Medtronic plc
Q1 2008 Earnings Call Transcript

Published: 22 Aug 2007

[Operator:]

Welcome to the Medtronic first quarter earnings call. (Operator Instructions) I will now turn the conference over to our host, Martha Goldberg Aronson, Vice President, Medtronic Investor Relations. Please go ahead.

[Martha Goldberg Aronson:]

Good afternoon and welcome to Medtronic's first quarter conference call and webcast. During the next hour, we will review the results of our first quarter of fiscal year 2008, which ended July 27, 2007. Following these introductory remarks, you will hear from Medtronic Chairman and Chief Executive Officer Art Collins. Next, Bill Hawkins, President and Chief Operating Officer, will provide comments on the first-quarter results. Chief Financial Officer Gary Ellis will follow with a financial summary and comments on guidance. After our prepared remarks, we will take your questions, concluding the conference call at around 4

[Art Collins:]

Thank you, Martha and good afternoon, everyone. By now most of you should have seen the press release discussing our fiscal 2008 first quarter financial results. Compared to the first quarter of last fiscal year, revenue of $3.127 billion increased 8%. If you exclude Physio-Control from both periods, the revenue growth was 10%. Net earnings for the first quarter of $675 million resulted in a diluted earnings per share of $0.59, which grew 16% over the first quarter a year ago. After adjusting for restructuring, certain litigation and in-process research and development charges in both the current and prior year's quarters, our first quarter diluted earnings per share on a pro forma non-GAAP basis of $0.62 grew 13% and met consensus estimate. During the quarter, four of our eight business segments in each major geography outside the United States saw double-digit revenue growth. Our quarterly performance again reflected successful initiatives to further enhance leverage throughout the P&L and the benefits of Medtronic's diverse business portfolio. As mentioned last quarter, we anticipate an acceleration of growth as we move into the back half of this fiscal year. Bill Hawkins will highlight some of the upcoming product launches and other initiatives that we believe will help drive growth and continue to improve operating performance. It has been a very busy time since we kicked off our new fiscal year on April 30. Throughout the quarter, we worked constructively with the Centers for Medicare and Medicaid Services as IPPS reimbursement rates were finalized, resulting in a neutral to positive outcome versus last year. A successful FDA panel for the Bryan Cervical Disc was concluded, and our Prestige Cervical Disc has just been launched in the United States, with very favorable initial results. We also continue to prepare for the Endeavor drug-eluting stent launch in the United States with two key milestones being met

[Bill Hawkins:]

Well thank you, Art. First, on behalf of the entire executive team, I would like to thank you for your leadership. Medtronic is on very solid ground and I'm highly confident that we will continue to deliver top-tier growth and industry leadership in the years ahead. Rest assured that all 38,000 employees are dedicated to continuing the legacy of leadership that is the foundation of this great company. So Art, we wish you and your wife, Anne, all the very best for the future. I am now going to focus my comments around three areas

[Gary Ellis:]

Thanks, Bill. In my remarks, I will review this quarter's revenue performance and then discuss the income statement, balance sheet and cash flow statement. I will also provide detail on the unusual items that complicate the understanding of our income statement this quarter. Finally, I will close the call by discussing our financial guidance for fiscal year 2008. As you heard earlier, first quarter revenue of $3.127 billion grew 8%, while net earnings were $675 million or $0.59 diluted earnings per share. These earnings and diluted earnings per share numbers represent increases of 13% and 16% respectively over the prior year. After adjusting for certain reconciling items, our adjusted first quarter non-GAAP net earnings and diluted earnings per share were $711 million and $0.62 respectively, an increase of 11% and 13% over FY '07 first quarter adjusted results. Excluding Physio-Control in both periods, revenue growth was 10%. Physio-Control also had a negative impact of $0.01 on earnings per share in Q1. However, we still expect Physio-Control to be earnings neutral in this fiscal year. The reconciling adjustments are comprised of a $33 million pretax charge for in-process R&D, primarily representing a milestone payment on a previously negotiated licensing agreement, and a $14 million pretax restructuring charge related to the initiatives we began in the fourth quarter of last year which could not be recorded at that time. First quarter revenue in the United States was $1.948 billion, up 3%. Outside the U.S., revenue of $1.179 billion, which represented nearly 38% of the corporation's total revenue, increased 16%, including a $49 million positive impact of foreign currency. As you heard from Art and Bill, we are particularly pleased with the growth of our operations outside the United States. In our ongoing efforts to streamline and focus our commentary, I will not reiterate the revenue detail by business as that information is in our press release and corresponding tables. I do want to highlight several reporting changes we're making this quarter which are reflected in the tables attached to the press release. With the creation of the cardiovascular business, we are splitting out five components on the revenue tables

[Operator:]

Your first question comes from Rick Wise - Bear Stearns.

