Boston Scientific Corporation - Special Call

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Boston Scientific Corporation (NYSE:BSX) June 11, 2012 1:30 PM ET


Sean Wirtjes

Michael F. Mahoney - President

David A. Pierce - Senior Vice President and President of Endoscopy Division

Armin Ernst

Jeffrey D. Capello - Chief Financial Officer and Executive Vice President


Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Miroslava Minkova - Leerink Swann LLC, Research Division

Bruce M. Nudell - Crédit Suisse AG, Research Division

Imron Zafar - Jefferies & Company, Inc., Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

James Francescone - Morgan Stanley, Research Division

Sean Wirtjes

All right. I think we're ready to get started. Welcome to Marlboro. Many of you have probably not been here before. So welcome and glad to have you here with us today for our presentation: Driving Growth Through Endoscopy. I hope to leave you with a much better understanding of the Endoscopy business here at Boston Scientific and to give you a deeper view into the opportunity that we see with the Bronchial Thermoplasty product.

I'm Sean Wirtjes, VP of Investor Relations. I'll help kind of coordinate the meeting today, but we're going to have a number of different presenters and I'll hit on the agenda in just a moment.

Before we do that, I get to put the big busy slide up. I just want to remind everyone that we are going to be making forward-looking statements today and that there are always risks involved with making forward-looking statements. Many of those risk factors are outlined in our most recent 10-K and 10-Q and we'd advise you to take a look at those.

A couple of other things we need to get out of the way upfront here is that there are some products we're going to talk about today that are not approved by the FDA so you need to keep that in mind. They're not available for sale in the U.S., and that we do have some information today about expected product launch dates. Those are estimates as of today and you shouldn't take those as being statements of fact at this point.

So on to today's agenda. After I finish here in a moment, I will hand things over to Mike Mahoney, our President, who will make some opening remarks. Then we'll hand things up to Dave Pierce who runs our Endoscopy business, and Dave's going to take us through the business and cover a lot of the reasons why we believe it's a great business and has a great future ahead of it here at Boston Scientific. We're going to spend most of the rest of the day on the Bronchial Thermoplasty opportunity. And we have the pleasure today of having with us Dr. Armin Ernst who is a practitioner in the pulmonology space, who is doing the procedure today, as well as Pat DiGiusto, who is a patient who has had the procedure, who's going to tell you a little bit about her experiences with BT.

When Dr. Ernst finishes his part of the discussion today, we're going to do a brief 15-minute or so Q&A. We'd like to keep that focused on the clinical and technology aspects of BT, not the commercial side of things. Once Dr. Ernst is done, Dave Pierce is going to come back up and talk about that commercial side and he's going to participate in a Q&A to help wrap things up at the end here after Mike has done his closing remarks and we'll be able to talk about that more in that part of the Q&A, which is going to last about 30 minutes. And then when we're done here today, we would encourage you all to take a walk around the corner. Just outside this room, we have a comprehensive technology fair that's highlighting our technologies within the Endoscopy business that we think you'll find very interesting.

So with that, I'd like to hand it over to Mike. Mike?

Michael F. Mahoney

Thanks. Appreciate it. Good afternoon, everyone. Thanks for coming out. We scheduled without the Red Sox in town and without the salt fish in town. So if you're here, you're truly committed to your craft and again, thanks for coming.

And we really wanted to do -- we spent a lot of time when we meet with you to talk about -- talking our cardiology businesses, our CRM business and clearly, we're excited about those, but we wanted to really devote this session to Endoscopy, which is a terrific company for Boston Scientific, and this is the right platform to learn more about that.

I'd also wanted to just make some couple of introductory comments. I've been with the business now for 7 months. I really enjoy my experience thus far at Boston Scientific and -- but asked by a couple of you in the past, why did you join Boston Scientific and what's compelling about this company? And I do think a few of them. I think hopefully, you'll see that today.

One, your covered med device, really the impact that we make on patients everyday and you're going to hear a story from Pat today who I just met, which will fall right in line with our impact on patient lives, either helping patients and enhancing their lives or many times saving patients' lives with our CRM products and life-enhancing products like you'll see today with thermoplasty.

So we have a committed bunch of employees around the world of about 24,000 employees. R&D is a big part of what we do but at the end of the day, we do this for patients. And you'll hear some great stories today about that.

Second reason is our business. You know our business pretty well. We are market leaders in many key categories, which provide scale, which we think will be really important to have throughout the strategic plan horizon.

The third reason is really, value creation, and I firmly believe that this company is undervalued. Today, we trade just over say 1.1x sales. And I think if you look at the pipeline that we have, which you won't hear all the -- all the businesses today, that the efforts that we have to drive productivity and our global expansion opportunities, I believe you'll also see that we are clearly undervalued as a company.

On the strategy side, we'll have an Investor Day meeting that we'll schedule with Jeff and Sean. We're looking at early 2013, so we'll get that on the calendars.

But very briefly, here's 4 key themes that we'll talk about in detail at that conference. The first one is growing share in our core businesses, and Endoscopy clearly is one of our core businesses, over $1 billion in revenue, nicely profitable, excellent growth. So if you look at this core business, our IC business, our PI business, CRM, Women's Health and Neuromodulation, gaining share those businesses through very effective product launches that deliver clinical innovation and drive value economically to customers is a big deal through our sales channels.

The second one is driving global expansion, and we talked for quite a bit about these individual menus that we have. We have a terrific opportunity at Boston Scientific in the emerging markets as many of our competitors do as well, but we believe we've been underrepresented there in terms of our share position and with the portfolio that we have and the investments that we've made in India and China, you'll see that be a greater proportion of our sales going forward.

The third one is high-growth adjacencies. And you'll hear about the Alair opportunity today, and we'll talk in the very wrap up about 7 adjacencies that we'll move into, which all offer high growth, many of them over $0.5 billion in terms of market size and many of them, we'll have a leading position in. So there's many -- there's a number of high-growth adjacencies that we'll talk about, 7 of them in particular beyond our core businesses that will fuel Boston Scientific throughout the strategic plan horizon.

And the last one is funding the journey. And as you know, if you look at the competitive composite, we are under benchmark in terms of operating income margin and gross margin. And we really do believe with the productivity issues that we have in place today, be it plant network optimization, improving our COGS, improving our life cycle management, we will drive improved profit margin to go along with our focus on global expansion, gaining share and invest in the very smart adjacencies that have a high-growth profile.

So I really do believe in the strategic plan that we have to offer and you'll see today, a deep dive on Endoscopy and one of our adjacencies in the Alair business. So from here, I am going to turn over to David Pierce, and then we'll offer a Q&A after the session gets done to talk broader Boston Scientific.

And before David comes up, let me brag about him just a little bit. He's been with the company for 20 years. In that 20 years, he's been in this Endoscopy business for 10 years. So what I've seen at Boston Scientific are leaders who know their industries exceptionally well, and David's one of those. He came up in the sales ranks, marketing, business development. So he has multi-function experience. He knows the Endoscopy space very well, and he's also a good lacrosse coach from what I understand, from what he tells me.

So with that, I'll turn it over to our President of Endoscopy, David Pierce.

David A. Pierce

Let me welcome everyone to Marlboro as well, global headquarters of the Endoscopy business. I come here everyday, I realize coming from New York to get to Marlboro is not the easiest route, but welcome, and thanks for coming out.

I'm really thrilled to be able to do this today. I've been wanting to brag about the Endoscopy business for a long time and this is a great opportunity. And I think the BT opportunity is a compelling one as well. So let me just kind of set the context for our business then I'll talk about the market and then get back into some specifics about Boston Scientific Endoscopy. Over the past 3 decades, we have established ourselves as the world leader in devices for GI and pulmonary interventions.

Our global revenue, Mike mentioned, is over $2 billion -- I'm sorry, $1 billion and we have a nice balance between U.S. and international sales and I'll show you some detail on that in a few minutes. We've accelerated our investment in R&D and we feel like that's going to continue to pay benefits in the years to come. And through BT and other areas, we're targeting new and high-growth markets to continue to grow this business.

Endoscopy is a unique space. It is not dependent on a single technology or a single procedure. It's really a business where there's multiple technologies, multiple procedures, multiple physician groups that utilize devices that we make and we participate across all of these different areas.

For example, GI cancer. We make stents and other products that are used throughout the complete GI tract, the esophagus, the duodenum, the colon and the liver. With pancreaticobiliary disease, this is our biggest area of sales and revenue and it's an area that is highly technical and requires a broad toolbox of devices in order for these physicians to be successful. And we believe one of our clear advantages is the depth and breadth of the toolbox that we provide to our physicians. So broad, broad categorization of markets and a broad need for a big toolbox of devices.

These markets today, we estimate our served markets of about $2.7 billion and we believe that they're going to grow nearly double digits over the next 5 years and reach a served market of about $4 billion. Within that, you have core, the core business is growing at 4%. In these growth markets, of which Bronchial Thermoplasty is one of the key drivers, north of 30%.

Boston Scientific Endoscopy has been a consistent company as it relates to growth. Since 2000, our growth rate averaging 10%, and what's interesting on this slide for me is the increasing role that the international revenue is playing in our business. We have made focused efforts to really balance our domestic and international sales and you can see as it's represented up here, it's nearly a 50-50 split.

This is kind of a pie chart of our worldwide sales. You can see the U.S. at 48% with strong businesses in Europe, in Japan and while currently, Asia-Pacific and Latin America only represent 8% of our business, in 2011, 34% of our growth will come out of these 2 regions and we expect them to continue to grow very aggressively going forward.

We've established, across all of the categories that we participate in, a leadership position and we've done that through internal R&D, distribution agreements, as well as acquisition over the past several years. This leadership position gives us a very good position to the marketplace and strength because the depth and breadth of our product line allow us to meet the needs of our GI customers, our pulmonary customers and some of our surgery customers as well.

From an R&D standpoint, one of the challenges of the Endoscopy world is you have so many businesses to invest in. You have to really make good, smart portfolio decisions. We feel like that challenge is actually one of our strengths and we have active projects in every single one of our categories and we expect that these projects will continue to allow us to grow above the market rate for the years to come.

I'm going to spend the next several minutes just talking a little bit about some specific technologies and some specific procedures that we do in the Endoscopy space and illustrate how these Boston Scientific Endoscopy products have made a difference in these marketplaces.

