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CR Bard Inc BCR
Q1 2010 Earnings Call Transcript

Transcript Call Date 04/22/2010

Operator: Ladies and gentlemen, thank you for standing by and welcome to the C. R. Bard, Inc. First Quarter 2010 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer-session. Instructions will be given at that time. (Operator Instructions). As a reminder, this conference is being recorded and will be available for future on-demand replay through the Bard website.

Today's presentation will be hosted by Timothy M. Ring, Chairman and Chief Executive officer along with John H. Weiland, President and Chief Operating Officer and Todd C. Schermerhorn, Senior Vice President and Chief Financial Officer. Also in attendance today are John A. DeFord, Senior Vice President of Science, Technology and Clinical Affairs and Eric J. Shick, Vice President, Investor Relations.

Today Bard's management will discuss some forward-looking statements, the accuracy of which are necessarily subject to risks and uncertainties. Please refer to the cautionary statement regarding forward-looking information and information under the caption ‘Risk Factors’ each in Bard’s 2009 10-K including disclosure of the factors that could cause actual results to differ materially from those expressed or implied.

During the call, references will be made to certain non-GAAP measures which management believes provide an additional and meaningful assessment of the core operating performance of the Company and its individual product franchises. Reconciliations of non-GAAP measures to the most comparable GAAP measures are provided in Bard's earnings press release and on the Company's website at www.crbard.com.

All information that is not historical is given only as of April 22, 2010 and the Company undertakes no responsibility to update any information. Unless otherwise noted, all comparisons are to the prior-year period.

At this time, I’ll turn the call over to Mr. Timothy Ring. Please go ahead.

Timothy M. Ring - Chairman and CEO: Thanks, Paul. I'd like to welcome everybody to Bard's first quarter 2010 earnings conference call. Thanks for taking the time to join us today. We expect the presentation portion of the call to last about 40 minutes.

The agenda today will go as follows. I'll begin with an overview of the results for first quarter of 2010. John Weiland, our President and COO, will review first quarter product line revenue. Todd Schermerhorn, our Senior VP and CFO, will review the first quarter income statement and balance sheet as well as our expectations for Q2. John DeFord, our Senior VP of Science, Technology and Clinical Affairs, will provide an update on our product development pipeline and then we’ll close with Q&A.

First quarter 2010 net sales totaled $650.8 million, that's up 9% over Q1 last year on an as reported basis and 6% on a constant currency basis. The currency impact for the quarter was favorable by 270 basis points.

Net income for the first quarter of 2010 was $120.9 million and diluted EPS were $1.24. Excluding items that affected the comparability of results between periods which Todd will get into later, first quarter 2010 net income and diluted earnings per share were a $122.4 million and $1.25, up 3% and 7% respectively, which was at the top of our guidance range for the quarter.

Looking at our sales by business growth, in the Vascular category was up from Q4 but below the range of our guidance for the full year. Oncology was within its guidance range while Surgery grew above full year guidance. The Urology is at the high end of the range, reflecting a favorable impact of the distributor destocking that occurred in Q1 of last year.

Looking at revenue growth on a geographic basis compared to the first quarter of last year, again on constant currency basis, first quarter net sales in the U.S. increased 8%, Europe was up 2%, Japan decreased 3% and all the other international businesses grew 15%.

Looking at our business development activities in early April, we acquired a small company called FlowCardia located in Sunnyvale, California for approximately $80 million. Their products and technology for crossing chronic total occlusions or CTOs represented an important advancement for lower limb arterial business strategy, complementing our PTA products and our peripheral vascular stents. The acquisition will advance our relationships with interventional cardiologists which are the primary call points in endovascular lower limb arterial cases.

Additionally, with the acquisition comes an experienced R&D and marketing team with deep knowledge of the CTO market. Looking ahead, we have several more deals currently in negotiation and a healthy pipeline of prospects in the assessment phase.

And finally, we received notification from the FDA in January that the warning letter for our Davol facility in Rhode Island had been closed out. And then, late last week, the FDA notified us that the warning letter for our Puerto Rico facility had also been closed. This is certainly welcome news as these events are important milestones in our ongoing efforts to develop best practices around our product quality and regulatory capabilities and making them both competitive advantages for us.

Now, let me turn you over to John Weiland for a review of the product line revenue.

John H. Weiland - President and COO: Good afternoon, everyone. Before I start, let me point out that I’ll be giving all percentage growth data in comparison to the prior year period on a constant currency basis, unless noted otherwise.

