certainly won’t repeat all of that.

Feasibility study was completed in 2010 and we’re now looking through follow-ups on the Lotus Valve. So we’re going to run a video here and I’ll step out your way so you can see the screen. I don’t think it’s going to come up in there Keith, so you’ll probably have to listen there.

Keith Dawkins

So you all know the percutaneous aortic valve space and I really just want to draw your attention to some of the special features of the Lotus Valve. 18-French delivery system retrograde from the either femoral artery or the subclavian artery run over a stiff wire. You can see the marker in the center of the device unit, because you know exactly where you were are in a very simple delivery system with only two controls.

This is the only truly repositionable and retrievable valve. It comes ready to go, it’s not balloon expandable. And unlike the competitors, you can see that the valve leaflets are working before you release the valves, there’s not that moment of breath hold by the operator. If you don’t like where it is you just can move it and you re-sheave [ph] it, you can see the control in the bottom left.

Advanced the valve, you know exactly where it is, because of the marker. And then once you are comfortable with the position, you can then release it. You’ll see there is not able to regurgitation. But uniquely this is as a result of an adapted field. And after three-hour follow-up, there is not able to regurgitation. And if this technology is ever to move from the surgically unsuitable patients which has been treated thus far into surgical candidates, it’s very important that you’ll be able to regurgitation issue is addressed which is not by the other two competitor products. Thank you.

Ray Elliott

Good, thanks, thanks Keith. So we’re going to switch at this point, we hope you’ve enjoyed learning lots this morning. Thank you for the hours of time you’ve put in, there is a lot of detail here we realize, and I appreciate and hope you’ve learned a lot more about what we’re up to.

At this point, I’m going to ask our presenters to come to the stage, and I also want to add to that two individuals, Dr. Ken Stein, who is the Senior Vice President and Associate Chief Medical Officer for the CRM Group will be joining us, and I’ll invite Larry Newman as well, who is Senior Vice President of Restructuring and Integration, and Larry is going to moderate this session for us. So thanks very much.

Question-and-Answer Session

Larry Newman

Thank you, Ray. And we’ve got as Ray said all the presenters here to respond to questions. So for the next hour or so we’re going to take questions. We’re going to have microphone that we are going to be passing to you, so I’d like you to wait until you have the microphone to give your question, because we want to be able to hear that, and we need our webcast audience also to be able to hear you. We also are taking questions from our webcast audience, so they’ll be coming in and people maybe bringing those up to me from time to time.

Before we start, I do have a couple of questions that have come from the webcast. Let me go through just a couple of those quickly, and then we’re going to move back into you guys. Don’t look so disappointed Mike, I will get to you. But I wanted to start with one that’s actually come from the audience here as well as the webcast and that is, are the slides going to available.

Yes, the slides will be available. We’re going to put them up on our website about an hour after we conclude here, so you will be able to get access to the slides that you’ve seen here today. So rest assured you’ll get those.

Let me just start with a question that came in over the – over our webcast and it’s for Hank Kucheman and Dr. Stein. You know we’ve talked about – we’ve heard our competitors talk a lot about what they’re coming out with next in the defib market and we’ve heard of your announcement of CE Mark today with your next-generation defib products. Can you just give us a little bit more clarity on the products, the features of the products, and how they compare with the competitors’ products that are coming out?

Hank Kucheman

Well, as I said earlier in the presentation, the Progeny family of products are really three-fold. First you have PUNCTUA. And all three platforms really follow the legacy of size and battery longevity and shape that we’ve known with COGNIS and TELIGEN. But the PUNCTUA device is basically are low-end device that and in my words is kind of a simplified version of COGNIS and TELIGEN that’s really designed and targeted towards value-based markets.

Then you have ENERGEN, which is kind of the mid-tier and basically that has same features as PUNCTUA, but what you add to that is a DF-4 connector and IS, which basically enables you to have a better ease-of-use smaller pocket size in terms of implant.

And then INCEPTA is the higher tier device. And the additive features there are advanced algorithms that help to reduce inappropriate shock, minimize or repacing, as well as – and Ken can talk about this – some advanced diagnostics for heart failure. You want to add to that.

Ken Stein

Yes, thanks Hank. And I think it is important to point out that this is a – our first tiered family of devices both within ICDs and CRTD. They’re all premium devices and they’re all built off our current platforms with this smallest, thinnest devices available, excellent battery longevity. The PUNCTUA model, I think is designed of field value segment just in terms of simplicities of uses of implant.

I think getting up to the most sophisticated model, the INCEPTA, which has really some very new and advanced algorithms to avoid unnecessary right ventricular pacing, minimize unnecessary shocks, and then also I think some exciting features under development to provide a heart failure diagnostic that we hope will actually able to alert physicians ahead of time before a heart failure decompensation, eventually improve patient outcome and save the system money.

Larry Newman

Great, thank you. The next question again is in the CRV space and it’s for Dr. Dawkins. You talked a bit about your Synergy program and you compared it to the BVS program that is out there today. But we had also heard around the time of your third quarter announcements of the suspension of the Nevo trial. Can you just give us your perspective relative to the Nevo trial suspension, and then what the Synergy program is versus the Nevo stent?

Keith Dawkins

Yes, thanks Larry. The Nevo stent as you know has been suspended and I don’t think any of us know when that’s going to come back to be available in Europe. What’s completely different about Nevo and the Synergy program, of course is the delivery platform. And as I emphasized in my talk, delivery is the most important thing that an interventional cardiologist wants.

And as you all know, Nevo has been around for many years, came off the coronary stent platform, it’s a thick strut cobalt-chrome offering and it also has a high polymer load. So if we into reduced a dual antiplatelet therapy, we’re trying to drive down both drug and polymer load. And I think obviously we haven’t had any head-to-head comparisons yet, but our knowledge would suggest that we will have a very definite lead with the Synergy stent.