So let me start with the WallFlex GI Stents. Now my cardiology colleagues are definitely in the stent business and they talk about stents all the time but these are a little bit different. These are diameters up to over 20 millimeters length that are significantly longer than what you'll see in the cardiology realm.

And as I mentioned we're using the esophagus, the common bile duct, the duodenum and the colon. So a lot of geography, we are covering with stents. The bulk of the stents that we manufacture and sell are the WallFlex family of stents and these are self-expanding metal stents. We sell them with fully covered, partially covered and uncovered varieties. So there's a lot of nuance in the GI stenting world and we endeavor to cover and make products available to cover every potentiality for our customer base.

This is a technology, we manufacture it in Ireland and we launched -- we began to launch it -- it's a whole family so the launches took place over many quarters. We began to launch in 2007. That first year, we had revenues of $30 million and over the ensuing 5 years, we've grown this franchise to $170 million. So it's been a fantastic product line for us and it's been performing all over the world. And one of the beauties of the Endoscopy business is you can continue to iterate and develop and expand the indications for these devices.

So just in 2012, we've come up with a Transhepatic version of the Biliary WallFlex Stent. So the interventional radiologist who have been clamoring for this device, now have access to it. In emerging markets, we've gotten a benign indication. So for Biliary, it's not only for cancer patients, it can now be used for benign diseases as well. And lastly, we've just launched the first colonic stent in Japan. So these markets and these procedures have long shelf lives and are continually able to be iterated so the market can continue to grow.

The next product I'd like to talk about is the CRE Balloon Dilator. This is a perfect example of how the product life cycle in Endoscopy can be extremely long. This is a product used to dilate different parts of the anatomy, that was launched in 1998. It's truly global, 85 countries, we sell it in worldwide. We've exceeded $1 billion in cumulative sales. But what's beautiful about this particular product is, the product launch in '98, we've got a new indication for it this year, Dilation Assisted Stone Extraction, which will continue to grow this marketplace. So we've sold over 4.5 million units of this particular product in a market now at about $115 million per year.

I want to take the next minute to show you a video. The video is going to talk about DASE, Dilation Assisted Stone Extraction but it's also going to show you the basic procedure of pancreaticobiliary medicine, which is called the ERCP. So let me walk you through that. So here, you can see the liver and the scope coming down through.


And basically, here's some stones in the bile duct, that's called the papilla, that's the entryway and it's a little small. So you got to kind of put a wire through, put the wires up through the stones and then in order to get those stones out, you have to make the opening bigger. So this is a Sphincterotome, which is basically cutting the papilla to make it more open so that you can get flow back through. Now you're putting your balloon across that opening to make it bigger still. You see you're going to inflate the balloon.

And here, you can see some actual clinical footage on the left-hand side. There's a cartoon of the balloon opening. Bring the balloon down and out and usually, the stones don't fall out that easy. But here's 2 other technologies that you can use to take out stones. In the left, you have a basket that grasps, our trapezoid basket that grasps the stone and you pull that out. On the right, you have our extractor balloon where you go in past the stone, inflate the balloon and pull it out as well. So these procedures aren't kind of one-size-fits-all. You might have all sorts of different presentations of stones within that duct and you have a broad set of tools to appropriately go in and resolve that issue for the patient.

The next product, the third product in this category that I'll talk about is a Resolution Clip. GI bleeds are the most emergent procedures that our customers deal with. Sometimes in the middle of the night, the bleed is obscure. They're not sure where it's coming from. They're nervous because the patient may bleed out. We introduced a Resolution Clip in 2004 and it quickly became the standard of care for resolving GI bleeds. And it's amazing to me because the reason it became the standard of care is because it has the ability to basically open and close. Clips prior to this, basically you close them once and you had to fire them. With the Resolution, you can actually go in, clamp down on the bleed, irrigate, make sure that the bleed is under control and fire off the clip. If it's not, you open it up and you reposition. It sounds so simple but it absolutely revolutionized the treatment of GI bleeding. This is a market that, for us, is now in excess of $115 million. We've sold over 3 million clips. I think most importantly and one of the foundations upon which we try to develop our business, is we've got over 222 clinical articles that talk about the utility and the value of this clip in the marketplace. So this has been -- this is -- clipping has now become the standard of care for first response to GI bleeding.

So let me talk briefly about 2 more additional things. I'm going to talk about how we're driving growth in new markets. I'm going to start with our Expect EUS Needle. Now, EUS stands for endoscopic ultrasound and endoscopic ultrasound has traditionally been a diagnostic modality practiced by a relatively small number of physicians. But it has grown each year in double digits and it's becoming a more commonplace procedure and it's becoming more and more important in the treatment of pancreaticobiliary disease.

We entered this marketplace in 2011 with our first launch of the Expect needle. We've continued to launch additional configurations of that needle in 2011 and 2012 and we expect that we'll take a leadership position in this category in the near future. Now we're very happy with our progress to date and we'll continue to push for additional market share.

I think this $80 million number is actually very conservative because much like ERCP, which is the procedure I just showed you, that was fundamentally a diagnostic procedure and evolved into a very therapeutic procedure. I see endoscopic ultrasound having that same migration from diagnostic to therapeutic and part of our investment in product development will be in therapeutic devices for EUS applications.

The next technology is a technology that's called Cholangioscopy and this is a marketplace that we entered with a fiber-optic single operator scope several years ago. This is a market that did not exist. What this allows the physicians to do is actually see like you see with the human eye up into that bile duct. Prior to that, you're using contrast-enhanced fluoroscopy. So you had a 2D image versus what you see with the human eye.

But this is not just a visualization technology, it also allows you to do therapeutic procedures whether it's biopsy, EHL, laser, those types of things. We've taken this technology to the next phase and creating a digital platform for it. So we'll improve visualization and we're going to potentially take it and iterate it into transhepatic configurations as well as potential configurations in the pulmonary space. Again, I believe this projected market size is very conservative. I want to show you a quick video of the SpyGlass technologies as well.


So here you have the standard scope going through the esophagus, into the stomach and then, into the duodenum and what you'll see is the spy scope exiting the duodenum scope through the papilla that's obviously, already been expanded, up into the duct. And so you're able to visually see everything that's going on in the duct. Here you have a lesion, you can see the 2 ducts here. You're coming back. You have the ability to irrigate with the scope so you can clean your field of view. And then in this case, you're going to see a biopsy forcep exit the catheter and take a biopsy sample, and you can see the real image up in the left-hand corner and take a biopsy sample of that lesion.

Here's a situation where you had a stone like we've seen before and this goes back to you need toolbox. We have laser that is actually being applied to these stones, breaking them up into small fragments so that it can more easily pass out of the common bile duct. This is a technology that is unique to Boston Scientific and it's really one of the foundations upon which we can go in and become a full-service provider to our GI device customers, okay?

In addition to the internal R&D and the other -- in the markets that we talked about earlier, we do see adjacent opportunities. BT is one of them. We're going to spend a lot of time today talking about it, but we also see the evolution of the device solutions in the obesity and diabetes space. Clearly, a global epidemic with a good surgical option with the Roux-en-Y gastric bypass but the penetration of patients eligible for Roux-en-Y to those who actually get them is very low. And one of the issues there is the morbidity, mortality and quite frankly, reluctance by these patients to go through such a dramatic surgery. And we think that device tech will evolve in this space and the standard for those are going to be how closely can they mirror the clinical results of the Roux-en-Y gastric bypass.

Emphysema, another big opportunity, 15 to 20 million patients worldwide. This is another area that has a good surgical alternative as far as efficacy goes, but it's a big and morbid procedure. And there's a lot of adverse events associated with the emphysema space as well and we feel like the device play is appropriate here. And then lastly, lung cancer. We do have a small lung cancer business now, mostly in the diagnostic side of it. But we do think that mapping and other technologies are going to emerge especially with some more aggressive guidance and on screening for patients with lung cancer going forward. So these are just 3 adjacencies that we think that the device world will evolve very aggressively in.

So our goal aspirationally, and I said $2 billion when I first started, is to grow this to $2 billion. Right now, we're at about $1.2 billion. We see our core markets growing at about 4%. We feel like we can grow our core business 2 or 3 points higher than the Core Market growth through R&D and sales execution as well as international commercial activity. We see Endo total growing at about 10% per year, $1.2 billion to $2 billion and that's basically on the back of our core growth at 7% plus the growth that we want to experience in Bronchial Thermoplasty.

So with that, we're going to transition to our discussion on Bronchial Thermoplasty. I'm very thrilled today to have Dr. Armand Ernst join us. Dr. Ernst is a global key opinion leader in the pulmonology space. He happens to be located nearby in Boston, which makes it very convenient. He's been very involved in BT and many other technologies over the years. He's a much sought after confidante. He's currently Director of Network Development and VP of Thoracic Services at Steward Health Care, and he's also the Chief of Pulmonology, Critical Care and Sleep Medicine at St. Elizabeth's Medical Center here in Boston. Dr. Ernst?

Armin Ernst

Thank you. Good afternoon. Thank you, David, for the nice introduction. I really appreciate the opportunity to spend not just a couple of minutes but really, almost an hour speaking with you about Bronchial Thermoplasty. I'm an endoscopist, interventional pulmonologist. So when I got the call to see if I could present a little bit of this today to you, I wasn't sure if I'd be out of my depths but hopefully, I will convey how this really has changed our lives as pulmonologists and hopefully, you will agree once Pat DiGiusto had a chance to step up here, how it really has impacted some of our patients' lives. I'm neither paid by Boston Scientific nor do I have stock option but my last 20 years from my professional life really has evolved around new device development, R&D and these other companies, I have been either in contract with or have been a consultant to.

This is what we're going to talk about. I'm going to go a little bit about the reason why asthma treatment is actually important. Then you'll hear about the patient story that we talked to you about, followed by some technology and clinical data about the trials that have been performed and then I think, David comes back up for the market opportunity and the commercial plans as they relate to Boston Scientific.

