Susan Vissers Lisa - Vice President-Investor Relations Michael F. Mahoney - President, Chief Executive Officer & Director Daniel J. Brennan - Chief Financial Officer & Executive Vice President Kenneth Stein - Senior Vice President & Chief Medical Officer-Cardiac Rhythm Management Keith D.

Dawkins - Global Chief Medical Officer & Executive Vice President.

Robert Adam Hopkins - Bank of America Merrill Lynch David R. Lewis - Morgan Stanley & Co. LLC Chris T. Pasquale - JPMorgan Securities LLC David Harrison Roman - Goldman Sachs & Co. Glenn J. Novarro - RBC Capital Markets LLC Brooks E. West - Piper Jaffray & Co (Broker) Larry Biegelsen - Wells Fargo Securities LLC Matt C. Taylor - Barclays Capital, Inc.

Matthew J. Keeler - Credit Suisse Securities (USA) LLC (Broker).

Ladies and gentlemen, thank you for standing by and welcome to Boston Scientific Quarter Three 2015 Earnings Call. At this time all participants are in a listen-only mode. Later we will connect a question and answer session. Instructions will be given at that time. As a reminder, this conference is being recorded.

I'd now like to turn the conference over to our host, Ms. Susie Lisa, please go ahead..

Thank you, Brad. Good morning, everyone. Thanks for joining us. With me on today's call are Mike Mahoney, President and Chief Executive Officer; and Dan Brennan, Executive Vice President and Chief Financial Officer.

We issued a press release earlier this morning announcing our Q3 2015 results which included reconciliations of the non-GAAP measures used in the release.

We have posted a copy of that release, as well as reconciliations of the non-GAAP measures used in today's call to the investor relations section of our website under the heading Financial Information. The duration of this morning's call will be approximately one hour.

Mike will provide strategic and revenue highlights of Q3 2015, Dan will review the financials for the quarter and then Q4 2015 and full-year 2015 guidance, and then we'll take your questions. During today's Q&A session, Mike and Dan will be joined by our Chief Medical Officers Dr. Keith Dawkins and Dr. Ken Stein.

Before we begin I'd like to remind everyone that on the call organic revenue growth is defined as excluding the impact of sales from divested businesses, changes in foreign currency exchange rates and sales from the acquisitions of interventional businesses of Bayer AG, Bayer and the American Medical Systems AMS Male Urology portfolio over the prior year period.

Also note this call contain forward-looking statements within the meaning of federal securities laws which may be identified by words like anticipate, expect, believe, estimate and other similar words.

They include, among other things, statements about our growth and market share, new product approvals and launches, clinical trials, cost savings and growth opportunities, our cash flow and expected use, our financial performance including sales, margins, earnings and other Q4 and full-year 2015 and 2016 guidance, as well as our tax rates, R&D spend, and other expenses.

Actual results may differ materially from those discussed in the forward-looking statements. Factors that may cause these differences include those described in the Risk Factors section of our most recent 10-K and subsequent 10-Q and 8-Ks filed with the SEC.

These statements speak only as of today's date, and we disclaim any intention or obligation to update them. At this point, I'll turn it over to Mike for his comments.

Mike?.

Well done, Susie. Thank you. Good morning, everyone. In the third quarter, Boston Scientific posted another quarter of strong results, as we continue to execute against our near-term goals and longer-term plans that were detailed at our May Investor Day meeting.

We outlined plans to drive mid-single digit organic revenue growth and consistent adjusted operating margin expansion, which in turn will drive double-digit adjusted EPS growth, excluding the impact of foreign exchange.

We delivered against these plans in third quarter with worldwide organic revenue growth of 5% and operational revenue growth of 9%, including the impact from the Bayer and AMS acquisitions.

We also continue to make progress on our efforts to improve our adjusted operating margin profile and during the quarter, we delivered a 260 basis point year-over-year improvement to 23.1%. This solid revenue growth and differentiated margin expansion drove very strong 18% adjusted EPS growth.

This quarter's results reflect the high performance of our global teams, the continued diversification of our portfolio into higher-growth end markets, and the balanced growth across our businesses.

Looking forward, we remain committed to achieving double digit adjusted EPS growth, and are updating our full-year 2015 adjusted EPS guidance to a range of $0.90 to $0.92.

This updated EPS guidance brings up the lower end of the range of our initial guidance in February of $0.88 to $0.92, and that's despite an estimated $0.08 foreign currency impact for the full year. We're also raising our full-year 2015 organic revenue growth estimate from 3% to 5%, to now 4% to 5%. Now a few key highlights for the quarter.

In my remarks, all references to growth are on an organic year-over-year constant-currency basis, unless otherwise specified. We delivered broad-based global organic revenue growth of 5% despite a challenging 5% comparable in Q3 2014.

We're pleased to see all seven of our businesses deliver year-over-year sales growth either on par or ahead of Q2 growth rates, led by compelling new product launches, increased traction from our Structural Heart business, continued international expansion, and synergies from our acquisitions.

Momentum continues to build in our MedSurg segment and for the second consecutive quarter, each business accelerated year-over-year revenue growth. Endoscopy's year-over-year growth rate improved from 4% in Q1 to 6% in Q2 and now 7% in Q3, and this growth was fueled by our new SpyGlass DS launch.

SpyGlass is an exciting new platform that is used to diagnose and treat complex disorders of the pancreas and bile ducts. SpyGlass is also an enabler that helps pull through the core Endo portfolio.