Larry Newman

Thank you. Let’s take some questions from the audience. We’re going to start right up here, and if you could also please state your name so that we can have that on the transcripts as well.

Mike [ph]

Thanks. Couple of questions, and maybe one for Ray and one for Jeff. Ray, the comments you made early on about creating $5 of incremental stock price over the next three years, obviously it got people interested, and it implies from here $11.50 or roughly thereabout stock price in end of three years. We have price targets companies usually don’t, so how did you come to that price target?

Ray Elliott

Yes, thanks Mike. Without laying the long chart out to you, if you look at the 750,000, take that into consideration and look at the other chart work we’ve done, and then similar to what Jeff showed you of the pluses and the minuses, and ignore for the moment short-term dilution on deals, because I can’t account for that, because I don’t know the timing of the deals that are going to be, and just take a look at what’s controllable by us.

Essentially all the negative things come into play, price being a large example, and all the other good things we’re doing generally wash out. And if I take out a look at the things that are controllable, I add those up – but one assumption I put in, the math works, but it doesn’t get to $11.50 unless you assume multiple expansion.

So the one assumption I have made that is non-clear math related takes us up to a med device discount rate to total of 5% or 10%, so I’ve moved our multiple out, because I believe the combination of us executing on the 750 million and the combination of doing the deals such as Sadra, such as Asthmatx, short-term dilutive or not, will create a higher multiple given the future growth.

If you do all that math you get yourself just to the number you suggested, you get about $5.

Mike [ph]

Okay. And then – yes, go ahead, Jeff.

Jeff Capello

Just add to that, because there has been some confusion. Some questions on shouldn’t people just take the $0.40 and add it to whatever they think we’re going to do this year, I just want to highlight the fact that when we did announced in intravascular divestiture we did announce that that was going to be $0.04 to $0.06 dilutive. We also announced the Asthmatx acquisition was going to be a couple of pennies dilutive, so you need to be a little careful in terms of how you add the $0.40.

I also want to point out that a number of these initiatives, the PROMUS Element which will come out we expect in mid-2012 and the Plant Network Compensation program are all going to be fully operational by the end of 2012. And so when you think about the timeframe, 2013 is kind of a – a kind of a full year where you expect to see the full benefit from that.

Unidentified Analyst

That’s helpful. And actually that leads to my two clarifications for you, Jeff. One, the expectation for near-term EPS growth off of your adjusted EPS of low double digits, given the dilution from the neurovascular sale from Asthmatx, from Sadra today, and likely future deals, should we be expecting low-double digit growth in 2011?

And then the second question is your free cash flow projection from 2010 to 2015; you’ve had a very good last 12-month free cash flow generation of $1.6 billion, I think Jeff you view that probably is above trend, because your guiding would average about $1.45 billion over the next five years. Thanks.

Jeff Capello

So let me start with the first question, which I believe was round about question asking about guidance for 2011. To be clear, we’re not providing guidance, we are in the middle of our planning process for 2011. I think what we are seeing though is over a three year period, we expect to be able to drive double-digit EPS growth on the strength of all the gross margin and SG&A opportunities that we have.

On free cash flow, yes, the last 12 months were helpful. We did have a couple of large tax refunds that benefitted us. However, we also had the CRM stop issue, where we had lost quite a bit of operating profit and cash flow. So those don’t quite balance each side of the road, but we clearly had pretty favorable cash flow. And I think you can count on the company to generate at least a $100 million per month of free cash flow. And as we improve our profitability and grow the company that will go up.

Ray Elliott

Yes. Also quick add to that Mike, as Jeff showed the opportunity for us to improve working capital, we’re producing a $100 million a month with not a level of working capital management that I am completely happy with or used to, there is a huge opportunity there for one thing.

Secondly, if you take a look at about $350 million a year or so in CapEx, with a lot of the automation coming into play now, the Unity project complete, I would expect to see a somewhat lower CapEx numbers. So I think by the time you look at – at your $100 million a month, add to our ability to really drive working capital to industry-leading standards and a lighter CapEx load because of the frontend loaded we’ve put it already, I think you can get to those numbers on a sustainable basis.

Larry Newman

Right. Right there.

Rick Wise – Leerink Swann

Rick Wise, Leerink Swann. A couple of product questions, [inaudible] if you will, on the new brady side in general. No restrictions on the scan sounds like something that’s ahead of the competition. But can you talk a little about how big an opportunity you think the MRI conditional market will be. And this would seem to put you ahead of the comments we’ve heard from some of the other competitors.

Ken Stein

Right, yes, maybe I’ll start Hank, and then I’ll let you talk about the size of the opportunity to sum just the back. Yes, the goal here is to bring out a system that we intend to be MRI conditionally safe, but without any compromise. And that means no comprise in a number different respects, right? No compromise in the program availability, the post generator, no compromise in the safety or handling of the leads, and no compromise when you have the scan.

So the initial trial that we run will be a 1.5 Tesla MRI trial. We do have some internal data that suggest that we are safe up to 3 Tesla. And we also do intend to achieve an MRI conditional safe system where there are no restrictions on part of the body to be scanned and no restrictions on the actual scan protocol. Hank.

Hank Kucheman

Rick, I won’t speculate on the potential increase in size, because I honestly don’t know. I think the industry needs to look at both the advantages and disadvantages of MRI conditional. I think we need to better understand how disruptive this might be within the healthcare system and I don’t think we’ve really understand that answer yet, but I that will become clear over the next 12 months or so. And I think once that becomes clear, we can begin to understand the opportunity.

Rick Wise – Leerink Swann

Two last follow-ups on products, perhaps we’ll get to hear a more about the Asthmatx transaction. You talked about a $500 million opportunity, I assume that’s basically Boston Scientific and Asthmatx alone and not aware of any other competitors. And maybe a little color on the launch, how rapidly you can get it going?