So let's talk about asthma for a moment. When I sort of had a rough count when I looked around, we have about 50 or 60 people in the audience. So it is highly likely that there are at least 2 or 3 amongst us who actually have asthma. And if that's not the case, many of you know, at least, of 2 or 3 people who have asthma and it is a chronic disease. So it's not something that you get, that you deal with and that disappears. That only exists in the pediatric population. Once you're an adult and you have asthma, you have asthma for life. And what is it? It is a disease that really affects the airways, and the airways are sensitized to once triggers occur, to constrict. And with that, you can't have the normal airflow occur in and out of the lung and that leads to wheezing, shortness of breath, infection and the need for medical care, sometimes emergently.

You've heard all about triggers, I suppose. So what makes asthma actually worse? And it can be dust, it can be allergens, all kinds of things that also relate your everyday life. The way we lead life everyday is not something that we can change much, especially if you live in urban areas. And if you just look at that map and you see where, really, the asthma incidents is, you see that it is highest in areas that are industrialized or westernized.

So if you look here, the United States, Latin America, Europe is really a close behind. Even though it's just yellow, the U.K. is already red, and the rest of Europe is very close behind and Australia. So there's a very direct link and urbanization is becoming more prevalent, right? Over the next couple of years, this will continue to be a trend and asthma very closely resembles this. So the estimate is that in 10 years from now, it will be another 100 million asthma sufferers. So this is not a small population disease. This is something that is out there, it's common and it's growing.

If you look at the data, interestingly, in now the United States, even though we've made progress with cleaner air and things like that, asthma continues to rise. So despite the correlations that we've established, we don't completely understand why that's the case. But the fact is, and it's been mirrored worldwide, that the trend continues to be upwards, and we have really come up with nothing medically that seems to reverse that. So at least for the near future, we really need to brace ourselves for a lot more patients seeking medical care for this chronic disease.

Now if we could easily treat it, it would really not be a big problem. But when you look at the health care utilization for asthma and what it really means for the patient, it's not a simple pill per day and you're fine. Patients need a lot of medication and they need a lot of attention, especially if you have severe asthma. The number of hospital visits and ED visits, really very expensive ways of managing somebody's disease, are very high. Just look at the percent of all asthmatics in the U.S., a quarter needs ED visits per year, that's dramatic. If you look at these numbers, that is significant and you're all following the health care debate, it is a big reason why health care for us is very expensive.

I briefly alluded to the fact that if we had a simple pill and everybody would be fine, it would not be a problem but asthma management is difficult and it's complicated. For many patients, simple inhalers may be fine. But for a lot of patients, it's not and that's why we need the stepwise approach. And some patients start as mild asthmatics but really get worse over time and may move from here to a higher step where you either have to increase the medication that they are on or you have to add drugs. And the problem is that a lot of the medications, especially up here, have significant side effects. Once you are on high-dose steroids, you can have everything from weight gain, bone loss and all kinds of other things that happen and a lot of patients don't tolerate the medications that they would need for optimal control. So physicians and patients in the step 5 or 6, this is really where we need help and this is really where the opportunity lies to, for us at least, tell our patients something really has come along. It's not just more drugs every time you get sick, we have something else to offer.

So looking at these numbers, the prevalence in adults, that's why I said at about 50, 60 here, we should have at least 3, 4, 5, a few who are asthmatic. So I mean, that should apply to some of you in the room or people you know and we think that about 1/3 of those patients really need significant attention. The high doses that I just mentioned don't just have significant side effects, but also, those patient populations really does require significant attention in terms of support and expense.

But it's one thing to give you statistics, how many patients are out there and what can happen, can't happen, what is tolerated and just say here, we can help 2% or 5% or 15%. I think it's a completely other thing to hear it from a patient who really had a significant problem, had an intervention and is better and Pat DiGiusto really was our first patient for Bronchial Thermoplasty when we started out. And Pat reminded me that it is to the day now, 15 months that she has been treated. So it's not just yesterday or a couple months ago. Pat will tell you how her life has been, a little bit over a year now since she's undergone Bronchial Thermoplasty. And Pat?

Pat DiGiusto

Thank you, Dr. Ernst. Thank you, Boston Scientific because without both of them, I literally wouldn't be here today. So I'd like to thank anybody who has anything to do with the Bronchial Thermoplasty. And I'm here to tell you today that I no longer consider myself asthmatic. Now is that semantics? Of course, it is. We all know that asthma is a chronic condition but I don't feel like an asthmatic anymore. I can breathe. I don't wheeze ever and I haven't used my rescue inhaler since March 16, 2011. That was the day I had the first of the 3 procedures of Bronchial Thermoplasty and this is from a person who never left my house without my inhaler in my hand. It couldn't be in my pocket book, it couldn't be in my briefcase or my pocket, it had to be in my hand because without it, I could not leave my home and worry that I would not be able to breathe.

I needed to take my inhaler when I walk down the 50 stairs to my pool. Going down wasn't bad but coming up, I often had to stop once or sometimes even twice. Use my inhaler, rest and then continue on. I no longer have to allow asthma to terrorize my family and my friends and it did for many years. I don't have to let it interfere with my professional life because you see I'm a speech to language pathologist and one of the things that I always taught my clients was the importance of good breath control. Kind of ironic since my breath was always compromised by asthma.

I won't ever have to leave my house again as far as I'm concerned, worrying if today is going to be that exacerbation from which there is no recovery. Now that might sound a little bit melodramatic to some of you but that's how I've lived most of my adult life. Now I would venture to say that most of you would not be happy if you had a Pulmonary Function Test or use the Peak Flow Meter and saw the numbers that I get because I do still have asthma but I'm thrilled because they're better than they ever were.

One time, I was at my pulmonologist's office about maybe 6 months after I had the Bronchial Thermoplasty. I blew into the Peak Flow Meter and when we saw that number, we yelped inside the office. So much so that I'm sure that the people in the waiting room must have thought, my God, what's going on in there? But we were both thrilled.

All of this is actually a direct result of the Bronchial Thermoplasty, but let me start at the beginning. In the late 1980s, I was attending a function at my daughter's school and the woman beside me, just to make conversation, said how long have you had asthma? I was rather indignant and said I don't have asthma and she said I'm a pulmonary nurse, you have asthma.

So the next day, I made an appointment with a pulmonary specialist and the physician looked at me and said, you have quite severe asthma. But you see, it was just part of me. I didn't know that anybody else breathes any differently than I did and all of the standard questions revealed the fact that I've never smoked a cigarette or anything else in my life, that no one in my family, to the best of my knowledge, ever had any respiratory diseases or disorders and that I consider myself a pretty healthy person but I did get kind of uncomfortable and a little out of breath when I did anything that involved physical activity.

As soon as the diagnosis was confirmed, I began to do my homework. I attended some informational classes at a respiratory hospital in my town. I distinctly remember one of the seminars being called: Living the good life with asthma. Really? Asthma never showed me anything good.

Although I will share with you one brief moment of levity related to my asthma, my husband and I were caring for his elderly mother, and after fighting with myself all night long, I finally called 911 for myself and the ambulance came with the fire engines and the paramedics and I spent the next 5 days at Quincy City Hospital. We returned, on the following weekend, to my mother-in-law's house. Once again, I had to call 911. But this time, it was for my mother-in-law and when the paramedics walked into the same address, in the same house and looked at the woman sitting in the same chair, the paramedics said, oh, my God, this woman got so old in a week. When he turned around, I think he and I were both relieved that it was not me.

My life was actually consumed by asthma. I thought about asthma in every single thing that I did. When it was time to plan a vacation, unlike what most of you probably do was say shall we ski or go to the beach? Shall we bring warm clothes or heavy clothes? My questions always were is there a 911 system and how far away is the closest emergency room? Because I'd venture to say that I've been in more emergency rooms, maybe even than Dr. Ernst's because I've been on them on every single vacation I've been on for the past 30 years, one of them in New York City. You've never been in an emergency room until you've been in one in New York City. I've been seen on medical services on 2 different cruise ships, at Disney World in Florida. And then of course, the Carney Hospital, which I call my home away from home. I was there so often as an in-patient that people would see me that work there and said, I know you, where do work in the hospital? They knew me as well as they knew people that they worked with. And of course, I was very friendly actually, with most of the respiratory therapists and I believe that this familiarity actually saved my life one night.

The thing that's scary about asthma I think is, if you've had it for a long time, you'd get rather complacent even as a patient with it and you say oh, it will be better, I'll use my nebulizer. But this one particular night, I did everything that I could do at home and I was still in a lot of trouble. So after several IV Solu Medrol treatments in the emergency room and several breathing treatments, I wasn't getting any relief. I saw them bring in the intubation kit. I asked them to bring in a priest. At that very moment, one of the respiratory therapists that I knew, walked through the emergency room on her way home at the end of her shift. She stopped and with all the breath that I could muster, I told her that I was going to die. She put her face in my face and said, not tonight.

To make a very long story short, she stayed with me for the next 3 hours, and I'm convinced that she saved my life that night. She breathed every breath that I breathed all night long. A lot of those ER visits often ended in 2, 3, 4 or sometimes, even 5 days in the hospital. I use so many sick days at work that I had to use the sick bank on many occasions. My mother in jest, actually bought me a coffee cup that said I used up all my sick days so I'm calling in dead. Not very funny, but found it funny at the time.

Upon discharge from my hospital stays, I always felt great. Lots of energy, at my baseline, minimal wheezing. But then, of course, I'd have to deal with the withdrawal from the steroids. Mood swings that were horrible, laughing one minute, crying the next, huge body aches that I always experienced after every time I was in the hospital, not to mention the effects that the steroids were having on my bones.

My family was also hugely impacted by my asthma. For my husband, having a wife with a chronic illness was extremely stressful. After the thermoplasty, he told me that many times, he thought that he might never see me again. For my children, it was very difficult to have a mother who couldn't always be there for them.

On a positive note, my children very young, learned how to be responsible in terms of calling 911. One would call and the other would wait by the door to open the door for the paramedics. Most of the time, that was my son, and I begin to wonder if he didn't like to see the fire engines come up or he chose that as his job. But they also learned a lot of responsibility. Whenever I ask for my inhaler, they always came shaking it because they said this will save you time Mommy, you can use it right away.

But unfortunately, they also learned to deal with a lot of disappointments. I remember missing their sporting events, ballet recitals, award ceremonies and concerts. They were disappointed but I was devastated. I clearly recall being an in-patient at Carney Hospital right before Christmas and with school children from the neighborhood singing Christmas carols in the hall. And while it was wonderful, it was the same time that I was missing my son's Christmas concert at his school. And I can just picture him scanning the audience, seeing everybody else's mother but not his.

