Boston Scientific Corporation (BSX) Q4 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Boston Scientific Q4 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Mr. Sean Wirtjes. Please go ahead.

Thanks, Rochelle. Good morning, everyone. Thanks for joining us. With me on today's call are Hank Kucheman, Chief Executive Officer; and Jeff Capello, Executive Vice President and Chief Financial Officer. We issued a press release earlier this morning announcing our Q4 and full-year 2011 results, which included key financials and reconciliations of the non-GAAP financial measures used in the release. We posted a copy of that press release, as well as reconciliations of the non-GAAP financial measures used in today's conference call to the comparable GAAP measures and other supporting schedules to the Investor Relations section of our website under the heading Financial Information. Hank will begin this morning's prepared remarks with an update on our business progress and his perspectives on the quarter. Jeff will then review our Q4 and full-year 2011 financial results and business performance, as well as Q1 and full-year 2012 guidance. We'll then open the call up to questions. During today's Q&A session, Hank and Jeff will be joined by our President, Mike Mahoney, as well as our Chief Medical Officers, Dr. Dawkins and Dr. Stein. Before we begin, I'd like to remind everyone that this call contains forward-looking statements within the meaning of federal security laws which may be identified by words like anticipate, expect, project, believe, plan, estimate, intend and similar words. These forward-looking statements include, among other things, statements regarding our market share; markets for our products; new product approvals; launches and performance; clinical trials; our cost reduction and growth initiatives; our investments in emerging markets; the timing and volume of share repurchases; our free cash flow and uses thereof; our future financial performance, including sales, margins and earnings guidance for the first quarter and full-year 2012; and our future tax rates, R&D spending and other expenses. Actual results may differ materially from those discussed or implied in these forward-looking statements. Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K filed with the SEC as updated in the 10-Qs we've subsequently filed. These statements speak only as of the date hereof, and we disclaim any intention or obligation to update them. At this point, I'll turn it over to Hank for his comments. Hank?

Thanks, Sean. Good morning, everyone, and thank you for joining us. Before I get started, I want to let you know that starting today, we are implementing a revised approach to our earnings calls, which is intended to reduce call duration, as well as streamline and focus the information we provide. And we look forward to your feedback on this revised format. Now let me move on and show my perspectives on the fourth quarter and the progress we are making on our key initiatives to drive revenue growth and increase EPS, including a glimpse forward into 2012. I'll start with a couple of key points regarding fourth quarter results and then move on to some of the more important product introductions we expect to benefit from in 2012 and beyond. Fourth quarter revenue of $1.848 billion was down 8% on a reported basis and down 5% in constant currency and excluding the Neurovascular divestiture. This decrease was primarily the result of continued weakness in some of our end markets, particularly CRM in Europe, as well as some other factors Jeff will address in his comments. We delivered adjusted EPS of $0.13 in the quarter, which was in line with consensus and within our guidance range of $0.13 to $0.16, despite the fact that the negative EPS impact of inventory charges relating to the earlier-than-expected U.S. launch of PROMUS Element Plus were not included in that guidance. Jeff will detail our financial results in guidance, as well as several positive developments which should help set the stage for BSE in 2012. As you know, we're a global leader in a diverse $30 billion marketplace. Some of those markets are growing, others are not, but we continue to believe that the markets we're in are some good ones, with long-term growth…

Thanks, Hank. Let me begin by providing some overall perspective on the quarter. Despite global economic and end market conditions that continue to be very challenging, we generated adjusted earnings per share of $0.13, within our guidance range of $0.13 to $0.16 and in line with Street consensus, driven by continued strong attention to cost control. Once again, we also generated strong operating cash flow which allowed us to repurchase another 52 million shares in the quarter. Let me now move to the detailed review of the quarter to discuss the operating results and highlight the progress being made. Consolidated revenue for the fourth quarter was $1,848,000,000 and represents a decrease of 8% on a reported basis and a decrease of 5% in constant currency compared to the fourth quarter last year, excluding the negative impact of the Neurovascular divestiture, which negatively impacted revenue by 300 basis points. The actual tailwind from foreign exchange was $9 million, less than the $18 million assumed in our fourth quarter guidance range. At this point, I'll move on to address our sales results and drivers for our businesses. Worldwide DES revenue came in at $356 million, which included an $8 million negative impact from the sales returns reserve relating to the early U.S. approval of PROMUS Element Plus. Excluding the impact of the sales returns reserve, this represents a constant currency decrease of 4% compared to the fourth quarter of 2010. Our worldwide DES revenue included $101 million for TAXUS and TAXUS Element, $136 million for PROMUS and $119 million for PROMUS Element. We once again held clear worldwide DES market share leadership during the fourth quarter, with an estimated global share of 34%, which we estimate to be a full 400 basis points higher than our nearest competitor. These figures exclude the…