And maybe just last, Dr. Dawkins, if you could talk a little about just how do we think about on the Sadra front, the kind of US clinical trials you’re planning in comparators. Just give us some broad strokes on your early thoughts there. Thanks a lot.

Hank Kucheman

Okay. Can you hear me? Regarding Asthmatx, we’ve begun the integration process, we’ve been working very collaboratively with the Asthmatx team over the past – around six weeks or so. You are correct, Rick. I mean we look at that as a market that we’re going to be the sole market developer for a while, very good receptivity from the interventional pulmonology community. These are real problem patients that there is just as no solutions, no good solution. And so we’re very – we’re very excited about that opportunity to kind of introduce that.

We’ve just begun the commercialization process, predominant using the Asthmatx team. Last week, we began training some of the Boston Scientific endoscopy personnel that will participate and help them with the market development efforts. Same thing would apply to our expansion of that portfolio into the European market. There were a lot of clinical trial sites in their AIR1 and AIR2 trial that are in the European market and they’re very interested. We’ll probably hope to start that sometime in early 2011.

And I think, lastly, we just feel very good about the platform about where the market receptivity will be for. There is a real need for this patient – for this patient population with this intervention and a lot of it will be dictated on the reimbursement strategies we’re unfolding between now and around 2012.

Jeff Capello

Just one other comment, I want to repeat that we released when we talked about that acquisition in the third quarter, we did comment that within a reasonable time period we expect that acquisition to measurably contribute to our top line growth. There would be something you would recognize.

Keith Dawkins

We can’t go into lot of granularity Rick right now about Sadra, it’s suffice to say that during 2011, we’ll do the CE Marking trial, that will be followed by the regulatory pathway through this country. And as you know, there will be a change almost certainly in that as a result of the favorable partner B data against optimal therapy. So it’ll – it’s speculation as to what the FDA will want by the time Sadra reaches the US in terms of an IDE trial.

Larry Newman


Bob Hopkins – Bank of America Merrill Lynch

Thanks. Bob Hopkins, Bank of America Merrill Lynch. First a couple of clarifications on the $0.40. So is that fully implemented by 2015 or the end of 2013?

Ray Elliott

That’s three years starting with the beginning of ‘11.

Bob Hopkins – Bank of America Merrill Lynch

And then, so that does not include potential dilution from deals as you’ve just articulated. And so in light of that and in light of your comments about having an appetite to do more deals, how should we really think about that $0.40 sort of net of potential dilution over the next couple of years, is it really more $0.30 or just any rough thoughts on the potential dilution from deals in the future and how we should think about relative to the $0.40?

Ray Elliott

Yes, I know it’s tough to deal with the way. The problem with it is, is we can’t time. First of all, not all deals are necessary dilutive, they’re not necessarily all four companies that get you into some of things we’re thinking about, so that’s one aspect. The real catchiness though is I can’t absolutely control timing with how to do and when the deals and in which order they’re going to come, because if people decide to put themselves in the market, are we successfully negotiating exclusive very privately. So I don’t have a way of answering your question, Bob.

I think all we can do is tell you that here’s the progress we’re making on the $0.40 and keep you advised that if we do do something that’s $0.01 dilutive or $0.01 accretive, we get that information to you obviously as quickly as we announce. From a modeling point of view I get your problem, I’m not just sure I know how to help you at this point.

Bob Hopkins – Bank of America Merrill Lynch

Are you going to do larger deals, would you consider things above $1 billion?

Ray Elliott

Well, I mean, we can afford to consider anything. The question is do they fall in the category of our growth initiatives and is it consistent with what we think we can do inside versus outside. So remember the start of our paragraph, it says, “Don’t buy or build” and it continues on. We look at everything and I’ll give you an example.

CoreValve and it’s not a reflection, we’re happy to believe Sadra is the right choice, obviously given today’s press release. But we did not buy CoreValve because of the – our inability to finance or to do the deal financially. We actually would have paid that amount. I had the same team then together, I don’t know the answer to that. But it wasn’t a financial decision and we certainly looked at it. But under the guidance of medical and R&D staff and the best minds we could get on it, we didn’t feel that that was a winning technology. We feel that the deal we did today or announced today is the winning technology. So we’re looking lots of things, but they have to fit the paragraph and the pattern of events that we’ve talked about.

Bob Hopkins – Bank of America Merrill Lynch

And on the $750 million, is that net of the investments that you talked about in terms of emerging markets? And what does that assume in terms of top line growth? Does that assume that you’re going to be growing 2% to 3% to get that $750 million? Just trying to get a sense of how to term – how important the growth is to get those savings.

Ray Elliott

Well, I’ll do the first part and Jeff can do it. Yes, remember what I said, and it’s hard to do in presentation like this, otherwise we’d have to take you every move – through every move on the P&L. So what I tried to do was talk all the things that were negatives and we did a very detailed job of looking at price and all the other things, economics, et cetera, add those all up over the next three or five years, take the pluses add all those up, and then so that we could show it in components that’s easily absorbable when you’re doing a presentation to large audience, is take the component pieces, add up to the net benefit. Therefore in that number is assumed to be the investments. For instance, there is $34 million – $30 million to $40 million in the near term that are in India and China. I’ve already taken care of that, you don’t need to worry about that.

Jeff Capello

Yes, the only clarification I would make was come back to the fact that we have made a decision recently in the last couple of quarters to invest aggressively here in the short term whether it’d be the emerging markets or feet on the street in the more mature markets, and so that is occurring as we speak, whereas some of the initiatives that we’ve talked about in the 650 to 750 we’ll play it over a three-year period. So the timing, it may not be quite perfect with that regard.

Bob Hopkins – Bank of America Merrill Lynch

And then just lastly, real quickly, do you anticipate over this timeframe that R&D as a percentage of sales is going down for the overall company?