So let’s start with Vascular. Growth in this category improved to 6% in the first quarter. Total net sales were $172.4 million, up 10% over last year on an as reported basis. Our United States business was up 5% for the quarter. Internationally, we grew 7%.

Our Electrophysiology sales, which represented 19% of our Vascular business, grew 7% for the quarter. EP Lab Systems were up 17% versus a low base in the first quarter last year. While we would attribute this increase in part to the typical unevenness in system sales, we have experienced three solid quarters in a row.

Revenue in our disposable EP product lines was about flat versus the first quarter last year, while our steerable diagnostic catheters were up 7%. Sales in the balance of our disposables were down, so no change in the trend year.

Sales in our surgical graft category were down 8% in Q1. Excluding OEM sales, which are historically lumpy, sales were down 3%, which is in the typical range for this product. Our Endovascular business increased 9% in the first quarter with a nice improvement in performance in PTA and a more modest improvement in stents. Within Endovascular, our biopsy products were up 6% fueled by growth in our VISICLIP marker here.

Sales in our peripheral PTA line increased 26%. A key driver in this step up in our growth rate was the launch of our new VascuTrak catheter, which was acquired in late Q4 as part of the purchase of Y-Med. This product line is highly differentiated with balloons that contain external wires to deliver focused longitudinal force to help crack calcified lesions at low inflation pressure. These catheters are compatible with 0.014 and 0.018 inch guidewires and are available with balloons up to 300 millimeters in length. So they give us a significant offering in the below the knee PTA market for the first time.

In late March, we took a next step in our entry into this market with the launch of the first of our family of new UltraVerse PTA catheters. Together with VascuTrak they give us the broadest offering in the rapidly growing small vessel segment of the peripheral market. John DeFord will give you more details on UltraVerse shortly.

As Tim discussed, we closed the acquisition of FlowCardia, Inc. earlier this month. Their portfolio of endovascular products include the CROSSER Catheter, MicroSheath support catheter and Porter family of guidewires, and represents a complete set of tools to cross CTOs.

The lead product is the CROSSER Catheter. When energized the device produces a high frequency mechanical vibration that supports advancement and ultimate passage of the catheter through a CTO within the true lumen of the vessel.

Once through the occlusion, the physician can perform PTA, stenting, atherectomy or other therapies deemed necessary to optimize longer term positive outcomes. For many patients, this therapy can eliminate the need for a potentially traumatic bypass procedure or even amputation.

To help put the opportunity here in perspective, the 2010 market for peripheral vascular CTO devices in the United States is estimated to be at about $60 million and projected to grow at a CAGR of close to 20% over the next several years. We believe that the CROSSER catheter represents the best technology to access totally occluded arteries and we believe it should become a market leader in that space.

Sales in our vena cava filter line were down 8% in the first quarter versus the prior year period. After about a year and a half without a new product in this area, we launched our new ECLIPSE filter this quarter and it’s off to a good start. We have been seeing a decline in our filter business over the last year or so in part due to a slowdown in the market, but also to our lack of new products. Consequently, we have some work to do, but the good news is that we have a number of new vena cava filter launches that we expect to start rolling out later this year.

Our stent business grew 8% in the first quarter. Within our Bard metal stent line, LifeStent grew better than 50% in the United States and roughly 10% outside of the United States. We anticipate publication of the LifeStent resilient trial in a prestigious medical journal later this year. This publication along with our new CROSSER devices’ ability to access CTOs should positively impact our SFA franchise. However, we do start to face some tougher comps in Q2 as we pass the anniversary of LifeStent’s SFA indication.

Sales of covered stents have been relatively consistent since our FLAIR device got off to a strong start following its PMA approval in late 2008. During the first quarter, The New England Journal of Medicine published the FLAIR clinical trail results, which provides us a useful tool to introduce the benefits of this technology to a broader population of interventional radiologists, interventional nephrologists and vascular surgeons.

Let’s move on to Urology now. Total net sales were $174.3 million, up 5% versus Q1 of last year, up 7% on an as-reported basis. The United States business which was 72% of global urology revenue was up 6%, while internationally we grew 2%. As you will recall, our performance here this quarter was up against the period with heavy distributor destocking in the first quarter of ’09. We estimate the impact on the growth in this business to be favorable by about 500 basis points.