[Rick Wise:]

Let me start with neuro. Can you give us a little more detail on where and how neuro fell short? You indicated you lost share in a market growing double-digits. Maybe help us understand in a little more detail how you turn the business around. Is it new products? Is it new management? Just give us some perspective there. Thank you.

[Bill Hawkins:]

First, as I mentioned, the market is still a very healthy market. It grew about 14%, by our estimates last quarter. We did lose some share. There are two things, and it is really related to products. We did not have a surgical lead, and we just got approval for our surgical lead, which we think is going to be a very important competitive product for us to have. Secondly, we are very excited about the new Restore Ultra, which is the next-generation neuro stimulator, which is about half the size of our current generation. That, as we said, will be coming in in Q3. In addition, we have made some changes in the field structure. We went through a bit of a reorganization and have put some real focus on the pain stim market versus the movement disorders. So we had some changes in the field structure to provide more focus on both those areas. So I am very confident that you will see us resume our strong leadership position in this marketplace going forward. So it is a combination of the focus on the field as well as new products.

[Rick Wise:]

But it sounds like maybe not next quarter?

[Bill Hawkins:]

I think it is more the back half of the year when we consider Restore Ultra and we get a little more momentum with the new surgical lead. We have another surgical lead as well coming out close to the back half of this year. So it is going to take a quarter, but by the back half of this year, you should see us building some considerable momentum.

[Gary Ellis:]

There is also the standpoint that we have, as we indicated, disposed of a couple of product lines in that business. So that will have a little bit of a dampening effect on the growth rate for the year here.

[Rick Wise:]

Just to follow up on another topic, you talked about the second-half accelerators. I will let others ask about Endeavor, but maybe you could give us a little more color or help us think through, Bill or Gary, what should we be dialing in for the disc program as it rolls out here? How should we be thinking about how quickly it can build and the effect on growth rates, or however you want to help us think about it? Thank you.

[Bill Hawkins:]

Well, again, this is probably one of the more exciting products that we have. As I mentioned, we have already trained 800 physicians and expect to be training a couple hundred per weekend going forward, so we have a massive training effort going on as we speak. We think that this is really going to be a game-changing technology where a large percentage of the ACDF market will convert to the cervical disc going forward. So it is a large market that we believe will move in our direction based on the technology that we have.

[Rick Wise:]

I will sneak in one last one on gross margin. Gary, your math, given the subtractions that hurt the gross margin this quarter, are you saying it should have been 75.3% normalized, and that that is the kind of rate we should be thinking about for the rest of the year?

[Gary Ellis:]

We would expect to be above 75% as we go through the rest of the year. If you pull off those two items, absolutely, our margin would have been 75.2%, 75.3% for the quarter that we are in. So yes, we would expect to see above 75% as we go through the rest of the year.

[Operator:]

Your next question comes from Bob Hopkins - Lehman Brothers.

[Bob Hopkins:]

Congrats to Art and good luck in retirement. I would like to start with Endeavor if I may. I assume you guys have now seen more of the data, and I was wondering if you could comment, if you've seen anything that diminishes in any way the safety or efficacy story that you have been advocating in Europe so far?

[Bill Hawkins:]

We're not going to comment on any of the data at this juncture other than to say we are very excited about the fact that we have reached the overall endpoint and are looking forward to both the panel as well as the outcome to be presented at PCT.

[Bob Hopkins:]

Have you guys internally seen more of the full data set, though, at this point?

[Bill Hawkins:]

No.

[Bob Hopkins:]

Moving on to the ICD market a little bit, I was wondering if you guys could do what you have been willing to do in the past, which is to talk a little bit about your expectations for the overall market growth rate going forward, specifically in the back half of calendar '07 and into calendar '08, just some thoughts on the overall market growth rate.

[Bill Hawkins:]

Bob, again, two things. First of all, outside the U.S., we continue to see very strong double-digit growth as we shared with you, it was 22% this last quarter. We see that continuing with the fact that so many of those markets were under penetrated, particularly in Japan, as well as other parts of Asia and Europe. So outside of the U.S., we are seeing that is moving along very, very well. In the U.S., as I mentioned, the market has been relatively flat for the last five quarters. And we are continuing to do all the right things to be able to get that market to reaccelerate; to ultimately to get to where we said we the market will go. That is we have said all along that we think this year in aggregate we can grow the total market in the mid to high single-digits and that over the longer run that we will get this market back into the lower-double-digit growth rates. We still feel very strongly that those are very realistic growth numbers for the U.S., OUS and combined markets.