Thanks, Jeff. Rochelle, let's open up the call to questions. [Operator Instructions] Rochelle, please go ahead.

[Operator Instructions] And your first question comes from the line of Mike Weinstein of JPMorgan. Michael N. Weinstein - JP Morgan Chase & Co, Research Division: First I’d like to make sure, Jeff, that I caught a couple of your comments correct. You're assuming that your free cash flow would be about $1 billion in 2012 and then on the repurchase, you would use about 1/4 of your free cash flow to buy back stocks. Is that right?

That's correct, Mike. Michael N. Weinstein - JP Morgan Chase & Co, Research Division: Okay. And what's defining the percentage that you're assuming on the buyback? Why 1/4 versus 1/2 versus or some other number?

Well I think as we said, the strategy revolves around primarily driving the top line of the company. I think Hank did a good job of outlining our internal programs, particularly the ones that we expect to kind of start to get some traction in 2013. Having said that, our aspiration is to drive the growth rate of the company up to kind of the mid single digits, if not higher. And so from a shareholder perspective, I think you're going to see us get a little bit more aggressive from a business development perspective to try to drive some new technologies into the business to drive the revenue growth. However, I think we can do both. And that the 25% is just an estimate at this point in time and we'll wait and see what happens as we work our way through the year in terms of what assets are available at an appropriate price. Michael N. Weinstein - JP Morgan Chase & Co, Research Division: With the pressure you have on the pricing side in DES and CRM and submitted parts of your mentioned cardiology bag, [ph] could you just give us your thoughts on how gross margins play out beyond 2012? You're getting at the net of in '12 obviously the conversion from PROMUS to PROMUS Element across the U.S. and Japan. But if we look beyond '12 and then step up, do you think you can hold gross margins in the face of these pressures assuming they don't moderate at some point?

Yes. And that's a good question. If you go back and look at the Investor Day material we laid out in 2010 and kind of look at the different factors and look at what's different one way or the other, clearly price is a little bit more of a headwind than we anticipated. And we were starting with 68% margins. We assumed that price would be about 400 basis points of headwind. That's become a little stronger, although we saw some benefit in the fourth quarter. What's important to recognize, however, is that despite the pricing pressures, unit volumes are actually increasing in Europe and in other locations relative to the DES market and other markets. So we're getting fixed cost leverage. So if you go back and look at the Investor Day model, we get a volume benefit even though revenues are not where we want them to be. In some sectors, they are growing and the bonds are growing quicker. So we get fixed cost leverage, which helps offset some price. We continue to do very well in the productivity side. We have an objective to take out 5% of the standard costs every year. We continue to do very well in that front. So that's another positive headwind -- tailwind, rather. The PROMUS Element, if you look at kind of the distribution of the $200 million, we'll get the majority of that, call it 2/3-ish, here in 2012. There's another 1/3 to come, though, in '13. And then we've got the plant network optimization program, which a lot of it will happen in '12. We'll get a little bit of a tailwind in '13. But also, that doesn't count. So those are all positive factors that help offset price. The other dynamic that happens is, some of these new technologies come in, Mike, they're all designed to have much higher gross margins than our average. So there should be a mixed benefit as Alair kind of starts to be a bigger piece, Atritech comes in and Sadra. These are all designed to be -- have gross margins in north of our average. There will be a mixed benefit that will start in '13 and accelerate in '14.

And the next question is from the line of Glenn Navarro, RBC Capital Markets.

2 questions, 1 on ICDs. It seems like in the quarter, you may have taken some reserves or pulled inventory here in the U.S. in front of the Progeny launch. Can you quantify that? And then provide any commentary on pricing. You gave pricing on stents, but I don't recall getting pricing on ICDs. And I just had one follow-up.