These are small things but these are the things of which life is made, and this is what asthma did to my life for many years. As a mother, my heart was broken. Once again, asthma controlling my life and the lives of the people that I loved.

Now I'll never be one of those people who could stand before you and tell you that because of the Bronchial Thermoplasty, that I'm training for a marathon. Not going to happen. However, I can walk on my treadmill at a modest speed, on an incline for over an hour and not even think about wheezing.

Before, I used to be on for 10 minutes, and I had to get off to use my inhaler. I can walk up and down those stairs to my pool without even stopping. And I can do something that may sound trivial to most of you. I can blow out a candle. But with my asthma, I could put my face this far from the flame and blow. It would waver, but it would not go out. I didn't have enough breath to blow out a candle.

My last birthday cake had many candles. And kindly, my family did not put as many as they should have. But somehow, I managed to blow them all out, and it was wonderful.

I can play in the park now with my granddaughter. As a matter of fact, she was the first one who actually commented after I had the bronchial thermoplasty. She stopped dead in her tracks and turned around and said, "Nanny, you can run." And it occurred to me that I never ran before that with her. She had never seen me run. She even noticed that I can push her harder and longer on the swing. Small things, important things.

Around Thanksgiving of the year before last, I had a routine visit with my pulmonary specialist, Dr. Tony Badlissi [ph]. Without him, I know that I wouldn't be here today. He's the perfect combination of a skilled physician and a caring human being. Under his watchful eye, my breathing always got better in a short run. But we were both very discouraged by the fact that the exacerbations and the hospitalizations were still far too many. I was actually beginning to feel guilty because I wasn't getting any better with all of his efforts.

Approximately 3 years ago, Dr. Badlissi [ph] prescribed a monthly injection for me called XOLAIR. We were sure it was going to be the answer. While it seemed to help, it became clear that it was not the answer. And just to note, it was costing my insurance company a lot of money. And I mentioned that because I'm going to refer to my insurance company again. Since the thermoplasty, I no longer use XOLAIR. I haven't used it once since I had the bronchial thermoplasty.

Dr. Badlissi in November of 19 -- excuse me, I'm old -- in November of 2010, mentioned that he had just become aware of a procedure called the bronchial thermoplasty. But at that point, it was not yet approved by the FDA. So every time I went back, which was every 2 weeks incidentally, I say, "What about the bronchial thermoplasty? What about the bronchial thermoplasty?"

Finally, it became approved by the FDA, and he told me that Dr. Armin Ernst would interview me to see if I was a candidate for the procedure. I was actually more nervous than any more interview I ever had in my life because I said, "This is going to be it. This is going to help me."

I spent a long time with Dr. Ernst and his staff, probably over an hour. And at the end of that time, Dr. Ernst asked me when I could come to have the first of the 3 procedures involved in the bronchial thermoplasty. My answer to him was, "Are you busy right now?" He was. So I had to go home and wait 2 weeks to come back and have the first of the 3 procedures done.

On the day that I was leaving to go to the hospital, my mail came, and there was a correspondence from Harvard Pilgrim, my health care provider. I opened it up, and in that correspondence, it said "Refusal to pay for this experimental procedure." Well, I panicked. I called Dr. Ernst's office and Paula [ph], his nurse liaison who is an integral part of this whole process said, "Don't worry about it. Come on in. We'll talk about it." But you have to understand, at this point, I didn't know if this was even going to work, and I couldn't put my family in that kind of financial trouble. I mean, I was going to be in the ER 3x. Do -- I was going to have Dr. Ernst's services 3x, recovery 3x, and I was concerned I wasn't going to be able to pay for it. Well, I went into St. Elizabeth's. And next thing I know, I have on a blue gown and a hat, and I thought, "Well, I'm not having this done. What's going on here?" Dr. Ernst came down and spoke to me and said, "This is important. We're going to do this today. Don't you worry about it." And obviously, things, well, worked out.

I wouldn't want to be quoted on this, and I don't think anybody here works for Harvard Pilgrim, but I'm hoping someday that they might pay for this. But if I knew today -- if I knew then what I knew today, I would have found a way to pay for this life-saving procedure because it really has saved my life.

When the producer from Channel 5 news here in Boston asked me to describe the bronchial thermoplasty, my answer was "It was a piece of cake" because it really was. I'd rather have it done again than go to the dentist. The only slightly difficult thing for me was having a pulmonary function test right -- very soon after waking up from anesthesia. Now you have to understand that PFTs were always difficult for me. Anything that involved breathing was difficult for me.

But I think that was particularly difficult because, one, it was done shortly after anesthesia; two, I knew that I had to reach 80% of my pre-procedure numbers in order to go home, and I did not want to stay in a hospital; and number three, I worked in education all my life. So if I'm having a test, I don't care if it's calculus or math or science or a pulmonary function test. I want an A. And apparently, I got one because they let me go home.

Now I had been told that shortly after the procedure, that I might have an asthma attack. Not to worry, that it was normal. My experience was that I did not have an asthma attack. As a matter of fact, I have not had an asthma attack since that very day. I didn't have anything that even remotely resembled an asthma attack. I actually felt that I could have gone to work the very next day. I didn't feel great, but I had gone to work on many occasions when asthma had made me feel much worse than I did on that day.

I remember Paula [ph] calling me from Dr. Ernst's office. She kept in very close contact with me after the procedure. And I said, "Yes, I think I could have gone to work today." And her response to that was, "No way." I said, "Honestly, Paula, I could have gone to work." I did what I was told, though. I relaxed for a couple days, and then I resumed my already better life.

My husband, who's usually a man of few words, tells everybody that his wife is brand new, and it's true. He's told so many people about the bronchial thermoplasty that people call me from his business and ask me about it. And one phrase that I always use is life altering because it truly has changed my life. And he's right, I am brand new.

If you remember, I had told you that I had visited medical services at Disney World in Florida. Well, when I went to do the segment for the doctors for Boston Scientific, my family and I were lucky enough to spend some time at Disneyland. It was pretty hot when we were there. If any of you have been to Disneyland, you know you walk and walk and walk. So I pushed my granddaughter's carriage and we walked for miles, and we were there for 10 hours and no breathing problems for me. As a matter of fact, my husband and my daughter said, "Can you please slow down?" Life altering, indeed.

Once again, I want to thank everybody from Boston Scientific because you truly have not only saved but changed my life. And they say that you can't buy life, but the bronchial thermoplasty has bought me a quality of life that I never thought that I would experience. Thank you.

Armin Ernst

I mean, there's really nothing else to say, right? I mean, the profession I am in is trying to help people. Once you had the first patient, somebody like Pat, how can you ever go back? And I have to say our results, and we were just talking about this, I think, we're on patient 14, have been consistent. And it's great. I mean, that is not something that I hear every day from my patients either.

So the next, I think, 15 minutes or so, what I want to do is really talk about the technology and some of the clinical data. So not an individual outcome but what do we know in terms of studies about this. Why do we think this works?

This is an airway. This is what all of us have in our lungs. This is the plumbing. What airways do is make sure that air can move from the lungs themselves to the outside world and back. And you can imagine, similar to plumbing, when it clogs up or when it closes down, the flow can't work as well.

Asthma is a complicated disease. Part of what happens is that the muscle layer in the airway wall gets bigger and thicker. And with that increased muscle mass, the thought is that the airways can constrict more and constrict longer than they otherwise would. And this is where the asthma attack comes in. So it's not just swelling and other things that happen in the airways inside, but it's also basically a cramping down of the muscle that keeps the airways shut. That is really the thinking behind the reasoning why we experience asthma attacks.

Most medications try to avoid the inflammation and the swelling on the inside lining. Bronchial thermoplasty tries to actually address the smooth muscle. So it's a completely different way of working on trying to keep that clamping down from happening. And the way we think this works is by reducing this muscle mass, you should not really have the same ability to constrict your airways. With that, your exacerbation numbers should go down. And even if it happens, it should not be as severe.

And what it's all about is quality of life, right? I mean, we know that all kinds of parameters are important, but what's important to the individual patient is how you feel. And if you can't breathe, you don't feel good. And that really is a key driver of quality of life, your ability to breathe properly.

Bronchial thermoplasty is approved in the United States, and it's been approved just before Patricia was treated. And it is really aimed at adults. And remember I showed you that stepwise treatment schemata. So it is really for the moderately severe to severe asthmatics who are not well controlled. So it's that upper strata. In Europe, the CE mark is for treatment of asthma in patients who are 18 years and older.

And it's a catheter-based system. It's done bronchoscopically through an endoscope. And you've seen the animation about the GI scopes. The bronco scopes that we use in the airways are similar. They are somewhat smaller but really have the same functionality and the same build. They have a working channel, and through that working channel, that catheter gets introduced. It comes out at the end. And what happens is that through the controller, radio frequency energy gets delivered, and it gets into the airway walls through the attachment of that catheter. Once it sort of opens up, it attaches to the airway wall, and this is where the energy comes across. That energy delivery is basically heat, destroys the inside, just the muscular layer of the airway wall and leaves the rest of the airway intact.

This is all novel, but the use of radio frequency is mature. Radio frequency has been used for, I don't know now, 30 years maybe. We use it for all kinds of abnormalities in the body. The controller really for that reason doesn't have much to it. There's not a whole lot to learn in terms of energy settings. That part is a very mature technology.

What we do is, and Patricia alluded to the fact, is we split that procedure in 3. The esophagus and the GI tract is relatively simple. It's sort of one long tube that's sometimes rolled up, but it is just one long tube.

So we pulmonologists think of airways as much more complicated space. It's an upside down tree really if you think about this, right? So there is one single entry, but then it keeps splitting. And if you just look into the amount of just the geography, the sheer number of airways that are involved, you can sort of see it keeps doubling, doubling, doubling. It's significant. To do this all in one setting is not that easy.

The other thing is should anything happen, that is always the safety thought at the beginning, you only treat part of the lung, but you still have the other parts of the long untreated, so it leaves you a safety cushion in case you run into trouble. And it gives you that particular, I said, safety to feel comfortable when you treat.