[Bob Hopkins:]

Bill, does the Kyphon deal suggest that you guys are unlikely to pursue other $1 billion-plus-type deals over the next 12 months?

[Bill Hawkins:]

No, as we have said, Art has said and I have said it consistently that you can expect us to be looking to grow first with many of the things that we are excited about internally, the organic growth, but at the same time, we will be looking to add possibly potentially two to three additional platforms going forward. Now that could range in size, but we will be opportunistic, again, we will be disciplined, and we will be strategic in how we add businesses to our portfolio.

[Operator:]

Your next question comes from Tao Levy - Deutsche Bank.

[Tao Levy:]

Maybe you could just touch on the ICD market again and maybe you could provide some insight, at least here in the U.S. market, any changes? Inventory issues were something of a concern the last few quarters. Any changes there? The hospitals, again, any changes at the level there? Maybe any trends on procedures over the last couple months, just from your vantage point?

[Bill Hawkins:]

Just a couple comments. Again, as I mentioned, the market has actually been fairly stable. Now, just in terms of looking at our numbers and maybe sequential comparisons this quarter, and not to get into the granularity, but we had two fewer days this quarter. That is part of it when you look at quarter to quarter. But again, if you just look at this market kind of over a rolling 12 months, you will see that it has been pretty stable. Now, again, we are continuing to do the things that we think are important with the Improve HF study, which we will be presenting that data at the Heart Failure Society meeting in September. We think that is going to provide some very good direction to the importance of physicians to look more closely at their patients and things like that, plus the work that we continue to do in going upstream and calling on the referring cardiologists and many of the things that we are doing with the electro physiologists to make sure that they are treating all the appropriate patients. So there are a number of things that are in play that we believe will ultimately get this market reaccelerated.

[Tao Levy:]

In terms of a couple clarifications, in the new ventures business that you have there, the new segment, is that for now just the spinal navigation or is there anything else within that?

[Bill Hawkins:]

In terms of businesses, it is just the navigation business.

[Gary Ellis:]

From the revenue perspective.

[Bill Hawkins:]

But we have other things that are in that organization. That is where we will be incubating some of our new internal platforms. We talked at the analyst meeting in June about some of the work we're doing on Hep C. That is an example where we would be doing that work.

[Tao Levy:]

Lastly, would you mind providing some sort of percentages of maybe the diabetes business, that Continuous Glucose Monitoring, just again, just rough, rough parameters if possible?

[Bill Hawkins:]

I am not sure what the question is. Again, this is a business that we see tremendous upside. We now have been consistently growing this in the 20% range. Pumps this last quarter grew over 30%. All geographies did extremely well. Again, one of the other areas that has just really begun to take off is in the Continuous Glucose Monitoring sensor. We were well over plan; I'm not going to tell you what my plan was, but I will tell you we were well over plan.

[Tao Levy:]

That is kind of what I was getting at, was the plan you had.

[Bill Hawkins:]

We are very excited about the uptake of the new MiniLink for both the Paradigm as well as for the Guardian.

[Operator:]

Your next question comes from Matthew Dodds - Citigroup.

[Matthew Dodds:]

Bill, for Japan and the Endeavor timing, you still have the same timing. I just want to make sure , what is that for potential approval? Going back to Neuro stim one more time, it sounds like a lot of this was spinal cord stimulation, but were the DBS, InterStim, pumps, were any of the other businesses soft as well or is it really confined to spinal cord stimulation?

[Bill Hawkins:]

First, on the Endeavor, we filed the shonin in May. Our expectation is it will be sometime in FY09 that we should see approval. Now, we did work with Japan, when we submitted the shonin, we did this through the Harmonization by Doing. We actually were the pilot group to actually work with Japan on an improved process for how we would submit shonins. We are hopeful that that will be sooner rather than later, but right now, the guidance is in FY09. On the neuro side, yes, we actually fell a little bit short in other parts of the neuro business, particularly on the movement disorders which we believe, to some degree, was an anomaly, because that is a fairly concentrated business right now. There are a few centers who do a number of procedures. We had some extenuating circumstances with some dynamics where a couple of centers where physicians were changing centers and that actually had a bit of an impact but again, that is one area where we feel very good about the long-term growth possibilities. One of the other parts of that business, though, that did do very well was in the InterStim, which grew over 26%. So there are a number of moving parts within the overall neuromodulation business. I can assure you that Rick Kuntz and the team are all over that and we will be aggressive in regaining market share in the pain stim business. We will be very aggressive in continuing to develop the market for movement disorders and in our spasticity part of the business, which actually did pretty well, and then we are continuing to fuel the fire on the InterStim business.