Ray Elliott

Yes, I mean one of the things that’s come up in a number of Q&As as we’ve done analyst meetings and so on is that we’re targeting $1 billion a year in our R&D. Targeting is the wrong word, it’s a cap, not a target. And the way to think about that is as a cap, we’re shifting above 30% of those total R&D resources into growth initiatives from sustaining engineering and the basic work we’re doing. Now, that’s a big shift, that’s $300 million if you’re at the cap.

I think project transformation which takes out, it makes us more efficient with the balance of dollars we have left by a way of $200 million and then assume we’re going to grow our sales as per what we’ve described. So by definition, if we grow at 2%, 3%, get into the 6% to 7% range, the cap is maintained through the strategic planning period, you end up somewhere around – if you’ll run the math, you’ll end up somewhere around 10%.

Larry Newman

Patty, we’re going to move to back there a little bit, so not to panelize people sitting further back. Yes, right there. Thanks.

Adam Feinstein – Barclays

Thanks. Adam Feinstein with Barclays. Maybe just Jeff, if you can follow-up, you talked about the pricing headwinds, but clearly it’s been a difficult pricing environment outside of some of the issues you highlighted. So how are you thinking about just the macro pricing environment with more hospital pushback, and just should we think of some impact or are you guys of in the mindset that the market pricing gets better also? So just wanted to follow-up there.

And then, secondly just, maybe just talk a little bit about your forecasting process. Obviously you guys have made some changes in the past 12 months, so maybe just help us understand in terms of just the process you have in place now relative to maybe what you had in the past? Thank you.

Jeff Capello

Let me start with the pricing question. So to go back to the portion of my presentation where I talked about price, just to reiterate, it was roughly three years ago where we got into a lot of depth and realized that the environment was headed this way and we’ve been on a fairly exhaustive review of pricing, including a lot of a attention and focus from Ray when he’s come in about being more specific about the difference between price and mix, which I think some of our competitors have a little confused at times.

So I think we have a very clear idea of what is price and price is the same product year-over-year and not next version of the product. So we’ve got a very good sense of what price has done to us historically both here in the US, in the mature markets, and it’s been a headwind. And so as we put together our strategic plan which is the basis for what we shared with you today that reflects I think what we believe right now based on what we know a very realistic assumption of the environment and we expect the environment to be pretty difficult in the next couple of years.

We do expect the environment to get a little easier into at the end of ‘12 and ‘13 when Promus Element comes in, some other new technology comes in, but still be a bit of a challenge. So I think we put in a fair measure into our assumptions. We did not factor in a lot of benefits in some of the programs that we’re working on, so we really hope that some of those programs will bear fruit such as the example I gave you in France.

To deal a little bit with your question on process, as I said, and as Ray said many times, the – this company now has a very good strategic planning process which really emanates from the businesses coming independently up with their view in what’s happening with their markets, the growth opportunities, the pricing dynamics, but competitors are doing relative to coming up with new technology and that bubbles up to a review that we all go through business by business in terms of what the outlook is, what the investment opportunities are, what technology people are looking at, what the competitors may do, and then gets transferred into a financial plan, which was the basis for our discussion today. So it’s a pretty good process. As with any strategic planning process, it’s a five year plan, it’s difficult to plan and beyond one year frankly, but I think it’s a pretty good process, it gives us a good roadmap to the future.

Ray Elliott

Yes, I think the other thing Adam, just quickly is that that today we have about a 300-page document, by the time you translate it on to the laptop computer screen on competitive dynamics, who are they, what are they doing, pricing strategies, new product strategies every analyst meeting they’ve ever presented.

So one of the things we have done, we have married together that with that divisional strategic planning is a whole sense of realizing you that you never operate in a bubble and therefore you – the intensity you put into your strategic planning with respect to understanding your competitors and what they do and don’t know I think makes a big difference to our plan as well.

Larry Newman

Right. Right here, David, and then we’re going to move over to Kristen on the left, so if you want to just get the mic you can be next.

David Lewis – Morgan Stanley

David Lewis, Morgan Stanley. Two quick questions. The first is just on basically looking at product opportunities. There were two areas across the presentation that seem to be areas that Boston did not have internally, one of course was perc valve and Ray you nicely solved there a few minutes ago, the next one was left atrial appendage. Does the company have an internal program in left atrial appendage?

Ray Elliott

No, David, other than basic exploratory research, which we do in a lot of different fields with some Tygar [ph] teams within each division. If you’re talking about a pure product development on a path to a FIM or to commercialization, no, I would put our structural heart non-aortic valve in the exploratory advanced research phase.

David Lewis – Morgan Stanley

Would likely be a target for acquisition.

Ray Elliott

I’m sorry.

David Lewis – Morgan Stanley

Likely a target for acquisition there.

Ray Elliott

No comment.

David Lewis – Morgan Stanley

Okay. And then, Jeff, just you left a very large basket of excess liquidity and cash for the company around $7 billion. Obviously part of that is acquisitions. Can you help us with two things, one? The other part obviously was legal risk and taxation risk. Any kind of percentage of that $7 billion we should think about as just a baseline placeholder? And then in related to that should we think about Irish sovereignty here in the recent days, is that an issue given your manufacturing capacity in Ireland? Thank you.

Jeff Capello

Let me start with the question on tax and legal. I think as I’ve said and the company has said in the past, we still have some issues to work through from a tax and legal perspective. I continue to be very comfortable as is our audit committee and our management team on our accruals and estimates in terms of the exposures. The difficult challenge is you never know what to expect and so I think you need to expect the unexpected.

But we go through a very exhaust review on a monthly basis the general counsel and I are looking at all of our cases from a legal perspective. And frankly for the vast majority of them we have the better argument, so we’re pretty comfortable on the front. But as I’ve said you’ve got to expect the unexpected. I’m not sure David I can put a specific number on that, only to say that we’re going to have a conservative credit profile, so that if something does happen we can manage right through it.