Our Basic Drainage business was up 3% in the first quarter. Our I.C. Foley business was about flat for the quarter. Our Continence business, which represented 13% of Urology category, was down 5%. Within Continence our DigniCare fecal management line was up over 100% in the first quarter. With its unique features and strong clinical performance, we have been rapidly gaining share in this market. This performance was offset by another double-digit decline in our Surgical Continence products this quarter which was primarily driven by weakness in our Pelvic Floor Repair line.

In slings we are pleased with the early progress of our AJUST launch. The value proposition of strong anchoring and full swing adjustability has resonated with their customers and they see the advantages it provides versus other single-incision slings on the market. We look for our Surgical Continence business to improve as we continue the rolled out of AJUST.

In the Pelvic Floor Repair portion of this business, we launched our new Alyte Y-Mesh in Europe late in the Q4. In the second half of the year we anticipate the launch of our new (WebTO) product which will bring many of the same benefits of the AJUST system to our Pelvic Floor Repair platform. Also in that timeframe, we expect to launch the Alyte in the United States which should allow us to capitalize on the growing sacrocolpopexy market here.

Sales in Urological Specialties were up 2% versus the prior year quarter. Standalone sales of our StatLock catheter stabilization line increased 31% in Q1, while this was up against a low comp in the prior year in the United States.

Our international StatLock business continues to do well growing 38% this quarter following a series of investments we made over the last couple of years in our selling business internationally.

Our next segment is Oncology. Total net sales in this category were $174.0 million, an increase of 6% over the first quarter last year or 8% on an as-reported basis. Geographically, net sales in the United States were up 6%. Outside the United States, sales were up 3%.

Our port business was up 4% versus Q1 last year. In the first quarter, we launched our new line of CT power injectable ports. As we’ve discussed previously, this more basic port will be used only to address the parts of the market where we have seen pricing pressure from competitive devices with less features.

PICC revenue grew nicely at 10% in Q1 and I’m pleased to note that we are starting to see some traction outside of the United States where we grew 32%.

While we saw nice growth in all of our geographic categories, the most significant contribution came from our emerging markets. We haven’t seen any real change in unit growth in the United States PICC market, though we’ve started to have a little more success in up-selling technology, particularly with our Sherlock TLS tip tracking system. In fact, for the first quarter in the United States, our average selling price for our PICC line was up 3% versus the prior year quarter.

Our Vascular Access Ultrasound product line was up 12% this quarter, but it was up against the lowest comp in two years. Sequentially, the line was flat with the fourth quarter, so no sign of increased capital spending here yet.

Last quarter I said we expected our dialysis catheter business to continue to strengthen in 2010 and after growing 9% in the fourth quarter, we saw our growth move up to 13% in Q1.

Behind our recent momentum in this business our last year’s launches of two internally developed catheters, Equistream and Trialysis. Then late in Q4, we acquired the Spire dialysis business which includes a strong intellectual property portfolio and three chronic dialysis catheter families Ulta, Decathlon and RetrO. We are now integrating these products into our bag and believe the combination of the Bard inspired technologies and intellectual properties gives us the strongest split-tip catheter franchise in the market.

And finally, our enteral feeding line was down 29% this quarter, reflecting the product discontinuations we’ve discussed on the last couple of calls. These discontinuations negatively impacted growth in our total Oncology business by about a point again in Q1, with most of the impact being felt outside of the United States.

Let’s complete our revenue discussions with Surgical Specialties. Global revenue growth in this category improved to 14% in the first quarter. Net sales were $109.2 million, up 16% on an as reported basis. United States sales, which represented 78% of our global surgical revenue, increased 18%, while international sales were flat to the prior year quarter.

Our soft tissue repair business had another strong quarter with growth of 22%. Within soft tissue, our natural tissue products were up over 75%. Our AlloMax tissue line had a great quarter with significant growth coming from our new breast reconstruction call point. The clinical performance of AlloMax continues to meet with strong physician acceptance at a time when more surgeons are choosing allograft implants in place of using patient’s own tissue proposed mastectomy breast reconstruction procedures.

Further, in our natural tissue line, our new XenMatrix porcine implant delivered an even stronger performance than AlloMax. Part of the reason is xenograft product has been doing so well right out of the blocks is that our sales force is armed with published clinical data that illustrates its excellent strength characteristics and effective tissue in growth. This is a great case study supporting our plans to develop more clinical data under our accelerating R&D investment strategy.

Moving to our synthetic hernia products, sales were up 2% over Q1 last year with growth in both groin and ventral products. In the inguinal space, on the heels of our – of the launch of our new lightweight 3DMax, we launched a new lightweight PerFix Plug in early Q1, with both products receiving positive clinical feedback.