Okay, Glenn, this is Jeff. So I don't think we're going to be as specific, perhaps, as you like. But as you look at our performance for ICDs, we still think that the market -- U.S. ICD market was down kind of mid-teens, if you will. I think that's consistent with the competition we're saying. We were down kind of in the 20% -- 21%, 22%, 20%, if you will. That delta is split between kind of our -- some replacement headwind that we have that will start to dissipate as we work our way through '12. And the other piece of it is kind of what we call kind of less bulking or less -- placing less inventory on the shelves, which is driven by dynamic that we have a new exciting technology coming in. We didn't want to put more COGNIS and TELIGEN on the shelves and have it come back in returns.

And pricing?

Pricing, as you look at pricing domestically and internationally, within the CRM market, kind of mid single digits, not much change kind of domestically. Outside the U.S., a little bit -- we identified in the third quarter that pricing was a little bit more of a challenge in Europe. That's still the case. And then DES, I think we called kind of lower kind of mid single-digit price erosion in the U.S., which was very encouraging. Still kind of upper single-digit erosion outside the U.S., though.

Okay. And then just maybe for Hank. I'm just curious how he sees your business playing out in the ICD market in 2012. In the single and dual chamber segment of the market, you have St. Jude having to deal with, say, Riata issues that could be an opportunity for taking share. But conversely, they've also launched their quadpole, which suggests you may be -- you could lose share there. So maybe talk to us about how you see yourself positioned in the ICD market, particularly in the U.S. in 2012.

Glenn, great question. I believe it's somewhat of a mixed bag. We believe that with the platform that we're launching that we're actually going to take share. And one of the things that I'm not sure that's well appreciated yet in terms of differentiation factors is the growing importance of our LATITUDE Heart Failure Management System, one; and then two, battery longevity. Now within the healthcare system environment today, you can argue that battery longevity has been a headwind for us due to the impact that it has on replacements. But I think there's a growing recognition on the part of various healthcare systems that as time marches on, and actually some systems are beginning to anticipate this fact this year, is that, that actually can work to their advantage and our advantage in a world of value-based pricing. So we're seeing the key differentiators of ICDs beginning to change a bit perhaps in our favor in ways that historically have not acted on our behalf. That would be quite candidly the essence of what I would respond to your question. And I think it's a play out. We're very excited by the platform, the 3 tiers, the features that we have, the DF4 connector tool that we have, we call it a green machine. That is a very key ease-of-use feature that the EPs are really attracted to, and we're getting some great feedback on it. So I think we'll have to see how the execution plays out here with the coming quarters. But basically from what I see so far, I'm very, very encouraged.

And next question from the line of Kristen Stewart, Deutsche Bank.

I was just curious on the -- within the context, I guess, of cash flows, you had mentioned that you did receive money from Abbott on the adjustment. Was there any impact on the gross margin this quarter or any P&L impact with the true up with PROMUS?

No, Kristen. We made that true up back in the first half of the year.

Okay. So that was not fourth quarter specific for cash flows?

No.

Okay, great. And then can you also just comment generally on Europe? You mentioned a couple different times that the market is more challenging. It sounds like it got worse within the quarter. So what are you seeing? It sounds like it's tougher in CRM. It doesn't sound like it's getting any better in stents, either. So any comments on Europe would be helpful.

Yes, Kristen, it's Jeff. So I think what we saw in the quarter, particularly in Southern Europe, is we saw instances of certain facilities either restricting procedures or not doing any procedures as we worked our way through the fourth quarter because of budgetary issues. And that had an impact on our sales for certain. As we've opened up now for the new year, we're seeing a little bit less pressure with some of the budgets being kind of freed up again for the new year. So that's not unusual for Europe to do. The issue here is that we've got a lot more of a difficult situation ahead of some of those Southern European countries. So the answer is we're just going to have to wait and see what happens and how things play out.

And the next question comes from the line of Rick Wise, Leerink Swann.

It's Miroslava for Rick today. Let me start by asking about the gross margin. Can you help us ease out the impact of divestitures, the inventory changes that you had with the PROMUS -- with the Progeny line price, et cetera? And how should we think about your key assumptions for gross margin expansion heading into 2012? How much of that is PROMUS Element versus these other factors reversing perhaps?

