C. R. Bard, Inc. (BCR)

December 20, 2011 4:30 pm ET


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

Sharon M. Alterio - Group Vice President of International Businesses

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

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

Todd W. Garner - Vice President of Investor Relations

Jim C. Beasley - Group Vice President of Bard Peripheral Vascular Divisions

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


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

Matthew J. Dodds - Citigroup Inc, Research Division

Konstantin Tcherepachenets - Morgan Keegan & Company, Inc., Research Division

Michael Matson - Mizuho Securities USA Inc., Research Division

Frederick A. Wise - Leerink Swann LLC, Research Division

Topher Orr - Goldman Sachs Group Inc., Research Division

Brooks E. West - Piper Jaffray Companies, Research Division

Unknown Analyst

Matthew Taylor - Barclays Capital, Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

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

Jonathan Demchick - Morgan Stanley, Research Division

Thomas Kouchoukos - Stifel, Nicolaus & Co., Inc., Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division

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


Todd W. Garner

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Good evening. I'm Todd Garner, Vice President of Investor Relations at Bard. Before we get started tonight, I'm going to take -- I'm going to just cover a couple of points. First, during the presentation, we'll be discussing some forward-looking statements, the accuracy of which is subject to risk and uncertainties. Please refer to the cautionary statement regarding forward-looking information in our most recent 10-Q and the information under the caption Risk Factors in our 10-K from December 31, 2010, including disclosure of the factors that could cause actual results to differ materially from those expressed or implied.

Please also note that information that is not historical is given only as of today, December 20, 2011, and the company undertakes no responsibility to update. Additionally, references will be made to certain non-GAAP measures, which management believes provide additional and meaningful assessment of the core operating performance of the company. These non-GAAP measures are reconciled to reported results in the Investor Relations section of our website.

As we go through the presentation tonight, all of our comments on revenue growth will be global and year-to-date through Q3 of 2011 in constant currency unless noted otherwise. In terms of sales and market sizes, all references will be global unless we say differently. And the markets only include the specific product segments of a given market that we participate in. And finally, a recording of this meeting will be available on our website for replay. And with that, I'll introduce Tim Ring, Bard's Chairman and CEO.

Timothy M. Ring

Thanks, Todd. Good afternoon, everybody. Welcome to Bard's annual analyst meeting. Our agenda today will go as follows. After my opening remarks will be a business and product review with John Wyland, our President and COO; and John DeFord, our Senior VP of Science Technology & Clinical Affairs. After that will be financial guidance by Todd Schermerhorn, CFO. We'll then close with a question-and-answer period. We'll call the group Vice President up to join us. We have the table there and then we'll move over to the other side of the fourier for a product fair.

A year ago, this was my beginning slide as we address the 2010 environment as we're looking ahead into 2011. We talked about the headwinds certainly in the regulatory area. And the uncertainty there are pricing, device utilization and patient volumes. Frankly, today, I'm not sure you could find anyone who would argue that any of these elements have gotten any easier. The most common question we get from investors is whether the changes in the environment are a cyclical or are they secular. And well, nobody actually knows for sure. We think at least some of these trends are more than just short term. So we'll take a minute. Give you our snapshot in time perspective as we see them today and tell you what we're going to do about them.

We've made some good progress in the last few years in making our clinical, regulatory and quality functions like competitive advantage in this evolving and dynamic environment. In fact, we've added well over 100 people in those functions over the last 3 years. And while overall regulatory timelines have lengthened, if you compare objective public metrics from the FDA, you'll see that we score very well in average review times versus competitors in both 510(k) and PMA submissions. And we've always, frankly, had strong metrics here but over the last few years that advantage has actually increased by those measurements.

We've developed very good relationships with regulatory agencies around the world and we believe we understand the changing reg requirements there as well as anyone can. Given our leading share positions, it's not unusual for a regulatory body to contact us for advice and input as they contemplate change in any particular area that's happened several times over the last few years. We continue to push all those regulatory agencies for clarity and transparency of the rules. Then it's up to us to be better than the competition. Having said that, we don't expect the regulatory climate to get any easier in the U.S. or abroad, so we would call that secular.