So treatment one, this is called the right lower lobe; treatment two, this is called the left lower lobe; and then the 2 upper lobes in the third setting. And generally, we have 3 weeks in between because again, as mentioned, there can be a mild asthma flare in between. You would want that to be behind you before you do the next procedure. So 3 procedures 3 weeks apart really makes it sort of a small program, right? You have to map this out for about 9 weeks.

This is a short animation about how this works. This is the endoscope, in this case a bronchoscope that comes through the trachea, which is the single airway. This is where you split in left and right. And I assume this will run in a moment. Yes.

Going to the right side into the lower lobe, it's all done under vision. Here you see how it is blown up a little bit. That's the catheter that you saw, and these are the areas where it connects. For a few seconds, the energy gets delivered over about a 5-millimeter period, and you just keep pulling back and deliver the energy itself.

I really like the laser use when I saw that for the stones. That's sort of exciting. When you do the endoscopy with the layer system, nothing like that happens because the energy level is not that high. It's really just plenty warm. So there is no smoke. There is actually nothing that particularly happens that you see. What you really have to pay attention to is remember the tree, that you don't treat the same area 2x or 3x but that you really make sure that you go about it in a very structured manner.

This is what we know about it. We just talked a little bit about how the procedure goes. This is what has been published. And I have to commend the company that really started doing this. I have followed this since inception, and it was a very well laid out plan. Start small, really get early experience, and then build up in intensity of the study, knowledge that gets collected and then really end up at the trial that led to the FDA approval. So 4 trials, 4 actually very well-run trials that also ended up in very well-recognized journals.

The first one is usually what you do in device trials. You try in a small number of patients really to get some safety data. Can this be done, what are some of the early issues that arise and react on that. The AIR trial was already aimed at severe asthma patients and compared in a randomized fashion standard of care versus BT and had good results follow fairly immediately in patients with really very severe asthma.

And for pulmonologists, that was truly a sea change. 5 or 10 years ago, if anybody would have said we need to do bronchoscopy on somebody with asthma or severe asthma, most pulmonologists would have said there's no way because that is what you learned in medical school.

Doing a bronchoscopy on somebody with asthma is not something that you want to try because you can actually trigger asthma, you can run into trouble. To really think of this as a therapeutic option was new, was new to the community. And these trials showed us not just that it can be done safely, and that was new in itself in large populations, doing this safely. It can be done. It can be done in multiple centers. It was new, and it was great.

And that really established the foundation of knowledge that was required.

You could have never done this trial because you would have not found a center willing to participate. But putting this all together, this really very large trial was done comparing standard of care versus bronchial thermoplasty. And it was done double-blind and sham controlled, which in the pulmonary device world is novel, right? We do that for drugs all the time, and we should be doing this for devices. But that was one of the first trials that really -- did it really well and showed the community how it actually should be done. And the results were truly convincing. If you look at the data, 80% of patients, 4 out of 5, felt better afterwards. And they're not talking a little bit better. I mean, you just heard about the difference of what better truly means, 1/3 decrease in severe exacerbations. And I told you at the beginning patients need the EDs around. Patricia needed EDs everywhere. An over 80% decrease in emergency department use is huge not just in quality of life but in health care utilization.

And what we were concerned about at the beginning, what are the potential side effects, nothing really has turned out to really be of major issue. We have 5-year data now. I think that part is really off the table for most practicing pulmonologists. This is a safe procedure. No short-term significant effects, no long-term effects. And this holds true.

If you ask your patients, "Would you do this again" or "Was this a terrible experience", almost everybody would say they'd do it again. I haven't heard anybody yet say that they would do it over going to the dentist, one to me, but that is not something that holds anybody back.

And with this, I think we'll conclude this part of the session and do questions and answers. Thank you.

Sean Wirtjes

Thank you, Dr. Ernst.

Armin Ernst

I'll come over to you.

Sean Wirtjes

Just to remind everyone, in this part of Q&A, we're going to be focused on what Dr. Ernst has covered. Dave will be chiming in here as appropriate. Please keep any questions about commercialization of BT. For the subsequent Q&A session we're going to do in a little while, we'll have Dave up here as well as Mike and Jeff and so they can handle those questions as well as broad more BSC-oriented questions. So with that, we'll get started. Glenn?

Question-and-Answer Session

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Glenn Novarro with RBC for Dr. Ernst. The efficacy, so Pat said she's out to 18 months feeling fine. Do we know that this is going to be the outcome in 3 years and 5 years? I noticed that you've got patients in the trials out to 5 years. But do we know this is a long-lasting effect is my first question. And then when Pat came in, right, her insurance carrier was not going to pay. So you don't need to tell us how everything worked out with Pat, but maybe the company wants to talk to us about how insurance is covering the procedure.

Armin Ernst

So I'll start with the first one. Safety data has been collected for slightly longer. That's been published 5 years out. We have efficacy on 2 years that's been published, and there is no loss of efficacy. And I think the 5-year data is really coming around the corner pretty soon. I'm not exactly sure when that is scheduled to be published. But from talking to my colleagues, even though it's not yet published, I mean, we have not seen any decrease in efficacy. Now long term, it's a -- it's some -- it's in the eyes of the beholder. Five years, I think, is valuable, right? Two years is great, 5 years would be outstanding. And the indication right now is that this is stable.

David A. Pierce

I think on the reimbursement piece, when we finish with the Q&A, as part of my commercial dialogue, I have really good information on reimbursements, so I'll cover that.

Sean Wirtjes

Okay. Miroslava?

Miroslava Minkova - Leerink Swann LLC, Research Division

Miroslava Minkova, Leerink Swann. Question for Dr. Ernst. When you speak to your colleagues, there seem to be basically 3 camps: the doctors who believe in it and would like the procedures once reimbursement is more permissive, the doctors who do not seem to believe in it, and there's the camp that is taking a bit of a wait-and-see approach. What do you think will it take to convince your colleagues? And what are the main hurdles to this being a broader adopted procedure in your mind?

Armin Ernst

So I think reimbursement will help, right? And it's not just on the physician side, it is that you don't want to expose your patient to what Patricia mentioned, which is the financial risk of undergoing the procedure. So I think once that is settled, a lot of good things will happen. There is awareness building, which will be significant and I think really needs a lot of effort. And that's why I made the brief comment about what you taught in medical school, right? I mean, this has been a firmly held belief that bronchoscopy and asthma is something incompatible. That is starting to sink in that it's actually not the case. And then I think it is one of those things. It's different if you have gallstones and it's acute and you're looking for a short fix, versus asthma, which is a chronic disease that patients have for 30 or 40 years. The patient, the physicians, they bond. I mean, this is not unusual what you hear about. And people really are looking for the best thing for their patients, and they're looking for something that doesn't make it worse. So I think just more experience and more usage will make a tremendous impact because it is chronic disease management.

Bruce M. Nudell - Crédit Suisse AG, Research Division

Bruce Nudell from Credit Suisse. Two questions. What percent of your patients do you feel this is most applicable to? And could you talk a little bit about the drug burden post-thermoplasty, especially steroids and how important that question is to you?

Armin Ernst

The -- let me start with the last one. If I understand your question right, it is about steroids for chronic asthma management, right?

Bruce M. Nudell - Crédit Suisse AG, Research Division

The ability to maybe lower your drug dose post-thermoplasty.

Armin Ernst

Right, right. So during the thermoplasty, obviously you increase the drug briefly to make sure that patients go through it. One of the biggest problems with asthma are the drug side effects. Even if you can control somebody on steroids and that it's even on 20 or 30 milligrams, the side effect of 20 or 30 milligrams of steroids can be dramatic. Can be mood swings, but it can be severe other things. So it would be very important to us to get people on a more stable and less-drug regimen. And that's been truly our experience. That's what happened. So what Patricia says that she doesn't really have to drag along all these canisters anymore is what we see, and you don't need these constant burst of steroids. Every time you go to an ED, every time you see a higher level of care as an asthmatic, you never walk away without high-dose steroids, either injected or orally, no matter what. And if you can just cut down on the ED visits, by default you walk away with less steroids. And not just a little bit. I mean, you're talking bottles.

Bruce M. Nudell - Crédit Suisse AG, Research Division

And then the percent of your patients [indiscernible]?

Armin Ernst

I would say under current indications, yes, 5% to 10%. I think the indication -- honestly, that's me as the practicing physician; I have no insight how Boston Scientific thinks about this -- probably will get broadened pretty quickly. The way this looks and how successful it is, it's going to be very difficult to limit it to that population.

Sean Wirtjes


Unknown Analyst

I have a couple of questions. It's Roberto Morales with Adage Capital. First, doctor, could you explain to us what are the metrics that you guys use in practice to measure functional testing of lungs? And then were those measure in the trial? And how do they equate -- so I'm noticing that the improvement here was based on quality of life. So I'm just wondering if there was hard metric that was looked at. Second question, what percent of patients responded to therapy versus didn't respond? And do we know, of those who didn't respond, why they didn't respond? Or maybe the corollary to that question is, do we know how to tell which patients will respond ahead of time? And then the third question I will have is, you mentioned that you've done 14 patients, I believe, in the past 2 years. I don't know how long you...

Armin Ernst

So that would be -- when we're -- when did you -- 15 months right? That's -- yours was the first procedure.

Unknown Analyst

15 months. So what was the denominator in that? How many patients did you screen before you got to those 14?

Armin Ernst

They're all excellent questions. So if I forget to answer one of those, you have to just remind me. So I'll start with the outcomes. And so one thing that I would say is that I don't share the view of a number, say, of a pulmonary function to be a harder outcome than quality of life because in the end, patients don't really care about numbers. I mean, it's great because you can celebrate. You know that you hit a higher number. But what patients care about is how they feel. The quality of life, in my mind, is the hardest outcome there is as long as the trial controls for it, right? So you cannot use quality of life outcomes as a hard parameter if you don't use sham and double blinding. So that trial had that in there, which makes the quality of life outcome a hard outcome, right? I mean, that is statistically as well as trial design, science. It makes it a hard outcome. The other things that get tested commonly in pulmonary medicine is called what's pulmonary function test. So you blow into this box and it measures how quickly your breath comes out after maximum effort, how much comes out the first, second, how much comes out total, what is total lung volume, these kinds of things. Those outcomes or those improvements for bronchial thermoplasty are not as pronounced. But I don't think this is an issue of lack of efficacy. It is an issue of those parameters measuring something different than what you're intervening on. So it's not completely aligned. We have no hard outcomes that really measure reliably what happens to the central airways after you reduce muscle mass. So quality of life. If you would talk to any patient, that's what they're after. And that's what we are after as physicians, and I think that's what everybody else is after as the hard outcome. What was the other question?