Well, let me start with the fourth quarter. So as you look at the gross margins for the fourth quarter on a percentage basis, if you look at kind of the impact to gross margins, you can almost think of kind of the value improvement programs and the cost initiatives pretty much offset price. And really, the big delta is year-over-year. So price was negative. We take out cost every year. That's positive. Those 2 more or less offset one another from a margin percentage perspective. And so what we were then left with was a $42 million reserve, which is a sales returns reserve of $10 million and an inventory reserve of $32 million. That had a 200-basis-point impact to gross margins, negative kind of onetime impact to gross margins. We also had the divestiture of Neurovascular, which we've consistently said has weighed on gross margins by about 170 basis points. So it's really those 2 factors that compress gross margins. The good news is heading into 2012, those 2 things go away and we get the benefit of about 100 -- call it $150 million-ish operating improvement and gross margin improvement for the introduction of PROMUS Element. So if you do that as a percentage of revenue, that's a couple of hundred basis points. So that's why our guidance for gross margins, we've kind of guided 65 to 66 for this year. And absent kind of the benefits in the first quarter and the negative things in the fourth quarter, we pretty much hung in that range. Now we're putting out a slightly higher range for 2012, and we will end -- we expect we'll end 2012 above the high-end of that range and build off that gross margin trajectory.

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

Hank, I wanted to come back to some of your earlier introductory comments. You talked a lot more about the pipeline in much more specifics, and I guess it's been about a little over a year since the introduction of the POWER strategy. I guess as you think about this plethora of products in the pipeline and you think about the strategy and your stated goals of driving leverage, do you think you have allocated the appropriate amount of spend either in sales, marketing and R&D to drive the execution across those time lines and still deliver the same type of margins that you laid out a little over a year ago?

Yes, I believe we have, David. I think the pipeline that you are beginning to sense and see is a result of -- we've gotten passed -- if you go back in time a little bit where the organization was internally focused a lot on in terms of some of the quality challenges that we've had, a lot of the organizational resources that we had at our disposal were focused on remediating that. They have now transitioned of getting back to what we love to do, and that's our focus on innovation. So saying that, we're spending roughly about 12% of -- on R&D. I think that's an appropriate percentage. The infrastructure that we have in terms of commercial channel is strong, particularly in the U.S. We're making incremental investments in the commercial infrastructure, especially in emerging markets as we've talked about previously. So one of the things I love about our situation is the fact that we have, especially in emerging markets, Asia Pac, we have the products. And I think you know, both those markets, if you talk specifically about India and China, are very much Interventional Cardiology markets. What we've lacked historically is the commercial infrastructure to deliver those products to the customer base. That infrastructure is building. It's being trained. And I think in the days and months and years to come, we'll see good execution that will drive growth.

And then just maybe one quick follow-up for Jeff. I mean, Jeff, last year emerging markets was incrementally a surprise headwind. I wonder, could you update us in terms of the investment in '11 versus the investment in '12? And is emerging market investment still a relative EBIT headwind? Or do we start getting leverage in the emerging markets or contribution leverage at the back half of '12?

Yes, it's a good question, David. So we will continue to invest. That's one of the reasons you'll see kind of slightly higher SG&A percentage in the first half of this year. We still have plans to add incremental reps, particularly in countries like India and China where we've gotten approvals or we expect to get approvals for certain regions. So you'll see a little bit more heaviness with respect to OpEx, after which the back half of the year, you should start to see both acceleration of revenue growth, which we really haven't seen yet despite the fact we had pretty good results in India and China. We're not seeing the results that we expect and in terms of getting more of an acceleration. And we're seeing signs that will occur in the back half of the year and start to take off. The other dynamic is that I think people are aware that we announced plans to build a manufacturing facility in China. So we have a little bit of headwind relative to cost to get that factory up and running in 2012. But that's more in the gross margin side.

Next question from the line of Bruce Nudell of Crédit Suisse. Bruce M. Nudell - Crédit Suisse AG, Research Division: Jeff, one of the things -- or Hank, one of the things that was never totally clear to us and maybe you could kind of like frame for us is back at the Investor Day, there was about 800 bps of operating margin improvement. What sort of top line assumption kind of went with that over that period? And if, let's say, over that initial 3- or 4-year period revenues are more like 2%, what has that 800 bps become?