In Endo, we've also seen strong reception for our AXIOS endoscopic ultrasound technology, and we continue to drive strong double-digit growth in the emerging markets. In Neuromodulation, revenue accelerated in Q3, growing 11% after being up 9% in Q2 and 6% in Q1. We delivered strong growth in all regions for Neuromod, with the U.S.

up 8%, Europe growing double digits and additionally, EMEA grew at 9%, fueled by emerging markets. This growth was led by continued adoption of our market-leading Precision Spectra spinal cord stimulation platform, which helps provide relief from debilitating pain.

In Europe, we're off to a solid start with Precision Novi, our first product for the primary cell non-rechargeable SCS space. Moving to Deep Brain Stimulation, we began the launch of Vercise, our new primary cell platform in Europe.

In addition, we are advancing our strategic alliance in neuronavigation with Brainlab, all in an effort to help improve the quality of life for patients suffering from Parkinson's, dystonia, and essential tremor. Neurology and public health also improved its top line performance, growing 9% in Q3 after 7% in Q2 and 3% in Q1.

The acceleration in the quarter was driven by our comprehensive portfolio, particularly guide wires and laser fibers. We also benefited from our ongoing international expansion efforts, with sales up 7% in the U.S. and 11% internationally.

After closing the AMS Male Urology portfolio acquisition on August 3, we have stepped up the important work of quality remediation at our AMS Minnetonka plant to progress towards lifting of the FDA warning letter. Also, the sales force integration is progressing as planned, and we're excited about expanding the industry's largest commercial team.

Importantly, we remain on track to realize our adjusted EPS accretion goals of at least $0.03 in 2016 and $0.07 in 2017. Our Cardiovascular group grew 6% in Q3, with Interventional Cardiology outpacing our market growth estimates with another 6% increase in year-over-year sales.

Most of our IC franchises grew mid-single digits or significantly better, and the U.S., Europe, and EMEA were all up mid to high single digits. Importantly, we recently earned U.S. approval of our SYNERGY bioabsorbable polymer drug-eluting stents. We are thrilled about the ongoing U.S.

launch of SYNERGY, a premium and differentiated workhorse stent that is designed from the ground up to promote healing. We look forward to building upon our strong clinical evidence with the start of the EVOLVE short DAPT study in first quarter 2016, and we remain on track for a Japan launch of SYNERGY in first half 2016.

In Europe, SYNERGY continues to grow, and now represents more than 30% of our European DES revenue mix, and over 50% of our mix in our top ten markets. Our PCI guidance business continues to deliver, with mid-teen growth in the quarter. We recently began the U.S. and European limited market release of our integrated FFR imaging system.

Revenue from our broad-based portfolio of accessory products for complex PCI also grew high single digits in the quarter. Finally, the IC performance was fueled by our strength in the Structural Heart business, which includes our Lotus percutaneous aortic valve and WATCHMAN left atrial appendage closure device.

We believe that we are uniquely positioned for the long term to assist hospitals and physicians with the growing Structural Heart demands due to the unique capabilities of the Lotus and WATCHMAN platforms. Lotus continues to penetrate the European market and we are executing on the pipeline that we detailed at Investor Day.

Our clinical evidence continues to build with its best-in-class paravalvular leakage rates, and we remain on track to complete enrollment in both our REPRISE III IDE and RESPOND post-approval European study by year-end 2015.

Finally, we're really pleased with our differentiated Lotus Valve including its innovative adaptive seal and the ability to uniquely fully recapture and reposition the valve. The adaptive seal is a crucial contributor to Lotus best-in-valve PVL rates and we have successfully built an extensive patent portfolio to protect that innovation.

Also in the Structural Heart, the U.S. WATCHMAN launch continues to progress well. We are pleased with implant success rates and the high quality of patient outcomes thus far, which reflect our controlled rollout and proven training program.

Multiple WATCHMAN presentations at TCT by key opinion leaders demonstrated continued clinical efficacy and cost effectiveness. Dr. Vivek Reddy of Mount Sinai, New York, presented an analysis at TCT of the PROTECT AF and PREVAIL clinical trials that showed a 59% relative risk reduction in disabling strokes. Dr.

Reddy also highlighted an economic analysis comparing WATCHMAN with both warfarin and novel oral anti-coagulants, which we hope will be published soon in a major cardiology journal. WATCHMAN provides protection against stroke while avoiding the long-term bleeding and complications of anti-coagulant drugs and their attendant cost.

As a result, we expect that the analysis will show that compared to both warfarin and the novel oral anti-coagulants, WATCHMAN can save the healthcare system money in the long run while also providing outstanding results for patients. So overall, we're very excited about our progress in Structural Heart.

We continue to expect to deliver full year 2015 Structural Heart revenue at the high end of our $75 million to $100 million goal that we provided at our May Investor Day. Moving to Peripheral Interventions, we have a number of good things happening here.

The core PI business continues to execute and we are very pleased with the integration of the legacy Bayer business. After growing double digits in Q2, Bayer Peripheral accelerated and grew 20% in Q3 as we continued to grow share in the atherectomy market. We're also pleased with our commercial relationship with C. R.

Bard in the Lutonix Drug Coated Balloon technology. The combination of Lutonix DCB, two SR platforms (10:58) and the broadest portfolio in PI is helping drive 5% organic growth in our legacy PI business. In PI, we're also encouraged by early feedback on the U.S.

launch of our Innova Bare-Metal stent for the SFA and the global launch of our Zelante deep vein thrombosis catheter. Finally, the MAJESTIC 12 month data was recently announced at CIRSE [Cardiovascular and Interventional Radiological Society of Europe] for the ELUVIA DES platform which showed a 96.1% patency rate at 12 months.