I’m sorry, I forgot the second part, the – so the news that Ireland may take up its tax rates or frankly the other question was Puerto Rico, are they going to do something with tax rates. We are studying those things very carefully. The Puerto Rico issue is less of an issue. We do have a facility there. But in terms of impact, we’ve looked at that, it’s not going to be a dramatic impact to the company.

Ireland could be a little bit more of an impact depending on what they choose to do. However, I would point you back to the fact in our Plant Network Optimization program we have roughly a $65 million benefit that you’ve yet to see that we expect to come through the tax line, and we also have some other plans in place. So I can’t really tell you what the net impact could be, because I don’t know exactly, and I’m sure Ireland really knows what they’re going to do yet. So when they figure that out, we’ll have to kind of figure how we respond to it.

Ray Elliott

Just – where is David? There he is. Yes, David, just to be clear, we’re not sitting around waiting for the lobbying groups to look after. So I’ve got a meeting with Governor Fortuno at Monday morning 10 o’clock, so we’ll talk about Puerto Rico.

Larry Newman


Kristen Stewart – Deutsche Bank

Kristen Stewart from Deutsche Bank. I guess this is a follow up on the tax side, what, I guess, kind of not including Ireland or Puerto Rico, what should we assume is a more normalized tax rate for you guys, should we be thinking something in kind of the 20% range or what’s embedded within your assumption just in terms of their earnings growth?

Jeff Capello

Yes, Kristen, so I think what we said at the end of the third quarter call that our operational rates if we had not had discreet one-time beneficial items rolled through the tax, our line would have been roughly 18% in 2010. I think that’s a little low. We’ve had a distribution of income that I’m not sure yet until we finished the 2011 plan we’ll be able to match next year. So I think on a more normalized basis, I think thinking 19% to 20% is probably more appropriate and then we’ll have to kind of deal with the Puerto Ricos and the Irelands on a one-off basis as they become clear.

Kristen Stewart – Deutsche Bank

And then just on the revenue commentary that you have made just in near term, medium term, you had talked about eventually getting up to 6% to 8%, how much of that is acquisition, because it seems a little apples and orange that the top line seems to be including acquisition contribution, but yet you’re not including the dilution if I understand your earnings guidance correct.

Jeff Capello

So, I’m not sure if we’re going to be able to split that out perfectly for you, but I would clarify that the acquisitions is not the only tool that we have to drive the top line. We have a number of internal growth initiatives that we have been financing and funding and developing, and we also have project transformation which Ray has highlighted that is going to free up additional capacity to actually do more. So it’s going to be a mixture of both doing more with our existing R&D and acquisition. So it’s just difficult Kristen to put a number on out at this point.

Kristen Stewart – Deutsche Bank

But that 6% to 8% that you said that is organic, just internal only.

Jeff Capello

It’s organic and a small bolt-on acquisitions is the way I would put it.

Kristen Stewart – Deutsche Bank

Okay, thank you.

Larry Newman


Tim Lee – Piper Jaffray

Hi, it’s Tim Lee with Piper Jaffray. Just first on the portfolio alignment front, are we done with the divestitures, the products that we saw today, should we expect them to be part of your portfolio as we look out three to five years? That’s one

And then second, you covered a ton of products today and a lot of new initiatives, Ray I mean from your perspective, what would be like the top three product initiatives that will be most impactful for your top line growth on a going forward basis?

Ray Elliott

It’s tough to answer the – if you want two or three, we’ve got a 150. I think it’s tough to answer. Let me think on that and go to the first one. The answer to the first one is Tim, Tim, Tim. I know do you feel better now? Good.

On the 150, there is so much good stuff in there, I’ll let somebody else jump in. I mean – probably that would surprise to me I don’t think there is an answers say, there is one, two or three, because there are a lot of $10 million and $20 million and $100 million opportunities in there, and I don’t know, but I would want to pick one, two or three.

The part that was more interesting as we started to put this all together about a year-ago – and of course as you read analyst reports and various things – the part that was more interesting to me was the assumption that we had a relatively poor pipeline and we deserve the assumptions since we hadn’t told anybody anything differently.

As we got into really pulling into all together and adding things up and getting to the 150 products and a lot of those are little ones, I mean there’s some add-on stuff. But there is interesting things that are as we reinvested I kind of turnaround the other way, I couldn’t take a shot at one, two or three, because there are so many in the $50 million and $40 million, $50 million range, but I think the sheer number of a $150 million that we’re capable of executing it to me is kind of the inverse of your question, I turn it around the other way.

Larry Newman


Larry Biegelsen – Wells Fargo

Larry Biegelsen, Wells Fargo. Just to clarify, the low double-digit EPS growth near-term that’s before acquisitions and divestitures. I know you’re not giving 2011 guidance, but –

Jeff Capello

Yes, we’re not giving 2011 guidance we’re still working on the 2011 plan. But I would say over the next three years that’s pre any activity from an M&A perspective.

Larry Biegelsen – Wells Fargo


Jeff Capello

Pre, what we’ve announced, all right.

Larry Biegelsen – Wells Fargo

And another clarification, on the MRI safe pacemaker, the timing in the US and Europe, I’m sorry if I have missed that.

Jeff Capello

Sometime over the next couple of years.

Larry Biegelsen – Wells Fargo

Great. Okay.

Larry Newman

You go ahead, Larry.

Larry Biegelsen – Wells Fargo

One last question, for the CE Mark trials for the Sadra device, has that design been finalized? Thanks.

Keith Dawkins

Not quite. I mean, conceptually there was some three or four trivials weeks, I mean conceptually nothing changes.

Larry Newman

Did you get that Larry? Okay. Brooks.

Brooks West – Craig-Hallum Capital

Hi, thanks. Brooks West with Craig-Hallum Capital. Question on intravascular imaging probably for Joe, sensed an increased focus on IVUS in your presentation, is that true? And I’m curious about some of the efforts that you’re going to putting there. And then as you look at intravascular imaging, is IVUS the right platform versus some of the other things your competitors might be working on, you need something else, and then just thoughts around vascular imaging beyond the coronary area. Thanks.