Yes, Bruce, that's a good question. So we were clear with people that our short-term objectives relative to revenue growth were kind of in the 2% to 4% range back in 2012, and then kind of the medium term were kind of 6% to 8%. So the period of time we're talking about in terms of the expansion of margin more in 2% to 4%, that was before the CRM market. CRM market was growing in the low single digits. Now we think it's kind of contracting globally in the mid single digits. So I think we've come up recently, said kind of 0% to 3% is kind of our objective in terms of the short term and in terms of growth, which is consistent with the range of guidance we've given out for 2012. So as long as we can drive revenue growth in kind of that low single digit perspective, we ought to be able to get a lot of the margin expansion because some of it -- for example, PROMUS Element is driven by just converting our PROMUS to PROMUS Element. The Plant Network Optimization is driven by taking care of existing volumes and converting them over. And the value improvement programs are 5% of gross costs. So where we'll get hit a little bit would be on the volume side. We won't get quite as much fixed cost leverage through gross margins. Conversely, through the SG&A line, a lot of the benefit is coming out of our restructuring initiatives, which really are not volume dependent at all. So we announced the $225 million and $275 million of restructuring plant in the second quarter of 2011, that really is agnostic to revenue. So we expect to be able to get a lot of that. Some of that we'll get in '12. Really, the majority starts to come through in '13. So we still think that there's ample opportunity even in a difficult environment to expand in margins. And as Hank has outlined in his presentation, we have been riveted on doing that. Bruce M. Nudell - Crédit Suisse AG, Research Division: Terrific. And one other question I had is could you give us the kind of PCI growth rates for the U.S., Japan and the other international markets?

Sure. So if you look at kind of from a year-over-year perspective, units in the U.S. were kind of down in the low single digits. Europe, they were actually up in kind of the high single digits. Japan down low single digits. Emerging markets up in kind of the mid-teens. Bruce M. Nudell - Crédit Suisse AG, Research Division: So worldwide, there was a lot of price pressure?

Worldwide, the price pressure was consistent, although we saw a better fourth quarter from a price erosion perspective in the U.S. than we've seen in the last 3 years that I've been here. So that's encouraging.

Next question from the line of Tao Levy, Collins Stewart.

Just wanted to be clear, in the U.S. this year, are there any more PROMUS sales or are you completely done with PROMUS sales?

You mean in 2012?

Yes, in 2012.

Well in 2012, we began the rollout. The rollout will take some time, and we would anticipate probably by kind of end of the first quarter, early second quarter we'll have full rollout. So we'll still have some sales in the first quarter with PROMUS and probably a short tail into the second quarter.

Got you. Okay. And then when you look at the international ICD market, you did indicate it is a little bit weaker. Do you feel like you lost share there? I mean, obviously we need to wait for [indiscernible] to report but based on St. Jude's results, it looks like things fared a little bit worse for you there, and I just -- if you had any reasons behind that.

Yes, I think that's fair. I think part of that is we're in the midst of rolling out a whole new refresh of our ICD CRT-D platform. And I think in the rollout of that, we probably didn't hit the ground as hard and as fast as we thought we would have. And so I think that's one factor from an execution perspective which we're addressing right now. The other factor is other competitors have come out with some technology. So part of that is we expected some headwind relative to some other technology competitors had brought out. And now with the full rollout of our INCEPTA, ENERGEN and PUNCTUA lines, we expect to kind of take some share now back, now that we have it fully ruled out.

Your next question from the line of Raj Denhoy of Jefferies. Raj Denhoy - Jefferies & Company, Inc., Research Division: I wonder if I could ask sort of on the drug-eluting stent side. We've [indiscernible] in the market and obviously that was an opportunity, but you at several times talked about the ability perhaps go after this additional part of their Interventional Cardiology business. Are you starting to see any of that come through for you yet?