Unknown Analyst

The percent of the respondents...

Armin Ernst

Percent of respondents yes. So where the pulmonary function test has a place, a good place in predicting if somebody has what's called reversibility. If your airways are constricting and they stay constricted, so you're chronically obstructed and they don't have the ability to open and close and open and close, then the likelihood that bronchial thermoplasty can make a difference is relatively low. So this is where pulmonary function tests really have a place because you can really test if that is still the case. You can also ask your patients: "If you go to the ER and you get steroids, do you get better?" And Patricia gets better every time she gets a high-dose, bucketful of steroids. Those are the patients who should be responding. The patients who are fixed don't have that on pulmonary function test. If Patricia would come and would get a gram of steroids every day and would have absolutely no change, the likelihood that anything of this should work is low. So this helps in terms of figuring out who should go. For us, we probably see 2 patients for 1 who we treat right now, 2 to 3, I would say, actually. And the 2, the second or third patients out of these 3 generally have some other issues that need to be dealt with first. So we have this overhang of patients that are undergoing other tests and other things that need to be done. They're not completely off the table but may. So 3:1 is our ratio.

Unknown Analyst

3:1. And so [indiscernible] patients? 45?

Armin Ernst

45, 50, yes, somewhere there, yes.

Sean Wirtjes

Over here. Imron?

Imron Zafar - Jefferies & Company, Inc., Research Division

Imron Zafar from Jefferies. Can you just comment on the procedural aspect in terms of ease of use, how difficult training is and how mainstream this can become?

Armin Ernst

The procedure itself. We were debating if we should put it in a small endoscopic video and not just an animation. It's simple. What makes it somewhat different is, one, you need somebody standing next to you who can help you really check off where you've been. And again, that's why I emphasize the tree. It all starts looking the same after a while. So that is important. And the procedure takes longer than most other bronchoscopic procedures. So about 45 minutes. I mean, I've taught quite a few people now, and everybody, I think, has the hang of it after, I would say, the second procedure. They have down how this really works. So that part is simple. The part that requires a little work is to put the logistics in place and really say, okay, patients really need to know what to expect, they need somebody who can really tell them these are the dates, 3 weeks apart, make sure that steroid boost happens the day before and carries through. So it's the little things, right, that somebody has to put into place that I think are more complicated than the procedure itself.

Sean Wirtjes

Other questions? Kristen?

Kristen M. Stewart - Deutsche Bank AG, Research Division

Kristen Stuart from Deutsche Bank. I know that you've had a lot of consulting arrangements and you've clearly seen a lot of different other technologies out there in the field. Can you maybe just compare how this may compare to some of the ones that you've seen in the past and why you view this technology to be perhaps more successful?

Armin Ernst

That is true. I've seen a lot of technologies come, and not all of them have the same impact like others. Okay? I would put that on the same pedestal like -- something like endobronchial ultrasound, really a fundamental change on what we do because it is completely novel. It's a huge unmet need not for a niche population but for a large population. And it truly changes the paradigm. Endobronchial ultrasound changed the paradigm of how lung cancer is staged. And I think this changes how asthma is being treated. So I really put it in my mind sort of into the same category of impact. For physicians and especially for the group of physicians that are really relatively busy in device development and trials and these kinds of things, there are a lot more devices and trials out there than I could possibly participate in. So I have to make a decision as well: what is it that I do with the limited time that I have? And that -- I think thermoplasty is really one of the ones that we have made a huge commitment towards because once you have 1 patient then 5 patients then 10 and then 14 will tell you the same thing, it's very difficult to turn around.

Sean Wirtjes

Okay, we have time for one more. Walter?

Unknown Analyst

Okay, Walter Colson [ph] with Columbia Management Advisors. What about patients under age of 18? Is there any potential use of this therapy for them to point?

Armin Ernst

I answer that from a physician point of view. So not from the company point of view. I do pediatric pulmonology as well and from the endoscopic side of things. Asthma is a bimodal disease, right? So it has this huge peak in adulthood and it has a huge peak in pediatrics. And so the problem is, in pediatrics, you have to sort of figure out who's really the severe asthmatic; who will remain an asthmatic; and who's just sort of asthma, take some inhalers and once they're 18 years old, they are fine. For kids, as far as I'm concerned, if we can really predict who has severe asthma, already severe childhood asthma, who will continue to have it, who is hanging back at school, missing school time, can't participate in sports, I mean, this is what really drives how your adult life will shape up. If you could actually intervene for that patient population, it would be huge. So, I mean, I see a big need there. And it's, I mean, it's easy, right? It's not something, from a technical point of view, that could not be done in a child or a young adult, adolescent.

Sean Wirtjes

Okay. Now before we move on to the commercial section with Dave, I'd like to express our gratitude to Dr. Ernst and -- for coming in today. Thank you very much.

Armin Ernst

Thank you. Thank you. My pleasure.

David A. Pierce

All right, so I'm going to cover some of the commercial aspects of BT. Then I'll bring Mike up. He'll have a few comments. And then Mike, Jeff and myself will come back out for about 30 minutes of Q&A.

So let's talk about the market opportunity and commercial plans. We see the market opportunity as being very significant. In fact, we're estimating that in the U.S. and Europe alone, that the market could approximate $1 billion. I'll just walk you down this ladder of abstraction here.

In these 2 markets, there's essentially 70 million people with asthma. Of those, 70% are adults. So it gives you a population of 50. And we estimate that between 3% and 7% of those, with severe, not well controlled. So a patient population of about 2.5. Our device revenue, so the BT catheters that you saw, per patient, so not per procedure but per patient the 3 procedures, we estimate to be about $7,500. And that doesn't factor any of the capital costs, just the device revenue. So it gives you a $20 billion prevalent market, and a 5% penetration rate gives you a $1 billion opportunity in these 2 marketplaces.

In order to actually access that opportunity, we have to do 3 things, and we have to do them very well. First is, we have to get enough treating centers up and running. So hospital penetration. Next is, we have to establish a positive reimbursement environment for this procedure. And third is creating awareness and demand at the patient and referring physician level. And I'll speak to each of these with a couple of slides.

From a hospital penetration rate, where we stand today is we're in about 140 hospitals worldwide, 120 domestically. We've seen a lot of strong interest in the technology, and we are closing new accounts month after month after month. So we've had good momentum driving penetration in a hospital.

And domestically, we're driving that through our existing Endoscopy selling organization. So the same folks that are selling the devices I showed when I was up earlier are also driving the bronchial thermoplasty business. We're supporting that group with 2 groups of experts. One we call asthma therapy specialists, and these are people who are out talking to the asthma physicians, as well as the general practitioners that control these asthma patients in creating awareness and educating the population on asthma. The other group of specialists that we're deploying are field reimbursement specialists to help -- as we develop our reimbursement portfolio, they help kind of navigate the current reimbursement situation for these hospitals.

Now this slide is going to take a little time to get through, but I do want to set it up appropriately because reimbursement is the single biggest job that we have to do, and we're putting a large amount of resource and a large amount of time against the reimbursement situation. So what I'm going to do is talk about where we are today, on the left; what's going on in the middle; and where we expect to be next year. Okay?

And I'll look at it from a coding standpoint, a payment standpoint and a coverage standpoint. All right?

So today, we do have a BT-specific Category III CPT code in place. And Category III codes, as you may know, are typically referred to as emerging technology codes. So it's good to have a CPT code, but we are working toward taking that from a Category III to a Category I. In the fourth quarter of 2011, the pulmonary society has petitioned the AMA to upgrade this Category III to Category I. In the minutes from the AMA panel meeting in the first quarter, it indicated that they're going to recommend bronchial thermoplasty to be upgraded to Category I. So we fully anticipate in the fourth quarter of this year to hear that going into 2013, that bronchial thermoplasty will have a Category I CPT code.

From a payment standpoint, there's basically 2 buckets. There's private insurance, and there's Medicare. For Medicare, there's an APC code in place plus pass-through codes, which essentially can cover hospital costs. In this group, physician payment is undefined, okay? For private insurance, it varies. When a case gets covered, it really is depending on what's put forth from a hospital and physician charge will tell us what the insurance companies are going to pay. And it's variable at this point depending on the provider and depending on the payer, okay?

With the advent of a CPT 1 code, it impacts payment in 2 ways. For Medicare, it establishes physician and hospital payment. Okay? So that's very positive. And for private insurance, it gives them a benchmark, the Medicare benchmark, against which they can pay. And it's traditionally at or above Medicare payment. The final piece is coverage, and this is the biggest amount of work that we're doing. And again, coverage is Medicare and private insurance. Medicare right now is inconsistent because we have a Category III code. So we don't have full-scale Medicare coverage at this point. Private insurance, and you heard from Pat and you heard from Dr. Ernst, is really a case-by-case basis at this point. So if patient shows up, we ask -- or the physician of a hospital asks for permission to cover that patient, and they're either given permission or they're not given permission. So that's on a case-by-case basis. The Category I code assists the Medicare population and should remove coverage inconsistencies for the Medicare patient. And we think Medicare is about 20% of this patient pool. So next year, we believe that non-coverage won't be an issue for the Medicare population. Okay?

In private pay, what we do on a daily basis, a weekly basis, monthly basis is meet with the Medical Directors of all the big insurers and provide them with updates on where we are with the data. Safety data, efficacy data, all of that. And we have positive coverage in about 1% of the covered lives, and we're targeted to be at 30% to 50% of the covered lives by the end of 2013. And we're encouraged by the fact that 6 of the 7 top payers have approved at least one patient for the procedure.

So we continue to make progress with all the payers, and we continue to bring to them the 5-year safety data, the efficacy data. And an important thing that they want to see is demand in the marketplace for this technology. When you think about demand, we look at how many new coverage requests are taking place month-to-month, quarter-to-quarter. And this is one set of data. We have a group that we use called The Reimbursement Group, TRG. They're available to customers that have Bronchial Thermoplasty Systems, and they assist in the process for getting a case approved to be done.