Ray Elliott

So Brooks let me start with the last one. I think it’s still debated widely, especially in the interventional community, what is the – what impact will OCT or FFR have on the IVIS business. But I think our clear perspective on it is that IVUS as work horse image interrogate – lesion interrogation as a part of what the ICs today will remain for years to come. Suffice it to say, we put a new GM in that IVUS business about eight months ago and we’ve already seen a substantial progress in really the areas of quality and reliability, so we’re pretty excited about that.

We do have some short-term product launches eyesight, a modified motor drive, a new eye lab system by the name of JVAB [ph], which is in that cadence of products that you saw on our eye chart, but I don’t have time to go into all of those fare.

The other part of your question regarding imaging and other places, let’s take EP as an example, right? We have a strong number two from a unit standpoint tied for number one position in intracardiac echo. And if you then fast-forward to the structural heart strategy that you’ve seen here with Sadra and heard in terms of the left atrial appendage, imaging will play a fairly large role in the safety and efficacy of those procedures. So I’m not going to go into any of the next-gen eyes or IVUS stuff, but we have a very keen eye on where will imaging go outside of coronary artery and outside of right to left atrial imaging with our eyes catheter.

Brooks West – Craig-Hallum Capital

Is that the amount of R&D that we’re targeting towards that particular segment of our overall portfolio is increasing pretty significantly year-over-year compared to previous years?

Larry Newman

Great. Let me just take one quick – one more quick one from the webcast that came in and then we’ll come back to the audience. John Pedersen for you. You know you talked about the growth opportunities in the business for urology and women’s health and what you think you can do in the next five to 10 years. But in the third quarter call you talked about a slowdown in the women’s health area. Can you just give us your thoughts on the women’s health in general and what that looks like going forward?

John Pedersen

There’s no question that in 2010 and especially in the starting of the second quarter of 2010 there was a dramatic slowdown in elective procedures in the United States. I would also say that was driven mostly by the economy and other factors you’re well aware of. I would also say outside of the United States we’ve seen some pressure on elective procedures towards the end of the year as you normally do for an example in many countries in Europe as hospital and regional budgets begin to run out, and those monies have to be prioritized or typically prioritized away from elective procedures, so it had that going on which is the slowness in the marketplace.

The other thing that’s gone on for us is while we had a bountiful set of product launches in 2008 and 2009, we didn’t launch a single women’s health product in 2010. And as I mentioned in 2011, we’re refreshing the entire pinnacle and uphold line and we’re launching Genesys HTA. So I cannot tell you what the economy is going to do and the impacts on elective procedures in 2011. We’re hopeful but none of us know. But we’ve certainly have turnaround the product launch situation.

Larry Newman

Thanks John. Tao.

Tao Levy – Collins Stewart

Hi, it’s Tao Levy from Collins Stewart. Three quick questions there, Ray you mentioned in one of your slides that some of your internal research pointed to some sort of hospital demand recovery that you’re starting to see for next year as long as if you could go into a little bit more detail as to what your data points were telling you for 2011.

Ray Elliott

Yes, actually that was – thanks Tao, that was done by our Internal Market Research Group. I don’t remember our – what the N equals was, but it was pretty substantial. And actually to be honest with you and it was a very detailed analysis doing internal work we did using some external interviewers and the usual types of market research vehicles, and then we broke it down into the categories essentially aligned with the product divisions and presence you see up here.

The end result of that and it’s – you’ll see it when you print it out or if you’re looking at this when you have a look at it. The level of – it’s not by percentage, it’s going to stay flat as it’s going to go 1%, 2% greater than 5% and so on. We weren’t surprised by the backend we were a little surprised in some of the categories when they got into the better than 3%, better than 4%, better than 5% growth, because they’re looking at procedures from an internal hospital point of view forgetting market for a second, and so the surprise for us was frankly a little on the positive side. I would have expected a much more subdued negative input at least on many of categories and it didn’t seem to be there.

How much we can count on that in a small study, I don’t know the answer to, but we were kind of I guess pleasantly surprised by the output.

Tao Levy – Collins Stewart

And for Dr. Dawkins, given that you have a large ongoing PROMUS Element trial right now, well what’s the FDA looking for in terms of the US randomized drug-eluting stent trials, is yours going to be the last one or you think down the road you’ll have to do more?

Keith Dawkins

I don’t think I’m in a position to speculate on the brain of the FDA.

Tao Levy – Collins Stewart

Fair enough. And then just lastly, one of the similarities doing this two acquisitions that you’ve made is that Boston Scientific already had some sort of investment in those private companies, what makes you pull the trigger this year versus waiting for example next year, for example like a Sadra? Thank you.

Ray Elliott

Well, I mean they can jump in, because they each have their own business development groups. The Corporate Group just as a negotiation assist, so I’ll let them jump in as they please. But the general answer to the question is is we try to maximize shareholder values. So if you think it’s going to play out right, obviously it pays up bigger and later. It may be that we have a click point coming up in an agreement where we have to re-up a money, it could be they’re going out to get fresh capital on a VC basis and we want to trap some strategic opportunities in. I mean it pretty much varies by deal.

But the deals are triggered, we don’t have a head off a script that phones them up and says, “Oh! By the way, we bought your business.” They trigger and run the show we provide high-end skill sets and negotiating financial and so on. So I don’t know if one or two of you want to jump in and just talk to that or Hank if you do.

Hank Kucheman

I think one of things that my team looks at is and you never can combat [ph] or be a 100% confident. At the end of the day, do you believe that technology concept is going to work. And so that’s [inaudible] kind of a tripwire for us that when we get to a front where we say we think this one is they got it right.