I think -- a great question. In the U.S., the answer to that is yes. We have -- we had a goal set for ourselves in terms of what we wanted to garner from their departure from the market. And we hit that goal and, in fact, exceeded it. In the international markets, it's a ball in play. What I mean by that is the tender process and many of the regions outside the U.S. kind of gate when you can take advantage of those opportunities. Those tenders will come off over the course of time. And we think the full potential of what we can garner from the quarter's opportunity outside the United States will be realized starting this year and quite frankly, in some regions moving into 2013. Raj Denhoy - Jefferies & Company, Inc., Research Division: Okay. And maybe just ask a bit of a product question, a part of the strategy you guys laid out back in 2010, the CRV idea with the combining of the Interventional Cardiology and the CRM sales management and ultimately sales forces. As you see that play out, have you seen much of an impact in a sense in your ability to perhaps sell in the U.S. market? Is there perhaps a risk that maybe you've been a little too aggressive in pursuing that as to what's actually happening on the ground with actually individual clinician behavior?

Well, I think a great question again. I think my answer is going to be multidimensional. First, in terms of I think what you're alluding to is the alignment of physicians within healthcare institutions. Actually, from the standpoint of why we did what we did in terms of CRV, that was one of the trends that we saw in the horizon that we wanted to address. And what we are seeing, and I think this is evident by the success that we've had with our CrossCare Program, where we've increased the number of cardiovascular service line deals, so specifically kind of a bundled deal between CRM and CV, that's increased fairly dramatically over the past year. So I would say I consider that a success. Secondly, if you look at how we've organized ourselves, we have a good percentage of the CRV sales organization in the United States that are now engaged in cross selling. And one example I'll give you is one of our reps on the IC side in the fourth quarter had 11 implants. Historically, that has not been in play. But it's more of a team orientation that I think is growing in its importance within the commercial channel and has been well received by our customers.

And the next question from the line of Bob Hopkins, Bank of America.

Jeff, just to start out, I'd love to continue with your 2012 guidance. If you could give us a sense as to how much of the $650 million to $750 million is -- you anticipate being realized in 2012, and if you're willing to break that out kind of between COGS and SG&A.

Sure. Give me a minute here. I've got that right in front of me.

On a gross basis.

Yes, sure. I'll do it in total and then try to give you some detail relative to gross margin and SG&A. So as you look at 2012, just going through the pieces, the 5% reduction in cost of goods sold is a program we have every year. It's an ongoing program and frankly, I think we've got one of the best manufacturing organizations around. So you can consistently count on them taking out 5% of cost of goods sold. That stays in all year. So that was in '11, that will be in '12. The PROMUS profit share, we said it was a $200 million opportunity. The vast majority, I said $150 million, that won't be far off for 2012. That will sit in '12, and then we'll get a benefit for that relative to '13, kind of the tail of that. Those are the 2 big pieces relative to gross margin benefit for '12 and '13. And then as we look at the restructuring, which is more of an SG&A, it really started a little bit in '10. We'll get a piece of the $225 million to $275 million in '12, a small piece. And then we'll get the lion's share kind of in '13 and '14. So as you look at kind of what I think some people have said, well, all the benefit of $650 million to $750 million really happens in '12, that's really not accurate. The benefit -- the large benefit of PROMUS Element will occur in '12, but the vast majority of the restructuring benefit will happen in '13 and then into '14. And you've got to remember that the VIP programs continue every year as well. And then you've got project transformation, which is reducing R&D costs, that's spread almost equally over the year. So we do have -- we always said that the $650 million to $750 million would start in earnest at the end of '11 and be kind of '12 and '13 and part of '14 benefits. And that's still a plan. And as Hank has highlighted and I'll reiterate, that is still a plan.

The Plant Optimization?

Yes. And the Plant Network Optimization program, the majority of that really will hit in '12, and there will be a small tail of that in '13.

And then just as my follow-up. I was wondering if I could get a couple of little -- just little data points. Could you give us the EMEA PROMUS Element share in the quarter? And then I just want to make sure I heard you right. On that bulk order for ICDs, is that in the $10 million to $15 million range? And was it a negative impact this quarter?

So we're not going to get in on the specifics on both. We're not going to comment on. I don't think anybody is doing that. So we'll pass on that comment. Relative to the share, in our share, it was relatively slightly unchanged relative to DES sequentially from the third to the fourth quarter. And the vast majority of that was PROMUS Element.