Excitement is building for the CE Mark for ELUVIA and launch in first quarter 2016 and we expect enrollment for the ID trial to begin this quarter. Now I'll provide a few comments on CRM.

On our first quarter earnings call, we predicted a slowdown in the worldwide CRM sales for the balance of 2015 due primarily to replacement cycle headwinds and competitive launches in the U.S. We have seen that trend develop with global CRM sales flat for the quarter and we continue to anticipate some softness in U.S.

CRM sales through first quarter 2016 as we await the launch of key new products in the U.S. such as the launch of our Brady MRI safe system in first quarter 2016 and full X4 Quad system in first half 2016.

Pacemaker sales did grow 2%, led by share gains for our recently launch X4 CRT-D Quad device and while ICD sales declined 1% we continue to be pleased with our de novo (12:16) ICD performance driven by ENDURALIFE battery technology and our second generation S-ICD EMBLEM.

However, the EMBLEM S-ICD gains are being offset in the near-term by replacement cycle headwinds. It's important to highlight that our European CRM business delivered low to mid-single digit for the sixth consecutive quarter.

In Europe, we estimate we're taking share with a differentiated portfolio including full X4 CRT-D and CRT-P Quad systems, 3T MRI safe pacemakers, EMBLEM S-ICD and our industry-leading ENDURALIFE battery technologies. These consistent European CRM results are encouraging as we look forward to our anticipated key product approvals in the U.S. in 2016.

In EP, we continue to build momentum with 13% growth in Q3. This encouraging sequential growth is being driven by Rhythmia, our differentiated high density, high resolution mapping and navigation system as well as a solid quarter in our recording devices.

We also look forward to the upcoming launch of our IntellaMap Open-Irrigated Ablation catheter in Europe. In terms of our regional performance in Q3, the U.S. grew organic revenue, up 4%, while Europe and Asia posted 7% growth.

Emerging market sales improved to 13% growth, up 12% from Q2, led by mid-20% revenue growth in India and mid-teens revenue growth in China. So stepping back, our 5% organic revenue growth reflects the strong diversification of our portfolio, our focus on meaningful innovation and our ongoing globalization efforts.

Importantly, we believe that we're well positioned to continue our performance track record, and I would like to thank our employees for their winning spirit and their commitment to Boston Scientific. Now let me turn the call over to Dan for a more detailed review of our financials..

one, the volume of known claims; two, the estimated cost to resolve each claim; three, an estimate of future claims; and four, the cost to defend each claim. The vast majority of the increase in the reserve was driven by the first three items, although all four contributed to the increase in the reserve.

Although the pace of newly filed claims has slowed over time, our known claim count is now in excess of 30,000 and we now have reached conditional settlement agreements with certain plaintiffs' counsel throughout 2015 to resolve over 6,000 cases and claims.

Our total legal reserve, of which mesh is included, was $1.559 billion as of September 30, 2015, and we believe it reflects our best estimate of what is probable and estimable. With respect to other income and expense, interest expense for the quarter was $58 million, compared to $54 million in Q3 of last year.

The increase was primarily due to the incremental debt raised in Q2 of this year to finance the AMS Male Urology portfolio acquisition. Our average interest rate was 3.9% in Q3 2015, compared to 4.7% in Q3 of last year.

The lower interest expense rate in Q3 of this year was primarily due to lower average cost of debt resulting from the senior notes refinancing completed in Q2 of 2015. Other expense was $10 million, and this consisted primarily of foreign exchange losses incurred during the quarter.

Our tax rate for the third quarter was 45.9% on an as-reported basis and 11.5% on an adjusted basis. Our Q3 adjusted tax rate includes $4.5 million of favorable discrete tax items, and we now expect our full year 2015 adjusted tax rate to be 13%.

Finally, as mentioned, Q3 2015 adjusted EPS of $0.24 includes approximately $0.03 of unfavorable FX and represents 18% year-over-year growth, or 31% growth excluding the impact of foreign exchange.

On a reported GAAP basis, Q3 2015 earnings per share was a loss of $0.15 and includes net charges and amortization expenses totaling $524 million after tax. A loss of $0.15 compares to earnings per share of $0.03 on a GAAP basis in the prior-year period.

Moving on to the balance sheet, DSO of 62 days increased one day compared to September of last year, and days inventory on hand of 186 days was up 21 days compared to September of last year, due primarily to the acquisition of the AMS Male Urology portfolio.

Adjusted free cash flow for the quarter was $394 million, compared to $330 million in Q3 of last year. This increase was primarily due to higher adjusted operating profit and a continued focus on working capital management. We continue to expect our full year 2015 adjusted free cash flow to be approximately $1.3 billion.

Capital expenditures were $69 million in the quarter, compared to $57 million in Q3 of last year, and we still expect CapEx to be roughly $260 million for the full year 2015, and expect Q4 to be our highest CapEx quarter, due to the timing of projects.

There were no share repurchases in the quarter, consistent with our decision to temporarily suspend the share repurchase program following the announcement of the agreement to acquire AMS's Male Urology portfolio.

Near term, our capital allocation priorities are debt repayment, maintaining flexibility, and tuck-in M&A; and our M&A strategy prioritizes targets that are a strong strategic fit with compelling financial returns. We ended Q3 2015 with 1.364 billion fully diluted weighted average shares outstanding.

Consistent with our prior guidance, we expect our share count to increase by roughly 5 million per quarter through the end of 2016, as we plan to keep the buyback suspended for some or all of 2016, as we had previously announced.