And just -- our TRG data, which is not all of the data out there, but you can see the nice uptick in the TRG data, the number of patients actually requesting the procedure quarter over quarter over quarter. The other thing that we're seeing is more of these patients are actually getting approved for the procedure. So good progress in the coverage area as well.

The last piece I'll talk about as far as the 3 buckets is increasing awareness. Because as we start to take the reimbursement barriers down, we have to make sure that there's a flow of patients into these treating centers, right? So we talked about getting enough treating centers, setting a positive reimbursement scenario and then making sure that there's patients flowing through the system. And we need to do that in 2 ways. A, we need to educate the patients and make sure that they're aware that there's another option out there for them. And we'll do that through multimedia and multichannel efforts. But as important, if not more important, is to educate the asthma physicians, as well as the general practitioners that treat these patients.

So we have a multichannel effort underway to address the patients, to address the asthma specialists and the general practitioners so that as reimbursement becomes less of an obstacle, that awareness and willingness to refer into the treating centers is there, and we can take advantage of this full opportunity.

In Europe, the commercial model's a little bit different, only because the bulk of the European countries are single payer. And so the process is different in that in multiple countries, we have approval to do -- from a reimbursement standpoint, we have CE Mark, but we have reimbursement approval to do a finite number of patients in several countries, and then we'll leverage the success of that to try to get national coverage decisions in each of these different geographies. We're probably further ahead in the U.K. than where we are in some of the other areas, but we fully expect to start seeing national coverage decisions in '14 and '15 for the big European countries.

And then longer term, the $1 billion opportunity that I talked about was really predicated on Europe and the United States. Longer term, the opportunities are significant as well. You can see, just in these geographies alone, China, India, Japan and Brazil. There's an additional 8 million severe asthmatics, and we're doing everything that we can to get the products registered and approved and commercialized in these. And this represents upside to that $1 billion number that I talked about.

So from a revenue trajectory standpoint, you can see where '11, the revenues were very modest. '12, we're moving forward with a significant bump over '11. We look to triple our '12 revenue again in '13, up to between $40 million and $50 million. And if you look at our plans for hospital penetration, our -- and if we can meet those, take care of the reimbursement situation and create the awareness that we plan to, our target would be $400 million plus in 2017. And if you think about what that means from a number of patients, assuming we get the number of hospitals to where we need to be, that's between 4 and 5 patients a month per center.

So before I bring Mike up, I'd like you to walk away from today's session on BT with a recognition that this is a large and growing unmet need and that we have a unique and proprietary device solution for these patients. We've demonstrated the clinical safety and efficacy. We've demonstrated the ability to improve the quality of life for patients. There's an opportunity here to take cost out of the health care system, regardless of whether it stays fee-for-service or goes into some other environment. There's potential for significant revenue growth, and we've demonstrated that there's a strategic fit and has operating leverage within the Boston Scientific Endoscopy division.

So with that, I'll ask Mike to come up.

Michael F. Mahoney

All right, Dave. It's all Endo all the time. Thanks for the speakers, Pat in particular. The story was terrific and, hopefully, that was informative. So we really want to spend this time today focused on Endo, to really give a clear vision of the company going forward. Dave talked about a $1.2 billion company, absolutely growing faster than the market, very, very strong market share position. Dave talked about a 7% growth rate, with the market growing about 4%, then you have the Alair opportunity as additional upside. So very, very strong franchise for Boston Scientific.

And then outlined in the final page, you'll see it here, our high-level strategy of gaining share in our core business, expanding globally, moving into some smart adjacencies that are growing quickly, that leverage our strength. And also, cost productivity. Here's just a few highlights, and we've talked to these opportunities a number of times to many of you. These are both core businesses and adjacencies, all representing high-growth where Boston Scientific has terrific assets and capabilities.

We talked at length today about Alair. Again, we think -- you see this is about a $1 billion market opportunity, not including the Asia-Pac opportunity in the future.

The middle two, our products you may be aware of. These are adjacent products, but also will help us in our core EP business. So we have an important cardio stent meeting this week in Europe. Our acquisition of Cameron, our advancement into left atrial appendage, combining with our high-energy platform with INCEPTA and our pacer launch we have this year with INGENIO really broadens our EP portfolio for electrophysiologists in what is a very large marketplace.

With our WATCHMAN product, we'll be first to market, CE Mark approved in Europe. We'll be FDA approved in the second half of 2013. And again, we see this is about a $0.5 billion market where Boston Scientific will be the leader in this business, leveraging our current channel with electrophysiologist.

The third one has been announced, and this deal actually closed on Friday officially, in time for the cardio stem meeting. And again, we target this market, about $750 million for the subcutaneous ICD, which really is a very unique novel device in health care. We're very excited about exercising that option and closing that deal, and we anticipate FDA approval in 2013 or hopefully, early in the first half of 2013.

The fourth one on here would fit into the category of driving share in our core business, and this is the very exciting Synergy launch for the DES marketplace, probably the first Boston Scientific presentation where we spent 4 hours before we talked about drug-eluting stents. But this will be a next-generation platform, which will be CE Mark and approved in Europe in the first quarter of 2013. And so this will leverage our PROMUS Element Plus platform. This is the product that will have a 3-month drug elution time where after that 3 months, both the drug and the polymer are gone, which will leave the benefit of the long-standing Bare-Metal Stent. So we believe this platform combined with our PE Plus platform will really position us, Boston Scientific, to have 2 leading platforms in the market to gain share in that business. And again, that will be CE marked and approved in Europe in 2013.

And going forward, as we look at the back half of 2013 and 2014, 3 other important plays for us, starting at the far right here with the exciting TAVI market. We announced our Reprise I clinical study with Ian Meredith in Australia a few months ago, where we have successfully completed 11 patients in our first trial there. We'll be launching REPRISE II in the second half of this year, as far as that CE Mark approval trial. So we do anticipate CE Mark approval in the second half of 2013, and we believe there are some unique feature benefits to this in terms of retrievability and also, again, leverages our commercial sales forces that we have around the world with our in ventricle [ph] cardiology and PI business.

Moving over to the left, the hypertension. You saw a lot of the capabilities today with Alair. So if you say, "What are some of the benefits of endoscopy with the broader Boston Scientific?" Whether it be our stenting platforms, our levels of PI; whether it be our RF capabilities, which are leverage-able with our EP business or our PI business in hypertension, we have a number of organic programs currently taking place to enter the hypertension market. We'll be first in human in the second half of 2012.

And then lastly, for Parkinson's for DBS. We've got a very strong Neuromodulation business in California. We're gaining share, we're growing faster than market, and we're using the Precision Plus platform and also the new Falcon [ph] platform, which will be launched in 2013 to expand the DBS. And we're currently doing clinical trials in Europe and leveraging some software packages that we believe will make us a unique player in that marketplace.

So these are 7 categories that are large markets, will help us gain share in our core businesses, will provide us with smart expansion opportunities and also a global presence beyond the Endo business that we talked about today.

And there's the wrap up. And next I'll join my colleagues up for questions and answers. Chairs?

Sean Wirtjes

All right.

Michael F. Mahoney

Check [ph] when the price is right, Sean.

Sean Wirtjes

High or low? All right. So I think -- like to focus here on questions you have on the presentation Dave made around the commercial aspects of BT, as well as any questions you have about the broader BSE business. So we'll open it up at this point, Kristen. Go ahead.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Kristen Stewart from Deutsche Bank. I was wondering if you can just comment just on R&D that you guys are spending within the Endoscopy business as it stands today, kind of where that's been and where do you see it going over time, just -- if you wanted to do it as a percentage of sales of endoscopy sales or just kind of overall Boston Scientific, just how much more I guess resources are you allocating to this business?

Michael F. Mahoney

A comment just on how we spend our money within Endoscopy.

David A. Pierce

Yes. That's a good question. A couple of years ago, we increased the annual R&D spend as a percent of sales, with the intent of really accelerating some product development across a lot of our different franchises. We're starting to see the fruit of that. We see, over the next 5 years, multiple launches. And as the launches come into play and we reap the benefits of that from a financial situation, we'll take the R&D back down as a percent of sales. But we have had a short term kind of injection to accelerate our ability to put products in markets across all of those different franchises that you saw.

Kristen M. Stewart - Deutsche Bank AG, Research Division

Any number [indiscernible]

David A. Pierce

I don't think we're going to get into R&D by business as a percent of sales at this point.

Michael F. Mahoney

With Endo, the good -- one of the good stories with Endo is when you compare it, it's not unique to us. When you compare it to the IC business and [indiscernible], you don't have this -- a significant clinical trial investment, which we put in the R&D buckets. And so with that, the R&D productivity in this business is very high.

Sean Wirtjes


Bruce M. Nudell - Crédit Suisse AG, Research Division

Bruce Nudell of Credit Suisse. Two questions about BT. EuroPCR, everybody's starting at a renal denervation company. What are the barriers to entry for BT? It looks similar in that regard. And secondly, what sort of hospital and doc reimbursement do you have in your mind's eye for the 3 sessions, the cumulative reimbursement?

David A. Pierce

So I think, from a barrier-to-entry standpoint, that's a great question. We feel very strongly about the intellectual property we have around that construct for the treatment of asthma. So we feel good about the IP. We also feel good about the head start we have in the marketplace. We've got safety data out to 5 years. We should see fourth quarter, or into the first quarter of next year, some extended efficacy data as well. So the clinical bar has been set very high. We're not aware of anyone else that is in preclinical or clinical work with a device for asthma. So we think the combination of the IP and the head start set us up well for the next multiple years. As far as the reimbursement targets go -- so with the advent of CPT 1, one of the things that happens is they go out and they survey practitioners that are actually doing the procedure. And from that, they'll develop the physician reimbursement. Right now, for Medicare, you have an APC with a pass-through code. That pass-through code is based on a percent of charges from the procedure itself at the hospital. So we feel like the reimbursement for the physician will be established with the CPT, and we feel like the reimbursement for the facility, if coded correctly, should be adequate to more than cover the cost of procedures.

Sean Wirtjes

Other questions? James?