And then buybacks, could you just comment on why those seem to tail off so much in 2012? Do you anticipate acquisitions? Is that just a function of what you have authorized? Or just -- you bought back more in this quarter than you're anticipating for next year. So I just wanted to put some perspective around that.

Yes, I think as we continue to roll out the strategy and get more specific with some of the targets we're looking at and given the environment that we're in, we're anticipating that it may become a slightly better environment from a business development perspective in terms of targets that are available that may not have been available historically. So -- but I think why I threw that out there is we're getting a lot of questions saying, will you buy back? I think we will buy back and I think we're comfortable saying we will use at least 1/4 of our cash flow to do buybacks. And then thereafter, it will all be governed by what's available and what we can get done at an appropriate price from a business development perspective.

And the next question from the line of Derrick Sung of Sanford Bernstein. Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division: I wanted to go back to your outlook for the ICD market in 2012. I thought I heard you say that the upper end of your guidance assumes the ICD market doesn't deteriorate further. So are you implying that kind of midpoint of your guidance, your baseline case is that the ICD market does deteriorate further? And maybe if you can just kind of give us your baseline kind of outlook for pricing and volume for the ICD market.

Yes, so Derrick, it's Jeff. So relative to our guidance, the upper end of the guidance assumes that from an ICD perspective that, that market flattens out in the back half of '12. So it started kind of eroding in the second quarter. We thought it was down mid-teens in Q3 and Q4. We're assuming that we have headwinds in Q1 and then partially Q2. And then almost like on a same-store sales basis against a comparable low benchmark, it kind of flattens out in the back half. So that's what we've assumed relative to that. Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division: Okay. And how about price -- sort of your pricing assumptions for the market as well? And then maybe you could do the same -- if you could do the same for the drug-eluting stent market as well is my follow-up.

Yes. So pricing, we're assuming pricing is down mid single digits here in the U.S., a little higher than that outside the U.S. and CRM. And then relative to DS, we've assumed kind of up per single-digit price erosion both in the U.S. and outside the U.S. Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division: And one other question, in 2013, as you look forward towards the med tech tax, can you talk a little bit about how you expect to offset that? And do you still expect to be able to see sort of the same kind of growth trajectory and absorb that tax? Or what are your thoughts relative to that?

Well, I think we've been very clear from the beginning that this tax is going to put a lot of pressure on all corporations. And assuming that we're going to pass it through to a hospital group that's under pressure that's going to get their tax, I think it's optimistic. So we're assuming we're going to have to be kind of tighter from an OpEx perspective. And that was always in our plans back when we did the Investor Day, and that's one of the reasons why we're being pretty aggressive on the cost side. It's because we're assuming we're going to have to manage our way through that.

And our final question comes from the line of Matthew Dodds, Citigroup.

Just one quick question, Jeff, for you. On amortization interest, is the current run rate for the fourth quarter the $96 million amortization, is that a good carry through for 2012?

Yes. When you say amortization, your amortization of intangibles, not interest, right? That's what you're looking for?

Yes.

Okay. Amortization is about $100 million per quarter.

Okay. And then for interest, it seems like when you said other would be roughly flat year-over-year, you're assuming the interest is also run rate around $70 million for next year per quarter?

Exactly flat with the current run rate.

Okay. Then just 2 quick product questions for U.S. In 2012, do you expect to start clinical trials for an MRI compatible pacemaker and quadripolar leads early 2013?

Right now, we do not have a plan to start a clinical trial MRI Conditional in '12.

And how about on quadripolar leads for ICDs?

I don't believe so. Dr. Stein, are you on the phone? Can you confirm that?

Yes, I'm on. Not a chronic study. We already have started some acute testing on quadripolar leads.

Okay with that, we'll conclude the call. Thanks for joining us today. We appreciate your interest in Boston Scientific. Before you disconnect, Rochelle will give you all the pertinent details for the replay.

Okay, thank you. And ladies and gentlemen, this conference will be made available for replay after 11:00 a.m. today until February 16 at midnight. You may access AT&T Executive playback service at any time by dialing 1 (800) 475-6701, entering the access code 231996. International participants, dial 1 (320) 365-3844. And again, that access is 231996. And that does conclude our conference for today. Thank you for your participation and for using AT&T Executive teleconference service. You may now disconnect.