I'd like to conclude with guidance for Q4 and the full year 2015, which now includes the recently acquired AMS Male Urology portfolio. For Q4 2015, we expect consolidated revenues to be in a range of $1.970 billion to $2.010 billion.

If current foreign exchange rates hold constant, we expect the estimated headwind from FX should be approximately $80 million to $90 million, or 410 to 460 basis points, relative to Q4 of last year.

On an operational basis, we expect consolidated Q4 sales to grow year-over-year in a range of 9% to 10% and on an organic basis, we expect Q4 sales to grow year-over-year in a range of 4% to 5%.

We expect adjusted gross margin for the fourth quarter to be in the range of 72.5%, plus or minus 25 basis points, and an adjusted operating margin of approximately 22.75%, also plus or minus 25 basis points.

Finally, adjusted EPS is expected to be in a range of $0.23 to $0.25 per share, and reported GAAP EPS is expected to be in a range of $0.10 to $0.13 per share.

For the full year 2015, we now expect consolidated revenue to be in the range of $7.470 billion to $7.510 billion, which represents year-over-year growth of 8% operationally, and a range of 4% to 5% organically.

If current foreign exchange rates hold constant, we expect the FX headwind to be roughly $475 million to $485 million for the full year 2015. We continue to expect our full year 2015 adjusted operating margin to be approximately 22.5%, and this would represent an improvement of roughly 230 basis points over the full year 2014.

Finally, we're raising the low end of our full year adjusted EPS guidance range, and now expect a range of $0.90 to $0.92. We expect the unfavorable FX impact on full year 2015 adjusted EPS to be approximately $0.08, up from the initial guidance of $0.04 issued in February.

So despite an incremental $0.04 of unfavorable FX, we've not only held our guidance throughout 2015, but are now raising the midpoint from $0.90 to $0.91. The high end of our adjusted EPS guidance range represents double-digit growth, and based on current rates, 18% growth at the midpoint when you exclude the impact of foreign exchange.

On a GAAP basis, we expect EPS to be in a range of $0.02 to $0.05. Before I conclude, I'd like to give some visibility on the expected impact of foreign exchange in 2016. If foreign exchange rates hold constant, we expect there to be approximately $0.05 of unfavorable FX impact on 2016 adjusted EPS.

As we've done so far this year, we will make every effort to offset this impact and deliver on our adjusted EPS growth targets. We'll issue the remainder of our 2016 guidance on our Q4 earnings call in 2016.

I encourage you to check our Investor Relations website for Q3 2015 financial and operational highlights, which outlines Q3 results as well as Q4 and full year 2015 guidance, including P&L line-item guidance. So with that, I'll turn it back to Susie, who will moderate the Q&A..

Thanks, Dan. Brad, let's open it up to questions for the next 30 minutes or so. In order to enable us to take as many questions as possible, please limit yourself to one question and one quick related follow-up. Brad, please go ahead..

Thank you. And our first question will come from Bob Hopkins with Bank of America. Please go ahead..

Hi. Thank you.

Can you hear me okay?.

We can hear you..

We can hear you fine, Bob..

Great. Good morning and congratulations on a really strong third quarter..

Thanks, Bob..

So, I have two questions, one regarding the fourth quarter guidance on the revenue side, and the other just on 2016 and your comments about FX. So to start with the Q4 guide, you grew a really solid 5% in the third quarter.

The fourth quarter guidance of 4% to 5% organic is slightly lower than the third quarter growth despite SYNERGY and a lot of good momentum in the business.

So I'm just curious, in Q4 versus Q3, what deteriorates in terms of growth or is this just simply conservatism built into the guide?.

Well, let me give you a sense of that, Bob. So I think as you said, we're guiding 4% to 5% organically for the fourth quarter. Certainly, very pleased with the organic growth performance year-to-date, which is about 4.7% and expect organic growth of 4% to 5% both in Q4 and for the full year, which is a raise from our previous guidance of 3% to 5%.

And a quick tailwind and headwind summary, I think you're right. SYNERGY, obviously, is the largest tailwind in Q4. It does have, obviously, a slower ramp than traditional DES launches, as there's a contracting element to it and it's a premium product.

And it does face pretty tough comp year-over-year when you think back to last year, DES grew 12% globally for the company. So it's a tough comp for SYNERGY. And then – but continued launch and roll out of WATCHMAN as well – is another tailwind. On the headwinds side, and I think Mike covered this in his prepared remarks, the CRM headwinds persist.

Which as we indicated on our Q1 call, we do have some portfolio gaps in the U.S., primarily around MRI-safe technology and Quad. Good news is we filled those gaps in Q1 with Brady MRI in the U.S. in the first half with Quad. And then we have the replacement cycle headwinds which have been persisting, but those will wane as we go through 2016 and 2017.

And then, again, we have another 5% overall organic growth comp for the company versus Q4 of last year. And then lastly, if you look at MedSurg, very pleased with MedSurg.

MedSurg overall, 8% growth in the third quarter, as Mike had mentioned and very pleased with that, but those are the highest growth rates in the past 12 months for each of those businesses. So it would be hard to count on that performance every quarter at the midpoint of guidance..

I'll also add, we delivered a strong quarter this quarter. We expect to deliver a strong one again in fourth quarter. And we've always made the commitment, even at the low end of a range which we clearly don't aim for, we'll deliver on operating income margin improvement targets. So I think the company is focused on high performance.

We believe we did it in third quarter; we're giving strong guidance again for fourth quarter and even if we deliver at the low end of the range, we're committed to the margin improvement..