In the ventral space, our Sepramesh absorbable barrier grew 36% versus the prior year quarter, which highlights why we plan to begin expanding our other proprietary ventral implant lines to include the resorbable Seprafilm barrier starting in the second half of this year. Our strategy here is to continue selling our current PTFB barrier versions as well, so clinicians will really have the choice of using either a permanent or resorbable barrier implant product.

In the fixation category, SorbaFix drove a 200% increase for the third consecutive quarter. This resorbable anchor device received a lot of positive attention at the American Hernia Society Meeting in mid March. One notable highlight of the meeting was as an animal study presented Dr. Neal Agee of Carolinas Medical Center that compared SorbaFix to the market-leading device. The study showed SorbaFix has statistically significant advantage in preventing what’s called tenacious adhesions of scar tissue or adjacent organ tissue which is an important characteristic for fixation devices.

Following on the success of SorbaFix, we launched a permanent anchor called PermaFix in January. It’s been met with positive clinical response as well and was also shown to have an advantage over the competitive device in the same Carolinas Medical Center study. With the launch of PermaFix, we now have both resorbable and permanent anchor fixation devices in our bag.

Closing out the Surgical category, our performance irrigation business declined to 8% as we continue to feel the effect of the return to the market of a major irrigation competitor. Looking ahead, the associated comp situation improves in Q2. And finally, our hemostasis business was down 10% this quarter.

This concludes our product line revenue discussion. I’ll now turn you over to Todd Schermerhorn.

Todd C. Schermerhorn - SVP and CFO: Thank you, John. Good afternoon, everyone. Let me start with the items that affect comparability. In Q1, we had acquisition-related items of $1.6 million, majority of which were legal costs associated with the Y-Med and FlowCardia transactions. This item is detailed in the notes, the financial statements and the reconciliation accompanying our Q1 earnings press release.

Now let’s go through the statement of income for the quarter. Gross profit was $398.1 million, 61.2% of sales, down 120 basis points from the prior year quarter. As we discussed at our December Analyst Meeting and again on the Q4 call, the reduction in inventory in the latter part of 2009 created production and efficiencies that are reported as we sell that inventory, which occurred this quarter.

Financial impact turned out to be very close to what we had forecasted and communicated. Otherwise, our core manufacturing improvement programs continue to progress nicely and we continue to expect to be back in the mid-62s in the second quarter.

New amortization of intangibles relating to the transactions closed in the last 12 months cost us about 30 basis points year-over-year this quarter. SG&A expenses were $179.7 million for the quarter, 27.6% of sales. On an adjusted basis, they were $178.5 million or 27.4% of sales, a 10 basis point improvement over the prior year period as our annual guidance had suggested. This includes some good progress on our sales force expansion in our surgical business.

R&D expenditures totaled $40.6 million for the first quarter, 6.2% of sales. Not our strongest investment quarter, but again we are hiring additional resources and we expect R&D to expand as we move through 2010.

Interest expense was $2.9 million for the first quarter in the range of our historical results. Other income expense was $100,000 of income for the quarter. The effective tax rate was 30.7%. On an adjusted basis, it was 30.5%. That does not include any assumptions about the expansion of the U.S. R&D tax credit. We repurchased 1.2 million shares of the Company stock in Q1. We’ll continue to be buyers of our stock as cash balances and market conditions permit.

The balance sheet at March 31, 2010 reflects cash and short-term investments of $733.8 million versus $674.4 million at December 31. For the quarter accounts receivable days were up 28 days and inventory days were down 9.1 days, the majority of which was currency related.

Capital expenditures totaled $9.2 million for the quarter. On the liability side, total debt was $149.8 million, unchanged from December 31st. Debt-to-total cap at the end of the first quarter was about 6% and total shareholder investment was $2.229 billion at March 31.

Moving on to financial guidance for Q2, we are expecting constant currency sales growth of 6% to 8% again and from an EPS standpoint, excluding any items affecting comparability, we see the second quarter in the range of $1.34 to $1.38.

I’ll now turn you over to John DeFord.

John A. DeFord - SVP, Science, Technology and Clinical Affairs: Good evening. At our December Analyst Meeting we detailed 42 products from our pipeline with 23 scheduled to launch in 2010. In Q1, we’ve launched 8 of those new products, so we are off to a pretty good start and we are building momentum for the year.

