Boston Scientific Corporation Q1 2010 Earnings Call Transcript

Boston Scientific Corporation Q1 2010 Earnings Call Transcript
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Boston Scientific Corporation (BSX)

Q1 2010 Earnings Call

April 27, 2010 8:00 am ET

Executives

Larry Neumann – Investor Relations

Ray Elliott - President and Chief Executive Officer

Jeff Capello - Chief Financial Officer

Sam Leno - Chief Operations Officer

Fred Colen - Chief Technology Officer

Hank Kucheman - Executive Vice President and Group President CRV

Mike Phalen - Senior Vice President and President of our Endoscopy

John Pedersen - Senior Vice President and President of our Urology and Women's Health

Joe Fitzgerald - Senior Vice President, and President of the Endovascular

Michael Onuscheck - Senior Vice President and President of our Neuromodulation

Dr. Ken Stein - Chief Medical Officer for CRM

Dr. Keith Dawkins - Chief Medical Officer for our CRV Group

Presentation

Operator

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(Operator Instructions) Welcome to the Q1 2010 Boston Scientific Earnings Conference Call. At this time I’d like to turn the conference over to Mr. Larry Neumann.

Larry Neumann

With me on the call today are Ray Elliott, President and Chief Executive Officer, and Jeff Capello, Chief Financial Officer.

We issued a press release yesterday afternoon announcing our first quarter results. Key financials are attached to the release and we have posted a copy of the press release as well as support schedules to our website. The agenda for this call will include a review of the first quarter financial results including second quarter and full year 2010 guidance from Jeff, an update on our business performance in the quarter from Ray, followed by his perspective on the quarter overall. We will then open it up to questions.

We will be joined during the question and answer session today by Sam Leno, Chief Operations Officer, Fred Colen, Chief Technology Officer, Hank Kucheman, Executive Vice President and Group President CRV, Mike Phalen, Senior Vice President and President of our Endoscopy business, John Pedersen, Senior Vice President and President of our Urology and Women's Health business, Joe Fitzgerald, Senior Vice President, and President of the Endovascular unit, Michael Onuscheck, Senior Vice President and President of our Neuromodulation business, Dr. Ken Stein, Chief Medical Officer for CRM, and Dr. Keith Dawkins, Chief Medical Officer for our CRV Group.

Before we begin I'd like to remind everyone of our Safe Harbor Statement. This call contains forward looking statements. The company wishes to caution the listeners that actual results may differ from those discussed in forward looking statements and may be affected by among other things, risks associated with our financial performance, our restructuring plans, our programs to increase shareholder value, new product development and launches, regulatory approvals, litigation, our tax position, our competitive position, and our growth strategy, the company's overall business strategy and other factors described in the company's filings with the Securities and Exchange Commission.

I would now like to turn it over to Jeff for a review of the financial results.

Jeff Capello

Before I discuss our results of operations I want to address the goodwill impairment charge that we announced in last night’s earnings press release. We test our goodwill balances during the second quarter of each year for impairment, or more frequently if indicators are present or changes in circumstances suggest that an impairment may exist.

As a result of the ship poles and product removal actions we took in the first quarter we performed an in term test of our goodwill balances. We updated all aspects of our long term discounted cash flow model associated with the US CRM business including our expectations, overall market growth as well as our share of that market, which we believe will be impacted by the ship hold and product removal actions.

The changes created a $1.8 billion write off of goodwill in the quarter. We continue to believe the worldwide CRM market to be growing in the 3% to 5% range. As a reminder, this is a non-cash charge and has no impact on either our continued results from operations, our levels of expected cash flows or our bank debt covenant ratios.

Now let’s turn to a more detailed review of the operating results for the quarter. Consolidated revenue for the first quarter was $1.960 billion versus our guidance range of $2 to $2.1 billion and represents a 3% reported decline from the first quarter of last year. Excluding the impact of a positive $63 million foreign currency contribution, first quarter revenue is down 6% constant currency.

Compared to the contribution assumed in our first quarter guidance range, foreign exchange contributed -$8 million to our first quarter sales results. The impact of the defibrillator, ship hold, and product removal actions in the quarter on our revenue growth was approximately $72 million or -400 basis points on a year over year basis.

Compared to the first quarter of last year, excluding divestitures, US revenue decreased 9% while international revenue increased 7% or down 1% in constant currency. Ray will provide a broader overview of our businesses by major product category, but I’ll address our sales results for all of our businesses at a high level here.

Worldwide, DS came in at $407 million within our guidance range of $385 to $425 million and down 9% from the first quarter 2009 which represents a decrease of 12% in constant currency. Our worldwide DS revenue includes $165 million for Taxus, $208 million for Promus, and $34 million for Promus element.

Our worldwide Taxus, Promus, Promus element split for the quarter was 41/51/8. We continue to sustain our worldwide DS leadership during the first quarter with an estimated global market share of 38% which we estimate to be about 13 percentage points higher than our nearest competitor and four percentage points lower than our share in Q1’09.

US DS revenue was $210 million at the high end of our guidance range of $195 to $215 million and 15% lower than the first quarter of last year. Excluding the favorable impact of a $14 million adjustment to the sales transition reserve included in Q1 2009 US DES sales were down 10% versus last year driven by Taxus share loss following the results of Compare trial, the impact of which is expect to anniversary by the end of Q3 2010. This includes $79 million of Taxus, $131 million of Promus revenue and represents a 38/62 mix of tax and Promus in the US, compared to a 54/46 mix in Q1 2009.

We estimate that our US DS share was 45% for the quarter with 17 share points of Taxus and 28 points Promus. Excluding the transition reserve recorded in 2009 our total share is down four points compared to the first quarter of last year. We continue to maintain drug eluting stent market leadership in a competitive US market with 17 more market share points than our nearest competitor.

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