Great. That's very helpful. I just wanted to make sure we had a sense for the moving parts, so thank you for that answer. So I guess, I'll let others focus on 2016, but I guess to follow-up, I just want to be clear on CRM. Previously, you had said you expect in the back half CRM to be roughly flat year-over-year.

And that's what you delivered in the third quarter.

Is that what you roughly expect for the fourth quarter as well, implicit in this guidance, is CRM to, again, be kind of roughly flat year-over-year?.

I would say that's – we won't give – carve out specific guidance for CRM for fourth quarter, but I would say that trend is consistent. You know we called a softening of CRM back in first quarter. We're seeing that. The great news, we're seeing offset in Europe with consistent, I think six quarters in a row, of strong growth in Europe.

And those products will be improved in the first half. So, we anticipate an ongoing softening in CRM kind of where we are today, flattish, that we delivered this quarter. And we expect that through first quarter 2016 consistent with the script. The great news is we're offsetting that flattish growth with strong growth across the enterprise.

And more importantly, or as importantly, we're delivering strong growth in Europe with our CRM portfolio. And so, we're anxious for that to come to the U.S., which would further propel 2016..

Great. Perfect. Congrats again..

And then Bob, did you have a question on FX for 2016 as well?.

Well, I just – you guys gave some guidance there and a $0.05 headwind – and that's much appreciated. And I just wanted to kind of get your sense for other puts and takes because the Street is modeling roughly 16% earnings growth for next year.

And it was just – with a $0.05 FX headwind – just wondering if you had any other comments and other considerations for 2016 relative to what you said previously..

Yeah. I think I'm not going to get into a full 2016 guidance review, obviously, today, but just given the FX landscape of the year and a lot of questions we get relative to FX going into 2016, felt like it was prudent to give folks a sense of what we see relative to that in 2016. As we did this year, we were able to offset all of that.

Our goal obviously is to offset as much of that as we can, but in terms of specific line item and headwind and tailwind guidance for 2016, I'll save that for the call in February..

Great. Thank you..

The next question will come from David Lewis with Morgan Stanley..

Good morning..

Hi, David..

Mike, I wonder if you could give us some high level thoughts on 2016. As you remember, back at the Analyst Day, you talked about 100 basis points of acceleration in the LRP sort of heading into next year.

And when I consider Quad, SYNERGY and WATCHMAN, is there any reason that we should not expect acceleration in 2016 relative to the numbers you're putting up here in 2015, which looks like they're going to come in pretty close to 5%?.

Good morning. We really don't want to provide any ongoing guidance to 2016 till after our fourth quarter close and our call. So I would just say we give pretty specific guidance that we've delivered on for many years in a row now during our Investor Day meeting.

So we called for some accelerated growth in 2016 at that Investor Day, and so we continue to execute against that plan, both in top line and margin improvement, Bob (sic) [David] (35:12) but we likely won't get into any additional guidance until later..

Okay. And then Dan, maybe kind of another quick question. You gave us the currency for next year. I'm just thinking about the fourth quarter guide. You're averaging about 230 basis points of margin expansion year-to-date. Obviously, the fourth quarter revenue guidance, at least versus our model, is pretty solid.

Your margin guidance for the fourth quarter's also very solid, 200 basis points of year-on-year expansion. But your earnings number, $23 million to $25 million, is a little low based on the margin and revenue performance.

Is there anything non-op to call our attention to in the fourth quarter? And kind of same question for 2016, Dan, other than currency, is there any non-operational stuff we should be considering in our models for 2016? Thank you..

No, I don't think anything of a material nature from a non-op perspective. I think if you look at what we drive from an operating margin perspective and the improvements there, the flow-through to EPS is – save for the FX commentary that I have – the flow-through is pretty consistent and standard. So and....

And any case for 2016?.

...that's for Q4, and then for 2016, same thing. I wouldn't – again, I'm not going to get into specifics – but I wouldn't look at anything from a non-op perspective that would derail the ability for the operating margin to translate into EPS improvement..

Okay. Thank you very much..

Okay..

And our next question will come from Mike Weinstein with JPMorgan. Please go ahead..

Thanks. This is Chris Pasquale here for Mike. Mike, the sequential acceleration in Neuro and EP over the first nine months of the year's been encouraging.

Can you just go into some more detail on some of the drivers there? What are you seeing in Neuro, and where do you think you are at this point in the Rhythmia launch?.

Sure. Neuro, the business grew really well in the quarter, 11%. So the business continues to do well. We're the number one share player in the rechargeable market in the U.S., and we recently launched our primary sell product in Europe and in the Asia market.

So that's a category that we hadn't played in, which is a little over $250 million market outside the U.S. So we've got a leading platform in the U.S. that we continued to expand. We launched Novi to expand the addressable market for spinal cord stim. And also, another big part of our strategy in Neuromod's is expanding beyond pain.

We've been investing for a number of years in our deep brain stimulation platform, and I said in my prepared comments, we have a primary sell DBS launch called Vercise that we're really excited about, because that's the primary – focus is on primary cell (37:36) rather than rechargeable for DBS.

We're also unrolling our DBS trial in the U.S., which we'll provide additional guidance on in the future. So, that business continues to expand. We have very differentiated technology in the markets also; we think are consistent, strong mid-single digit growth markets. On EP, we're really pleased with the success here.

We've had three quarters of sequential growth. We've put up 13% this quarter. And we continue to put the building blocks in place to have a very powerful EP business and Rhythm Management business combined with our CRM business in the future.