James Francescone - Morgan Stanley, Research Division

James Francescone, Morgan Stanley. First, I was wondering if you can give us any more detail around the financial profile of this particular product. I mean, from a gross margin perspective, where would this sit relative to some of the other high-profile devices in your business? From an EBIT margin perspective, considering the investments you're going to be making in the near term, when does this get to be something that's accretive to the corporate operating margins?

Jeffrey D. Capello

Yes, let me take that. So we've said all along that in our plans to increase gross margins and operating margins, the acquisitions that we're going to be doing would be accretive to those, and this is one of our better examples of that. So as you look from a gross margin perspective, this product, in the very near future, meaning in the next 12 months, should, based on the volumes and location manufacture, should surpass our corporate average pretty handily from a gross margin perspective. As David kind of outlined, there is a market development spend that occurs. A lot of that, we kind of grow our way through the next year as well, such that the operating margins as well are very attractive to the company. So it's a big part of the margin expansion story of the company. This is one of our -- one of the technologies we're very excited about.

James Francescone - Morgan Stanley, Research Division

So accretive to operating margins sounds like within the next 12 months or so?

Jeffrey D. Capello

At the end of that period.

James Francescone - Morgan Stanley, Research Division

Okay. And then second, if we were to just take a step back and just put this -- a layer in the context of the 7 growth drivers that you like to talk about, how important is this relative to those others? I mean, is this is one of the 1 or 2 biggest opportunities that you have? Or is it towards the bottom?

Jeffrey D. Capello

Well, I think as -- Mike laid out pretty clearly, right? You look at the 7 different growth opportunities we have, which we think, over the next 24 months, have the capability to move the top line of the company. We've just kind of shown you that we think we can do $40 million to $50 million in revenue in 2013. We think this could be $1 billion market, as David laid out, just in Europe and the U.S. alone, let alone the other -- let alone the Far East. So as you look at this, the smallest market we're playing in those top 7 is $0.5 billion. Asthmatics is $1 billion, not counting [indiscernible], so it's bigger than that. So it's definitely one of the better opportunities. But all 7 have end market opportunities, at least $0.5 billion or more. Glenn?

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Just a question for Dave. In one of your slides, you said the core market was growing 4. If you x out BT, you thought you could grow faster than the core market. So I'm wondering if you can walk us through what's driving that. Obviously, there's new products, but are you putting more feet on the street? And then secondly, in one of your slides, you have as a competitor Olympus and Cook, and the street is not familiar with these companies. So is that also helping drive market share gains? Are these companies investing less? Anything you can share about the competitive landscape would be helpful, too.

David A. Pierce

So to answer your first question, the 4% core growth and we're predicting 7%, or we're aspiring the 7% core growth, it's a 2-pronged factor. We're going to start to see some payback for the investment in R&D. So new product launches and product upgrades in the existing space. And we are making commercial investments around the world, particularly in China and in some of the other emerging markets. So as we increase that commercial footprint, we'll drive additional growth there as well. I think with regards to our main competitors, Cook, you may or may not know is a private company based out of Indiana, I would say that they view the endoscopy marketplace as attractive and that they continue to invest in this marketplace. But they're also a fairly diversified company, with products in multiple specialties, and that we continue to see them as a true competitor. And then Olympus is the big player in the scope piece of endoscopy. They have a very large share in the scope business. They also do have a device portfolio as well, and I believe that they will continue to try to invest and take share. I think the strength that we have, our commercial footprint and the depth and breadth of our portfolio in the way that we go to market and the relationships we have with both the clinicians and the recognition that we have to deliver total value to the economic buyers.

Sean Wirtjes


Kristen M. Stewart - Deutsche Bank AG, Research Division

Kristen Stewart from Deutsche Bank again. I was just wondering, the growth outlook that you guys talked about, is that all organic growth? Or maybe just talk about what role M&A may or may not play just kind of for the Endoscopy business overall. You also talked about, I guess, 5 different areas within Endoscopy, with asthma and kind of this pulmonary disease be the area that you're most focused on expanding. Any sort of need to be in places that you identify right now?

David A. Pierce

So the growth number that I put up at the end of the first part of the presentation from 1.2 to 2 is based upon the growth in our core business today, plus BT. So there was an additional M&A or other things in that number that would be upside. And as far as focus on -- the second part of the question?

Kristen M. Stewart - Deutsche Bank AG, Research Division

[indiscernible] looking at acquisitions for Boston Scientific [indiscernible] where we should [indiscernible] have you seen any other areas that you think is, I guess, more competitive, I guess, to further expand [indiscernible]?

David A. Pierce

Do you want to take the acquisition...

Michael F. Mahoney

Well, yes. I will comment on the acquisition targets we're looking at, but this is a great business for us. I see the growth projections as one of our more global businesses, and David outlined our core focus in Endo in a number of adjacencies that we're continuing to develop. And so this is clearly a strong business for us, and we'll continue to look for smart adjacencies to add on to it.

Sean Wirtjes

Miroslava? [indiscernible]

turn it back to Bruce.

Miroslava Minkova - Leerink Swann LLC, Research Division

Miroslava Minkova, Leerink Swann. A couple of questions. One for Mike and for Jeff, if I could start. Your revenue growth has been clearly declining, but it sounds like in 2013 you're pretty comfortable that some of these acquisitions that you've layered down will start bearing fruit, to the extent that you might actually show revenue growth. Can you maybe talk a little bit about your confidence in that happening? And which are the biggest contributors or the ones that you feel most comfortable about? And I do have actually a couple of follow-ups.

Jeffrey D. Capello

So let me take a stab at that. So if you look at kind of our revenue results for the first quarter, we were down 3% organically. And the big reason why we were down 3% organically is we still have the overhang from the CRM contraction, kind of the resetting of kind of the bar with regard to the CRM market. So our anticipation is as we go through the back half of this year, as we anniversary this year-end market decline, which we should now come up against easier comparables in the back half of the year, that coupled with kind of the trialing process which will get through here in this quarter and second quarter into next quarter, should give us a good opportunity to get back to close to positive growth, maybe even north of that as we exit 2012. After which point, you do have kind of the asthmatic acquisition contributing. We've given you that number today for '13. Atritech, as Mike has said, we expect that to come out. It's out in Europe and doing very well. We expect that to get approved in the U.S. in the back half of '13. You've got the Cameron acquisition that is new to the company in terms of from a revenue growth perspective, and then had a very good FDA review. So we eagerly anticipate the FDA approval of that product. And you've got the Sadra heart valve, which Mike commented on, and then you've got the 3 other deep brain stimulation synergy and hypertension. So with that lineup and the vast number of new products we have coming out plus the emerging market growth opportunity, people shouldn't discount the fact that we've been investing pretty heavily in emerging markets, both in India and China and Brazil. And a lot of that returns starts to kind of pick up pace as we exit this year, puts us in a pretty good spot to be optimistic we can get back to revenue growth next year. And so that's our goal as a senior leadership team.

Kristen M. Stewart - Deutsche Bank AG, Research Division

And a follow-up for Dave. Dave, we saw the clinical data that you have, the -- all the way up to the AIR2 trial. Obviously you have some of the best [indiscernible] in the space, based on Dr. Ernst's commentary. Do you feel that -- is this enough, though? Or do you feel that you have to have some sort of an economic value-added type of analysis so that you actually can sell the proposition to hospitals?

David A. Pierce

Yes, I think that's a good question. So some of the trials that have completed enrollment obviously have a follow-up. We continue to follow those patients. So we'll be able to have longer safety and efficacy data as it becomes available, and our anticipation is that, that data will continue to be published in peer-reviewed journals and able to be used as we have dialogues with various payers. And we also will use that data to generate models upon which we can have that economic discussion. And we feel like, regardless of whether we get into some type of capitated system or some -- or continue fee-for-service, that the technology will stand on its own.

Sean Wirtjes


Bruce M. Nudell - Crédit Suisse AG, Research Division

Bruce Nudell, Credit Suisse. Looking at your pictures, Dave, it looks like historic Endoscopy growth and your comment about 34% of your growth came from Asia-Pacific and Latin America. What's going on in the States in your core business? And the second question goes back to the IP surrounding BT. Is it very fundamental like the concept of RF to prevent asthma? I mean -- or treating the smooth muscle? Is it a very fundamental set of patents that will preclude other people getting in?

David A. Pierce

So with regards to the growth of the core market in the States, I think we saw in the past couple of years, with the economic slowdown, some of the elective procedures, particularly colonoscopy and EGD, which is a scope kind of looking at your esophagus. We saw volumes of those procedures flattening out to declining. We also saw heavy price pressure on the devices used in those procedures, which are kind of really the lower end of the price sensitivity continuum that we sell. We've actually seen a little bit of a rebound in that space this year. I think some of that growth slowdown is attributed to the elective procedures, as well as price sensitivity in that small segment of our market. Relative to the IP, I would say that we're confident that our IP portfolio, as it relates to BT, is broad enough that another RF competitor is not likely at this point.

Sean Wirtjes

Other questions? Walter [ph]?

Unknown Analyst

Walter Colsman [ph] Columbia Management Advisors. Could you just talk a little bit about the broader emerging market strategy that you have for the company as a whole, how it specifically might be applying to Endoscopy, just in terms of the sales force hires that you've talked about, Mike and Jeff? How might be -- how many might be targeted towards Endoscopy, et cetera?

Michael F. Mahoney

Well, if look at the -- just the Endoscopy business, I would say it's one of the more global businesses that we have in terms of its sales mix across -- in the emerging markets, in India and China, currently now it's not as large as our IC business or our PI business, but it's growing quite a bit. And with the recent leadership additions that we've made in India and China and also Asia overall, this will continue to be a focus on us, given our share position. It's certainly a competitive market for probably fewer competitors than we see in other parts of our business; and strong margins and very capable direct sales force and selling -- sales force training capabilities. So as we continue to expand in India and China, along with our IC business and PI business, this business will be a priority for us.

Sean Wirtjes

Okay, anything else? Okay, we're coming close to our planned end time so I think, at this point, we'll wrap it up. I want to thank all the panelists up here for participating in the Q&A and all of you for attending. We are going to be starting -- I think it's probably open and ready to go right now, the technology fair. So encourage all of you here on site to head out the door and down to the right, down the ramp, and we have some eager folks over there who are ready and willing to show you some of the interesting and exciting technology that we have in this business. So thanks again.

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