Pricing is always been an issue in the marketplace and the sustained economic pressures that U.S. hospitals are under today certainly look and feel secular to us. Because we sell differentiated products in markets where the ASPs are typically less than $500, we've been able to avoid this pressure better than most, but we certainly aren't immune to it as evidenced by our second and third quarter results. However, we view the pricing question really is more of a value question. If you look across med tech, you see multiple examples including even within our own company, where differentiated products are experiencing very strong growth even with premium pricing. As our customers get more sophisticated about purchasing decisions and technology adoption, we think we'll continue to have a competitive advantage through higher quality products, produce better long-term clinical outcomes with proven evidence of the value they bring to the marketplace. In other words, better clinical results with lower overall costs.

Moving onto utilization, especially again in the U.S., our customers' P&Ls are under as much pressure as they've ever been. And we are seeing some customers reducing device utilization because they see that as an easy lever to pull that they can control to reduce costs. Increased scrutiny on more expensive treatment options, we believe it's certainly warranted and necessary but the right primary endpoints are long-term patient outcomes and improved quality. We support protocols that consistently provide the right care to the right patient in a responsible manner. In fact, we try to create them. However, the wrong step down in treatment protocol can ultimately harm patients and cost our customers more money if the cheaper option increases complications, such as infections or otherwise reduces the quality of care, so this really gets us back to the value question. Our large call point focused sales force and our clinical support teams put us in a consultative role to help the customers identify the proper solution for their patients. We see this as a competitive advantage for us.

We believe that the hospital systems that will thrive will be those that have a long-term integrated view of the role of medical technology both clinically and economically, and we will provide them with the evidence to help make decisions with that view. As far as cyclical versus secular, it seems apparent that there's been at least some overutilization in the marketplace. And while we're not sure how much of that bubble is left, at some point we'll reach a new baseline. So while we think pressure on utilization is likely secular, we believe the current rate of decline is temporary. So that then gets us to patient volumes. We told you a year ago that our guidance assumed that the market would not get any better or any worse. Most of the external analysis we saw a year ago concluded that admissions couldn't continue to decline and would at least moderate in 2011 and potentially improve. While we're now at 7 straight quarters of decreasing admissions reported by the publicly-owned hospitals in the U.S. and according to IMS data, physician office visits are significantly down over that same period. While we can't find anyone who thinks Americans are getting healthier and we're positive they're not getting any younger, so this continuing decline really wasn't expected. It now appears that procedures that we all would've considered nonelective a few years ago are at least more discretionary than once thought. In most cases, when patients delay treatment, they eventually present at a higher acuity level. This could mean there could be a pent-up demand for products. And we've all seen the demographic forecast. This year, the oldest baby boomers turn 65 and the youngest turn 47. So with our products weighted toward patients over 65 years old, we have to conclude that the slope of the demand curve will increase in the years ahead. The decline in patient volumes are certainly cyclical. Could it continue in to future quarters and years? Yes. But at some point, we believe the slope turns the other way. As hospitals consolidate and fill up again, there will be less capacity in the system. So the most valuable solutions will be those with the -- that resolve in the most effective care for patients, reducing complications, infections, length of stay and readmissions. Hospitals and patients will demand this and payers will value devices that provide meaningful outcomes with fewer complications.

And so while you look back at this slide and realize that all these factors may be to some degree, worse than a year ago, we remain convinced that product leadership is the optimum long-term strategy, again albeit, at reasonable cost. And we believe we have a competitive advantage in the area as necessary for success in the med tech environment of tomorrow.

Navigating the short term while positioning for the long term is how we've remained strong and successful for over 104 years. And the current environment requires us to be even better than we've been in the past.

Going back several years, what we told you the way to achieve double-digit revenue growth was by investing in high-growth opportunities and that's how we'll get back there again. Today, we are actively shifting the mix of our portfolio to double-digit growth opportunities both geographically and from a product perspective. If you look back at our most recent quarter, you can see that the product lines where we made acquisitions in 2010 are growing at a healthy double-digit rate post anniversary. Also in 2011, our R&D process produced key product launches in our PICC area, stents, and synthetic ventral hernia repair, all of which grew at double-digit rates in the third quarter. These product lines in aggregate make up a little less than about 30% of our total revenue. So our focus is to continue to shift the mix of the portfolio toward higher growth acquisitions, R&D investments and sales force investments and redeployments.

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