And that's, as I mentioned before, that's really being driven by our Rhythmia, our mapping system, which gives the physicians lots of speed in terms of capture of the imaging; and also recording devices and we're launching our therapeutic catheter line in the fourth quarter in Europe and we'll extend that to the U.S. in 2016..

Ken, do you want to add any comments?.

Just to say in terms of the Rhythmia launch itself, again, very pleased with how it's going. We've seen it used now in multiple different geographies.

It's been used in all four chambers of the heart successfully, and getting very consistent feedback from physicians using it, that it's enabling them to successfully treat arrhythmias that they never ever would have been able to approach before..

Thanks. And then, sorry if I missed this, but could you tell us how the DES business performed this quarter? I don't think I heard any comments there and just wanted to get a baseline ahead of the U.S. SYNERGY launch; maybe globally, and in the U.S. if you can..

Yeah. We're not breaking out the growth rate specifically for DES. Interventional Cardiology business grew 7%. Essentially, think of our DES growth in line with the market as we approach the SYNERGY launch in the fourth quarter and the Europe and the Japanese launch later in 2016..

Thanks..

And our next question will come from David Roman with Goldman Sachs. Please go ahead..

Thank you. Good morning, everybody. I wanted just to start with WATCHMAN and then certainly I appreciate your comments, again reiterating the Structural Heart business likely to come in at the high end of the range that you had provided back at the Investor Day in May.

But maybe you could help us go into just a little bit more detail on how WATCHMAN is performing.

Any sense on reorder rates and how we should just think about the ramp in that business, particularly in light of some of the data that were presented positively at TCT?.

Yes. Good morning. And I'll let Ken Stein comment as well. Just on a couple of the figures, we're not providing any additional guidance on WATCHMAN in terms of our revenue update or reorder rates. We continue to, what I will comment on is the business is doing quite well.

We discussed hitting the high end of the range of $75 million to $100 million, WATCHMAN being a key contributor to that. We're really well on track of our goal of opening 100 centers this year. So we'll deliver against that and then we'll open up new centers in 2016.

And the team has done a really good job of managing the controlled launch and providing excellent training.

Ken, any other additional comments you want to provide on WATCHMAN?.

Yes. Thanks, Mike. David, I just want to reiterate, we're really pleased not just with the rates that we're seeing of implants in the U.S.

post-commercialization, but the success and fantastic safety profile that we're seeing, which again, as Mike, I think, has said previously, that's what's (41:09) been a really rigorous approach that we're taking of training and to account selection.

Again, as you said, we had some great data out at TCT; going to have a featured presentation at AHA in a few weeks on our European post-market experience, a 1,000 patient trial called EVOLUTION.

And again, as Mike said, really looking forward to seeing publication of a cost effectiveness paper at some point in the near term, which we really hope is going to show that, in addition to giving great patient outcomes, that this is a device that is also very likely to save the healthcare system money over the long run..

Okay. That's helpful. And maybe just on the Rhythm Management franchise, you did provide some detail around duration of replace and market headwinds, and when we should potentially see a turn there next year.

But if you kind of take a step back and look at the overall Rhythm Management portfolio, it would seem like you're moving from a position of potentially playing a little bit of defense, given the replacement market dynamics, to being much more on your front foot with the X4 launch, Rhythmia ramping up the next generation line of pacemakers, EMBLEM, et cetera.

Are you at a point now where you feel like that business can move into an accelerating growth mode? And to what extent do you think that's a sustainable trend, versus this is just sort of the normal horse trading of market share that occurs here?.

Yeah, I actually think we're playing offense in CRM rather than defense, for a couple reasons. One, we talked about six quarters of consistent growth in Europe, where they have our – really, many of our leading products – and growing quite well in Europe, despite a replacement cycle headwind in Europe.

And also, in more on the offensive mind, we continue to gain share in de novo implants. So physicians are choosing Boston Scientific more often than not. A lot of that's being driven by our EMBLEM S-ICD platform, which is growing sequentially very impressively.

But as you said, the headwind is more on the replacement cycle headwind, which will abate as we approach the end of 2016. So, we are positioned well for 2016 once we get out of the first quarter, which I mentioned in the prepared comments, with the anticipated product approvals.

And you'll see a ramping down of this replacement cycle headwind in fourth quarter 2016 as we get into 2017..

That's helpful. Thank you very much..

And our next question comes from Glenn Novarro with RBC Capital Markets. Please go ahead..

Hi. Good morning, guys. Two questions on SYNERGY. First, with respect to the U.S. strategy, should we assume the strategy will be similar to Europe, in the sense that you'll take a multi-tiered pricing strategy? And would the goal be to – I assume – to capture more of the U.S.

market than you've done in Europe with SYNERGY? And then as a follow-on, specific to pricing, a lot of our survey work suggests that you could probably get a 10% premium, and that would be accepted by the interventional market.

So maybe talk about what you guys are thinking in terms of premium pricing, and what your market intelligence is suggesting, in terms of what the market would bear with respect to a premium price? Thanks..

Well, we do thank you for your insight on the survey. That helps. I think overall on SYNERGY we will continue to, as we said consistently, continue to have a tiered portfolio in drug-eluding stents. We had that in the European market with SYNERGY priced at a premium.

In the ten markets where SYNERGY's launched in Europe, it represents over 50% of our market share. And in the U.S., we also will have that same tiered portfolio with SYNERGY; the premium end, Promus PREMIER, which is the market-leading stent in the U.S., will be at a price discount versus SYNERGY.