Simplicity is another key determinant or criteria at least in my head in terms of why I look at these opportunities. And then you got to look at where they are in their evolution and what are the synergistic dimensions that we can bring that can actually help enable and enhance the product development pathway going forward in areas like clinical regulatory and all.

So those are some of the dimensions that we look at and a lot of discussion around them in terms of risk mitigation, what risk remain, which risk we feel pretty comfortable with. And then we get together with the corporate team and make a call.

Larry Newman

Joanne, and then we’ll move over here.

Joanne Wuensch – BMO Capital Markets

Joanne Wuensch from BMO Capital Markets. I have two questions. Could you talk about the Synergy stent? You talked about at being enrollment ahead of schedule when it might be in the European market and when you think it might be in the US market?

Keith Dawkins

I mean what we can say at the moment is that we’ve recruited more than half of the patients and we’re 2x ahead of where we thought we will be. Clearly we can’t speculate somehow fast we’ll recruit the second half of the study, but we’re on track to recruit earlier than we predicted. But this is for the CE Mark trial, and then that will follow with an IDE in this country for the Synergy stent with minor adjustments to the structure of the stent, same concept and the same drug.

Joanne Wuensch – BMO Capital Markets

Okay. My second question is obviously the organization is going through a fair amount of portfolio reorganization. If we fast forward to 2015, care to take a stab at what percentage of your revenue is being generated from say, endoscopy or from Cardiac Rhythm Management or how do we think about what the organization looks like in terms of revenue distribution in 2015? Thank you.

Ray Elliott

Yes, it’s a tough one to do Joanne, because it’s back to answer of some previous questions. You don’t know the mix and timing of the deals, that’s the problem. What we do know is we’re shifting 30% of our internal resources to the growth initiatives and we’re doing in a such a way that it gets us to 6% to 8% growth in that five-year period.

The mix that looks like at any given point in time is going to be dependent on which one of those or many of those markets we get into and the timing of the new products coming up both internal and external so that – to sort of peg that’s really difficult. And I’m not trying to avoid your question I just think it’s tough at this point to peg that. We have an internal strategic plan that takes a crack at doing what you just said, but obviously we don’t want to disclose that externally at this point.

Larry Newman


Derrick Sung – Sanford Bernstein

Hi, thanks. Derrick Sung, Sanford Bernstein. Couple of pricing questions for Hank first. First up, on the two new products that are being launching, going to be launched next year, the TAXUS Element in the US and the new brady product, what are your expectations for the ability of those products to drive any positive pricing?

And then, secondly, I appreciate the description on the CrossCare program that you provided and the kind of the success in terms of competitive bidding that’s provided. Just wondering presumably part of the value proposition on that bundling comes with a volume discount that’s provided. And so how do you think about balancing the – kind of the success that you have in winning these accounts with potentially the increase in the pricing pressure that maybe these volumes, this bundling provides?

Hank Kucheman

Let me take the last one first, Derrick. Basically the arrangements that we do on our CrossCare are pay for performance. So if you look at every situation is different, kind of where our share positions are in a healthcare system you may have a pretty strong share position in this franchise a relatively week share position in this franchise, but when you aggregate across the horizontal, the overall share position increases, even though you’ve given some pricing conditions. And if you recall from the slide, the revenue growth that we see from those CrossCare accounts is greater than non-CrossCare accounts, so there is a net effect positive impact for us.

On in INGENIO, I see that platform and I think it’s fair to say that historically we haven’t had at least in my humble opinion a very competitive offering there. I think we will now begin to introduce a series of iterations to that platform that will enable us to have a competitive offering. I don’t see pricing pressure being that significant. It’s been pretty stable on that side of the fence for a while. So I actually see INGENIO being able to play in that environment without doing anything dramatic.

And then on, I think you mentioned ION is what the brand name is going to be in the US for tax fulfillment OUS. I see that actually TAXUS compared to, and I think we’ve said this public in the past is actually from an ever-selling price perspective, a little bit higher than from us. So we don’t intend to do anything drastic with the introduction of this platform. To Dr. Dawkins point earlier, acute performance is always of interest in terms of the field of interventional cardiologist. This device performs very well acutely.

I think physicians will be quite intrigued with platinum, chromium and some of that clinical benefits that that will enable them to garner. And based upon that we see this is in the aggregate between the two platforms actually increasing our share position in the United States.

Derrick Sung – Sanford Bernstein

Okay, thank you. And then just one follow up, kind of similar question maybe for John. I was intrigued by your statement that in your business you pointed out that you were still able to drive price increases with your new product launches. And I was just wondering if you could elaborate on why that is and maybe the structural differences between urogyn and maybe some of the other med tech markets that clearly are coming under pricing pressure?

John Pedersen

Yes, I’ve been holding myself in check here, because I wanted to – previously I wanted to speak to the other $2 billion of business at the end of this table. I would say that Mike and Mike and I would agree that pricing in our markets is relatively stable, we may be seeing price on legacy products in the order of maybe 1% a year erosion. But with new technology we’re able to take price, pretty much across the board.

So clearly drug-eluting stents, clearly CRM has been in the crosshairs I would say of the various purchasing groups in terms of price negotiation. I would also say one of the unintended consequences of the Guidant acquisition was competing head-to-head with the same product for four years and that didn’t really do much good in that space. I am hopeful that the new technology and the drug-eluting space, new technology in the CRM space will stabilize pricing there.

Larry Newman

David. We’re going to take two more questions and then obviously the management team will be around a little while longer afterwards to talk to people.

David Roman – Goldman Sachs

Good morning. David Roman, Goldman Sachs. I was hoping you could talk a little bit more about CrossCare and how you’re incentivizing the sales force. Some of your competitors have struggled a little bit in this area and that in some hospitals there is not even – the cardiovascular reps don’t even know who the CRM reps are. Maybe you can sort elaborate on the way you’ve structured the sales force to capitalize on your product breadth.