[Operator:]

Your next question comes from Larry Biegelsen - Wachovia.

[Larry Biegelsen:]

Just one quick clarification, did I hear you say that the full Endeavor IV results will be at PCT and not presented at the advisory panel meeting?

[Bill Hawkins:]

The results will be available to the advisory panel and they may or may not present all of that data in a public forum. But it will be presented in a public forum at PCT. As you know, panels, it's the discretion of the panel as to what they want to be reviewing in a public manner. But it will be available to that panel.

[Larry Biegelsen:]

Could you give us an update on your discussions with the FTC regarding the Kyphon acquisition? Is there anything new to report?

[Bill Hawkins:]

No, nothing other than we feel very good about the dialogue that we are having with the FTC, as well as with regulators outside the U.S. Things are moving along on track. Again, it is going very well.

[Larry Biegelsen:]

One on the ICD market. Could you talk a little bit about the underlying growth in initial implants versus replacements in the U.S.? Are they both growing at a similar rate or is one growing more rapidly than the other?

[Bill Hawkins:]

The underlying new implant has been pretty stable. That is really what we focus on. It has been relatively flat for the last several quarters.

[Larry Biegelsen:]

So initial has been flat, and replacement growth?

[Bill Hawkins:]

It has been really both. They have been pretty consistent, to be candid.

[Operator:]

Your next question comes from Glenn Reicin - Morgan Stanley.

[Glenn Reicin:]

You did mention, I think, that you still expect Endeavor launch this calendar year? I just wanted to know if that is realistic, given that you have to go to the panel.

[Bill Hawkins:]

Again, the FDA will set the date in October. We believe that gives us a couple of months for them, two-and-a-half or whatever, in October for them to review it. But we believe that they have had a lot of time to review it. We believe there's a very good chance that we can get this approved within the calendar year. And then, depending on when it gets approved, if it gets approved in middle of December, then realistically we probably won't do the major rollout until early January. But if we get it approved in, let's say, middle to late November, we will look seriously at launching it in the December timeframe.

[Glenn Reicin:]

I heard secondhand from clients, and I just wanted to get confirmation from Gary, you have been quoted saying it is roughly $30 million per month is what you're assuming right now?

[Gary Ellis:]

I don't know whether I quoted the number. Scott maybe has in his presentations as far as the impact on the overall U.S. numbers. But I think, again, it depends on what you assume the market size is going to be at that point, because obviously, as you are well aware, the DES market has been in somewhat of a turmoil over the last several quarters here. But again, back to the amount of market share, just assume that we are as we've indicated in the low teens, and you assume that you're in a $2 billion market, $2.5 billion market, you're in a situation of saying $300 million, $350 million, $30 million a month is kind of how you get there. So that number seems reasonable. I haven't said that, but I think that would be a reasonable number based on the market share we have indicated we believe we can achieve.

[Glenn Reicin:]

Share count for the year, do you have a view there? And then also, VMP, saw that it continues to crank along. Can you talk about the contribution from new indications?

[Bill Hawkins:]

What was the first question?

[Gary Ellis:]

Share count overall, I would assume as we go forward on the share count that it will probably be relatively flat to maybe slightly down. You will have some increases, obviously, as we have some of our new shares going out. We are at 1.153 billion right now in shares. I would expect it to be relatively flat as we go through the year. We will continue to be opportunistic in buying back stock. So could you see that number drop if we are more aggressive? Possibly. But for right now, in the numbers, I would just assume a flat share count.

[Bill Hawkins:]

On the VMP question, yes, there's still a lot of headroom left for VMP. We did get marginal contribution from the new indications. As you know, we're selling it for OMF, although the big movement on OMF will come when we get the small-sized vials approved, which is probably going to be now the beginning of calendar '08.

[Glenn Reicin:]

Any way of quantifying what the contribution was from the new stuff?

[Bill Hawkins:]

No.

[Operator:]

Your next question comes from Mike Weinstein – JP Morgan.