So we won't provide the specific premium that we're going to charge. I think it is important to note that this is a premium product, but as Dan indicated in his comments, this is a product that we will need to go through a contracting process with hospitals, given our pricing strategy.

So we do anticipate excellent results in 2016, but we need to also work through that contracting process with hospitals..

Can I just add....

Keith, do you want to add anything?.

Can I just add one quick follow-up? As you've launched this into the marketplace today and into your hospitals, what's been the overall reaction to the product, from a pricing point of view?.

From a pricing point of view, clearly, many hospitals would desire no price premium. We don't believe that's warranted, based on the acute performance of the stent and also the experience that we've seen in Europe, and we also have a terrific alternative for hospitals with our Promus PREMIER.

So, it's our job to prove the unique benefits of the platform that justify the premium. We've done that in Europe ,and that will be our plans as well in the U.S..

Okay. Thank you..

Keith, you want to comment?.

Yes, Glenn. We're also excited, obviously, about the post-approval study, the short DAPT trial with SYNERGY. Normally a post-approval study is a rather vanilla study, but on this occasion, with the agreement of the FDA, we can explore the unique properties of SYNERGY with this early and synchronous elution of the drug and polymer.

Many patients, as you know, in the big DAPT trial were not randomized. Many patients spontaneously discontinued DAPT. So we put ourselves in a position, if the trial is acceptable, of having a unique product in the U.S. in relation to a short DAPT, which we and the agency, the FDA, think is very relevant..

Thanks for the question, Glenn..

And our next question will come from Brooks West with Piper Jaffray. Please go ahead..

Hi. Thanks for taking the questions. Wanted to switch gears back to Urology, if I could.

Can you talk about, what is in the guidance for AMS? Is that about – we've got about $167 million in our model for 2015 – is that about the right number? And then as a follow-up to that, I think that business, when you acquired it from Endo, was growing at about 3%. Obviously, you're putting up much higher growth in your Urology franchise.

As you roll those revenues out into the broader footprint, should we be thinking about that 3% accelerating to more of 8% or 9% going forward?.

Yeah. Thanks for the question. We had a real strong quarter for our Urology business and our core business as we called out in the highlights here. Also, very excited about the integration. We're very committed to the $0.03 accretion in 2016 and $0.07 the year after.

And we've really talked about the strong strategic fit with the company, particularly in the commercial channels and the portfolio fit between the two companies. It's just I've made a couple of high-level comments and Dan can provide some additional insights.

In terms of the actual integration itself, we've planned for some minor commercial disruption in the fourth quarter and likely in the first quarter of 2016 given the size of the integration, some of the commercial moves that we're making and also to ensure that we have an appropriate level of stocking with our distributors in terms of inventory.

So all that's in our model. So we believe that as we end 2016, as we've said before, that the AMS portfolio will be at least accretive to the BHC (49:04) overall business, and our core legacy business, pre-AMS in Urology, has actually grown accretive to our growth rate. So overall, we're very pleased with the progress that we're making.

And Dan, any other insights on that?.

Nothing I'd really add to that. We're not going to break out the specifics of AMS that's in our guidance number for Q4. It's included in the 4% to 5% organic number that we have. So I think Mike's comments cover it well..

Okay. And just a follow up on CRM if I could. I know Ken's there. What's the timing on getting an MRI-safe TACE device in the U.S.? And then as we parse through your comments about your European growth versus your U.S.

growth, as you get on cycle with everything in the second half of next year in the U.S., should we be extrapolating the growth you're putting up in Europe right now to the U.S. market in kind of late 2016 into 2017? Thanks..

So, a couple things. In terms of some of the key approvals, it's tough to pin down precisely, but we project a first quarter – probably likely a late first quarter 2016 approval for our patient MRI – and a first half approval for our TACE – I'm sorry, our Quad device. So, again those are the key enablers for the U.S.

getting back to positive growth in 2016. And without giving any additional guidance to 2016 in the U.S., that portfolio's performing very well in Europe. We'll bring it to the U.S and then we'll take it to some other markets like Japan.

So, Ken, you have any insights on the clinical front on those areas?.

Yeah. Yes, Mike. Brooks, I can fill in a little more. So on TACE MRI, I think U.S., to begin with, let's remember one of the major products gaps our competitors have which is subQ ICD. And we are hoping to be able to launch an MRI-safe S-ICD TACE device, both in Europe and in the U.S. at some point during 2016.

In terms of older generation ICDs, trans-venous ICDs, we're really pleased with the reception in Europe with our MRI-safe labeling because we've been able to make it backwards compatible to our current generation of devices, EL and mini devices, as well as having an MRI conditionally safe, X4 Quad Pol CRT device. And we will be beginning U.S.

clinical trials of those devices during calendar year 2016..

That's very helpful. Thanks, Ken. Thanks, Mike..

And our next question will come from Larry Biegelsen with Wells Fargo..

Hey, guys. Good morning. Thanks for taking the question; just one on the tax rate and one on emerging markets.

So, Dan, just starting with the tax rate, can you confirm that if the R&D tax credit is renewed, it's worth about 200 basis points or $0.02 in 2015? And so if it is renewed and the 2015 tax rate comes in at 11%, should we be thinking about 2016 about 100 basis points higher from that and 100 basis points higher in 2017? And I understand your philosophy, Dan, on the tax rate and being conservative until it's renewed.

But just, can you just set expectations, if it is renewed, what the benefit would be?.

Sure, Larry. So as I mentioned in the prepared remarks, 13% for this year. I think when the R&D tax credit, if it is renewed, is renewed, it depends what comes with it. A lot of times it doesn't just come as a one-sentence thing. There are other pieces that are attached to it.