Moving to products, I’ll start with the HD MESH Ablation System and our atrial fibrillation activities. As discussed in December, we stopped our MAGELLAN pivotal trial to allow incorporation of a number of meaningful device and energy delivery improvements.

We’re making good progress and are in discussions with FDA regarding the initiation of a study of this new system. In December, we anticipated a late 2010 launch in Europe followed by the start of our U.S. clinical activities in early 2011.

While our U.S. clinical activities remain on track, some recent changes to the regulatory path for the system in Europe will likely delay introduction from late this year to early to mid 2011 as the U.K. has characterized our heparin coding as a medicinal agent. This change will require a drug like review and we expect it will take a few additional months before CE marking.

In EP lab systems, we remain on track for second new track for 2010 launch of several upgrades and enhancements, including a new 3D navigation system that’s under development through our alliance with Philips Healthcare.

Now moving to stents, we’re making steady progress on our LifeStent platform enhancements including the 200 millimeter length, the addition of radiopaque markers on all sizes and a new tri-axial delivery system. Launch is anticipated in late Q2 or early Q3 in Europe concurrent with the start of the small multi-center clinical study to support FDA filing and anticipated U.S. launch in the second half of 2011.

On the Stent Graft front, we continue to work toward the start of a U.S. clinical study of our Fluency self-expanding Stent Graft product to support expanded indications. We previously forecasted beginning the clinical trial in the second half of this year; however our recent discussions with FDA have led us to conduct some additional animal and bench testing that will push out our IDE submission until Q3, and likely delay first patient enrolment until late in December or early next year.

Our next generation stent graft technologies are also progressing, though we’ve had a couple of twists and turns in that path. In December we shared our development activities surrounding both the new AV access focus product and our first stent graft designed for SFA use. Following discussions with FDA, we’ve confirmed our ability to leverage a great deal of our LifeStent bench and clinical data to reduce the scope and size of both bench testing and clinical evaluation requirements for the SFA targeted product.

Now this new information allowed us to prioritize our efforts toward the SFA device and we now anticipate the second half 2011 launch in Europe and a 2013 U.S. launch following completion of a medium-sized clinical study with one year follow-up. This is an improvement of about a year from our previous plan and puts our focus on that larger market opportunity. Now we’re currently evaluating the impact that will have on the timing of our next generation AV access product and will pass along to you our updated expectations on another call.

Now moving to PTA, as John mentioned, we began the rollout of our new UltraVerse technology platform in late Q1 with the launch of the UltraVerse 0.018. This is designed to treat long calcified and diffused intra-aortic disease and will be offered in 2 millimeter to 9 millimeter diameters and lengths from 20 millimeters to 220 millimeters.

We’ll continue to expand this offering over the second quarter to include the UltraVerse 0.014 family designed specifically for small peripheral vessels and will be offered in diameters from 1.5 millimeters to 5 millimeters and lengths up to 220 millimeters. Both products are designed for enhanced trackability, utilizing our hydrophilic coating and patented and checkering technology.

Now, in filters, as noted earlier, we launched our electropolished ECLIPSE vena cava filter in the first quarter. Picking up our cadence here, the next generation in the ECLIPSE family is on track for our Q4 2010 launch. This new filter will incorporate enhanced anchoring technology and a new delivery system for both femoral and jugular replacement. Then, as we discussed in December, we anticipate the launch of a new filter platform in the second half of 2011 with a lower profile and design for increased durability.

And finally, the FlowCardia acquisition includes some important clinical data on the CROSSER Catheter family. The device is used to aid in crossing both coronary and peripheral chronic total occlusions and was evaluated in several clinical studies. For example, the PATRIOT multi-center registry study enrolled 85 patients with CTOs, treated using CROSSER and re-canalization was achieved 83.5% of the time. There were no perforations and the average activation time was two minutes and six seconds with an average lesion length of 117.5 millimeters.

We began commercial sales of product in mid April, and this was a synergistic addition to our portfolio, and as John mentioned, the FlowCardia team brings a wealth of experience and an exciting pipeline that I will discuss at a future date.

Turning to urology incontinence, as John mentioned, we’ve launched two new products in the past two quarters, including the AJUST single incision sling in the U.S. and the ALYTE pelvic floor prolapse system in Europe. We anticipate launching ALYTE in the U.S. in the second half of the year and we’re completing the development work on our (WebTO) device, a next generation of anterior and posterior pelvic floor repair systems slated for launch late in Q4 of this year. These procedural kits will offer a full distilled and proximal adjustability for prolapse repair along with enhanced ease of access to anchoring points to reduce or prevent the risks associated with deep trocar passes

Also slated for Q4 is the launch of our next generation DigniCare fecal management system. DigniCare 2 will continue to build upon the existing design that promotes skin and lower bowel integrity through our patent pending cuff system which is designed to confirm to the anatomy and maintain seal integrity with the lowest cuff pressure on the market.