And then maybe also talk a little bit about how the customers changing, because historically half of us has been fragmented in their own purchasing, and then if you’re seeing a change, whereby more of the purchasing powers being concentrated at the top.

Hank Kucheman

Well, let me start in reverse, and I’ll start with the customer. I think and I’ve been in the space for about 20 years and I’ve never seen anything like quite candidly what’s playing out right now at least in the [inaudible] space in that 20-year period. And I think that’s all being driven by the alignment of physicians with healthcare institutions where they either become contract employees or actual employees of the healthcare system. That changes the purchasing dynamics.

In terms of what happens between physicians and administration, administration begins to exert more influence over the purchasing decision. I think the progress of healthcare systems are also trying to anticipate a world of 2013, 2014, 2015, a world of where value based pricing or a capitated pricing for an episode of care is reality. And so they’re trying to align themselves and get their value propositions in order for them to take advantage of that situation, because you’re basically going to compete on appropriate and a secure indicators, quality care indicators, as well as cost indicators in order to regarding that business. So the trickledown effect to organizations like us is to try to align our value proposition to their value proposition. And to date we seem to be heading in the right direction in that regard.

Now to your first part of your question in terms of what we’re doing internally, we still have a very specialty focused selling organizations, street on the street. But what we’ve done through the integration of CRV and it’s been an effort that’s been in play now for [inaudible] purposes under the leadership of Denis Harrington at the sales management level is to really galvanize and bring the sales management team together. That is a team that I’ll tell you today is very integrated, they’re working together as a team.

I would agree with you that if you dial the clock back 12 months ago, you’re absolutely right, you could have CRM reps and EP reps and IC reps in the same line they would know each other, but there is a lot of cross talk occurring right now, and the reps actually understand working with their management, the value of what CrossCare can bring to them. So we don’t have any super hyper specialty incentive program that’s enabling this today. It’s really been enabled from direction, from the senior sales management team, down to the organization.

David Roman – Goldman Sachs

And then, maybe as a follow up, you showed a slide earlier that that gave what percentage of physicians were employed by hospitals. Maybe you could sort of help us understand where are we in that transition of purchasing power? Where if you look maybe a couple of years ago or even five years ago, north of 70%, 80%, maybe higher of the decision to purchase the device out with the physician, where are we today and where do you fit ultimately going?

Ray Elliott

Yes, I can do that, David. It was actually my slide. If you go back a couple of three years it was around 30%. It varies by sub specialty, but if we’re used generic numbers, that’s about right. It’s moved itself up to this point in time which you think about this how it’s changed over many, many years and has hardly been ever any movement. Kaisers, well, give an example of physicians employed or contracted to use the products as described by the hospitals. But the movement has been plus or minus a couple of percent. All of a sudden you got a movement from 30% in three years to 54%, 55% right now predicted for the end of this year, to a movement to what people will debate is between 70% or 80%, and then there is a belief that it will actually pull back 5% or 6% because there will be buyer and/or seller remorse on the part of physician getting up as independent.

So if we want to presume it’s going to end up somewhere it’s probably going to go from 30% three or four years ago to a level loaded 70% to 75%. And to Hank’s point, that changes the paradigm so dramatically for how we live, but that’s why CrossCare and what we’re doing we believe is out in front of the game that’s going to be there.

Larry Newman

Down in the front, Glen.

Glen Novarro – RBC

Thanks. Glen Novarro with RBC. Two questions for Hank. First, I remember seeing one slide about the DES market where you said it would essentially in five years be the same as it is today in terms of size. Now that’s much better than we are forecasting particularly in light of pricing going down high single digits every year, and I can’t imagine China and India are that big of markets for you. But maybe can you elaborate a little bit on the inputs into why you think the market is going to essentially stay stable from a dollar point of view over the next five years?

And then, the second is on the ICD market. We think the market is growing somewhere around 1% or 2%. In your five-year forecast what’s your assumption of the global ICD market growth? Thanks.

Hank Kucheman

Well, again, let me start with the latter one first. I think globally over the five-year plan we have on a global basis that peg in around low single digits two to three. In the US, we see it one to two. So those are and hopefully Jeff can confirm that, pretty much the projections that we have baked in.

On the DES market, I can’t and I think in a definitive way educate you on all the inputs that we’ve got for them, but we did some pretty exhaustive market research that suggested that some of the underpenetrated areas around the globe are going to grow fairly significantly compared to some of the more mature markets such as the US. And I even think there is more headroom in Europe quite frankly in terms of PCI growth. So when we factored it along, we saw it roughly in $4 billion and time will tell whether we’re right or wrong.

Glen Novarro – RBC

Just one follow-up. When Synergy does come to the market, I’m assuming in the model that is the product that starts to reverse pricing pressure, similar to what Cypher did with the stent market back in ‘03. So does all of a sudden Synergy allow you to premium price and really rise the pricing on drug-eluting stent?

Hank Kucheman

I think it’s too early to answer that question. I’ll just be speculating. I think we all have to see how the healthcare environment worldwide, it’s just not a US phenomenon, but worldwide is going to evolve in what within that environment various new technology introductions like Synergy can command in terms of premium pricing, but I couldn’t even guestimate at that today.

Jeff Capello

Just to confirm that yes in fact Hank does have the right numbers with CRM in terms of the outlook on the strat plan, the other thing I would add – would like to add is having just been to India and China and met with our teams, looked at that market, that market is growing very quickly. And with the growing affluence of that population and the commitment of the Chinese Government to spend a $125 billion on their healthcare system in the next five years, I think that our estimates in terms of markets, that a lot of that’s going to be supportive by the emerging markets where volume is going to go up quite quickly.

Larry Newman

Thank you. I would like to thank everybody on behalf of Ray and the senior management team for your participation and attention during the last five hours. I want to remind you that we have – we’ll be having the product fair open back up, so if you haven’t had a chance to stop by and see some of the products, please do so. And again, thank you for your interest in Boston Scientific.

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