So I would say – I'd be comfortable saying – it's between 100 and 200 basis points. I don't think it's guaranteed to be 200. So we'll see if it is renewed and if it's renewed for 2015 and potentially 2016, we'll see what impact that has on our tax rate, but I'd say between 100 and 200 basis points.

And then going forward, I'd look for our guidance in the late January, early February timeframe for 2016 tax rate guidance, but as you know, what we had said before is 100 basis points increase annually for the next few years..

Great. And then on emerging markets, it looks like your growth there this quarter was pretty steady, I think 13% organic, similar to last quarter.

So Mike, could you give us a little bit more color on what you're seeing in emerging markets? Obviously, there's been some – it's been in the news a lot in the last quarter or so – and how sustainable you think that growth rate is that you put up this quarter? Thanks a lot..

Sure. Certainly as you indicated, some challenges in many of the emerging markets. The good news is we're growing consistently. So it's not quite the growth rates we delivered in 2014, but we put up a 13% in Q3 and I think it was at 12% or 13% in Q2. And so we really don't see that trend modifying.

Really, the growth for us in the emerging markets continues to be on the heels of China, where we're growing strong mid-teens growth in China. We're also growing strong in India and we target about 10 emerging markets that we won't go through all of them on the call here that we put additional emphasis on.

We continue to invest in additional training centers; we continue to invest in R&D capabilities outside the U.S., particularly in China and India; and we continue to expand our distribution reach in these key markets.

So although the market's slowed a bit from our previous year's performance, we feel comfortable with our performance in Q3 and that trend going forward..

Thanks for taking the questions, guys..

Yep..

And we'll go on to the next question in line. It'll come from Matt Taylor with Barclays. Please go ahead..

Hi. Thanks for taking the question.

Can you hear me okay?.

Sure, Matt. Yes..

Great. So my first question is obviously you're closing the AMS deal here and talking about getting back to normalized leverage levels.

I guess just with the kind of M&A landscape that's out there, I think there's been a lot of smaller assets that have really come down in value, and I was just wondering how you're thinking about M&A in that context and what kind of leverage levels you'd be comfortable with if there's things out there where you can be opportunistic?.

I think our answer there really stays the same. We always look for – we're always looking for appropriate M&A activity. We've guided that we'll continue to look at tuck-in acquisitions that deliver strong ROIC, that exceeds our cost of capital ideally by year three. And so we'll continue to look.

I know the market's been very volatile, but in the quarter itself we did a number of early stage venture investments, one being in mitral and a few others that we won't discuss – disclose publicly. So we always look and the markets have made, maybe the market's a little bit more ripe for M&A activity.

Dan, any other comments there?.

Yeah.

I wouldn't comment on a specific leverage level, Matt, except to say that we're still committed to delevering as we had announced at the time of the AMS acquisition, to get back to our pre-AMS leverage metrics by the end of 2016, which is why we suspended the share repurchase program and prioritized some debt payment here in 2015 and 2016 as well..

Great.

And a couple of people have asked around this question, so I apologize if it's a little bit redundant, but I was wondering if you could just give us a flavor for how you see some of the different factors in your Rhythm Management group in terms of what the contribution could be once you lap some of these headwinds? Meaning, could you talk a little bit about the magnitude of the replacement headwind and how that abates? And then what you expect from MRI-Safe and Quad? Which of those is the biggest catalyst of the three and if you could talk a little bit about the timing, I think that might be helpful..

Yeah. So really at this call, we're not going to provide any additional insights into our 2016 CRM guidance. We've reinforced a few times that our European business is performing mid to low single digit growth six consecutive quarters; bring those portfolios to the U.S.

In 2016, we'll be faced with that replacement headwind for a big part of the year in 2016, but that'll abate more in fourth quarter 2016 into 2017. So, we're clearly positioned for improved performance going forward, given the product portfolio and the eventual reduction of the replacement cycle headwind.

And we'll get more insights on that as we provide 2016 guidance..

Okay. Thanks a lot..

Last one, Brad..

And that'll come from the line of Matt Keeler with Credit Suisse. Please go ahead..

Hey, guys. Thanks for taking the questions.

Just first on SYNERGY, I'm wondering if you can give us some color on how you're thinking about the ability of that product to drive unit share in the U.S.? Do you see the potential for that or is this more of something that gets you benefit on the price side?.

Yeah, we clearly are working that equation. We're confident that if we didn't drive a price premium that we could gain share quickly, but we don't think that's the right thing for the business for the long term. So we've been pretty consistent on that.

We do believe we have the ability to gain share with SYNERGY despite a price premium, given the unique characteristics of the platform combined with the comprehensive other solutions that we offer including Chronic Total Occlusion, the WATCHMAN device and others in Interventional Cardiology.

So, Keith, any other comments there?.

Yes. I think the superior acute performance of SYNERGY resonates with cardiologists in countries that we've launched the product in, and also obviously confirmed by the pivot – U.S. pivotal EVOLVE II trial – it has best-in-class stent thrombosis rates of 0.4% at 12 months.

So I think the safety and the early healing characteristics of the device are appreciated, both by cardiologists and their patients..

Okay. With that, we'd like to conclude the call. Thank you very much for joining us today. We appreciate your interest in Boston Scientific. Before you disconnect, Brad will give you all the pertinent details for the replay. Thanks very much..

1-800-475-6701 and 1-320-365-3844 with the access code 368331. That does conclude our conference for the day. Thanks for your participation and for using AT&T Executive Teleconference Service. You may now disconnect..