And now moving to Oncology, already in Q2 we launched our new Site-Scrub catheter hub disinfecting product. Site-Scrub is a small single-use hub cleaning and disinfecting product that’s designed to be used before and after every hub access. The innovative design cleans and disinfects both the inner and outer surface of the catheter hub in one easy step to reduce the likelihood of touch contaminations that can lead to catheter-related blood stream infection or CRBSI.

In PICCs, our Sherlock 3CG system which combines our Site-Rite ultrasound venous access technology, Sherlock tip tracking system and ECG catheter tip confirmation technology has been used in the placement and tip position confirmation in over 500 PICC cases.

We received 510(k) concurrence late last year with general PICC placement indications and continued to discuss with FDA a path to expand the device claims to remove the need for x-ray or other imaging confirmation of catheter placement.

We’ve discussed a number of potential study designs with FDA and they are currently reviewing our plan, so I don’t have specific details to provide you today on the design or anticipate a start and completion dates. However based on our early customer feedback, we’ve decided to launch the product with existing claims in Q3 as we continue to work toward expanding the claims and providing clinical evidence to support our customer’s scientific and clinical needs.

We have a couple of other important innovations in the PICC pipeline, one planned for launch in the second half of this year, and then building on that one, an additional launch in the first half of 2011. These catheters will incorporate new technology designed to address two of the external clinical events that can lead to catheter removal and replacement.

And turning to ports, beyond the recent launch of the CT Power injectable ports that John discussed, in Q1 we also launched our new port access kits and are on track for a Q3 launch of our new antimicrobial PowerPort family. We anticipate launching both titanium and MRI version simultaneously in our new (ComfortPort) designs.

The (ComfortPort) is structured to enhance and simplify placement through a new suturing system that allows anchoring almost anywhere on the port body, not just in predefined suture holes. The new design will also reduce the discomfort that can sometimes be associated with hard surfaces found in other port designs.

And in imaging, we recently received 510(k) concurrence of our new Site-Rite Vision and launched it just a few days ago. The new ultrasound-based product builds up upon our Site-Rite platform and provides functions that expand its use beyond just venous access.

Vision adds color flow doppler, onscreen vessel measurement and enhanced compatibility with hospital data systems to simplify image storage and maintenance and includes a number of user-tailorable features.

And now, moving to our Surgical business, so we’re in a final stretch here. In Fixation, we launched the PermaFix permanent fixation system in Q1, as John mentioned. The PermaFix product provides a permanent anchoring option and builds upon the very successful design that we pioneered with the Q2 '09 launch of our SorbaFix family.

The PermaFix is offered in either a 15 or 30 tack configuration. And in early 2011, we plan to launch some enhancements to the tack delivery system for both PermaFix and SorbaFix. In ventral hernia repair space we received 510(k) concurrence today for our Ventrio product line. We have inventory ready and we’ll launch next week.

The new Ventrio family incorporates a lighter mesh configuration and is now available in a broader range of sizes, all with Bard's proprietary resolvable self-expanding ring design. As we move through the remainder of the year, we continue to anticipate launching new versions of both Ventrio abdominal and Ventralex umbilical repair patches that incorporate our Sepra resorbable barrier technology for a lighter repair without a permanent adhesion barrier.

Then around the end of the year we expect to introduce a new device called (VentraLight ST). Our resorbable barrier mesh designed specifically for laparoscopic ventral hernia repair. And finally, we are in the middle of a number of regulatory discussions relating to our obesity therapy project. Recall, we conducted a small feasibility study of our RS2 endoscopic suturing device for the primary treatment of obesity.

After completing our 12-month follow-up with positive results, we initiated discussion with FDA in Q1. At this moment, we are discussing a number of key study design issues and until those are concluded, we can’t really provide an estimate as to when or if, we would start a pivotal study of this technology. It’s clear that FDA’s view of this and similar technologies is still evolving.

Now, we’ve covered a lot of ground here and I appreciate your attention. Now, let me turn you back Tim.

Timothy M. Ring - Chairman and CEO: Thanks John. That concludes the formal part of the presentation. I will now turn the call back to the moderator to facilitate the Q&A session.

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