[Mike Weinstein:]

First on the Kyphon transaction, Gary, are you able at this point to talk a little bit more about financing? As part of that, does the widening of credit spreads have any impact on your thoughts on the accretion and dilution in the transaction?

[Gary Ellis:]

With respect to financing, no, we are continuing to look at different alternatives. We have had, obviously, several of the banks in to meet with them as we evaluate different options. We literally are looking at all types of options. We are looking at options to potentially use our own U.S. cash. And there are some things that we think there is a possibility of using some of that as we go forward that we're still evaluating. We're talking to the banks. We have the capacity of the bridge loans that are available to close the transaction. As far as the widening of the credit spreads at this point in time, we don't see that having a tremendous impact on us. Obviously, that will depend on where the spreads are by the time we actually do finance the transaction and close on it. So I don't think that is going to have a significant impact on the accretion and dilution at this point. As you well know, a lot of what is going on in the marketplace is obviously for lower-quality credit companies than where Medtronic is at. But it will have a slight impact on us, but right now we don't think it is going to have a major one on accretion and dilution.

[Mike Weinstein:]

A follow-up on the guidance commentary. You basically reiterated the guidance you gave, Gary, on the May call. One piece of difference today versus May is that in May, you indicated that the 24.5% tax rate should carry through fiscal 2008 and today you're going to benefit from a lower tax rate, 100, 150 basis points. What do you want The Street to do with the incremental earnings, in theory, that are generated by a lower tax rate?

[Gary Ellis:]

Mike, you are absolutely right. Obviously, from the standpoint of when we gave our original guidance, we were thinking at that point in time the tax rate would still be closer to the 24% to 24.5%. So we are, based on what we see currently, expecting that that tax rate will be slightly lower. As I mentioned, for the year we are thinking 23% to 23.5% as we go through the rest of the year. So there will be a benefit from the tax rate for the year itself. We are not changing the overall guidance at this point. If anything, I would hope that The Street would view that as just giving us some additional leverage on the P&L to make sure that we can achieve the overall objectives that we have in our organization. So we're not changing the overall guidance.

[Mike Weinstein:]

You don't have official earnings guidance.

[Gary Ellis:]

That is correct.

[Mike Weinstein:]

Right, your earnings guidance is we are going to grow earnings a little bit faster than revenue, so there is no change to that commentary, but your commentary is qualitative, not quantitative.

[Gary Ellis:]

That is correct.

[Mike Weinstein:]

I just wanted to get a better feel on Physio-Control. You are going to have two obvious drivers of growth in 2008. One should be the Endeavor approval, hopefully. The second will be Physio-Control's return, which has hurt you in 2007. Your comment is in the back half of the fiscal year. Any guidance on whether right now you think it is early back half or late back half? That would be helpful.

[Bill Hawkins:]

No, Michael. I really can't give you any more granularity around front or back half. It will be, as we said, in the back half of our fiscal year.

[Operator:]

Your next question comes from Joanne Wuensch - BMO Capital Markets.

[Joanne Wuensch:]

What came across the table when we were talking was the agreement that you have regarding the LifeScan blood glucose monitors. Could you just comment briefly on that and then what it may mean to you in terms of potential revenue?

[Bill Hawkins:]

We are excited about both of the partnerships, one with J&J and the one outside the U.S. with Bayer, which enable us to provide the diabetic customers that we serve a more complete offering of the products that they need to manage their diabetes. So it enables us to really be a one-stop shop for many of the things that people with diabetes have. So on the financial side, we're not really disclosing any of the terms by which we structured this arrangement with both J&J and Bayer, although we do believe that this will be attractive to us going forward, as we are able in some way to recognize some of the contribution from both the meters and the strips.

[Joanne Wuensch:]

Can you remind us on your plans for reimbursement for your artificial disc program?

[Bill Hawkins:]

The plan is that we're going payer by payer. What I can tell you is that it is going very well. I think about 80% of the cases have been reimbursed so far, which is very, very good. We are in discussions with the large regional payers, and we are optimistic that that is going to turn out favorable for Medtronic.

[Joanne Wuensch:]

So as you start generating revenue this quarter, when we think about it building, is this a slow, cautious rollout? Is this a pedal-to-the-metal type of rollout of product?

[Bill Hawkins:]

No, I would say that we are going to be very careful. We're going to make sure that physicians are well trained. We are putting a lot of effort behind the training. As I mentioned, we have already trained 800 physicians. We are doing a couple hundred every weekend. So our people are dedicating a lot of time to training. A lot of the rollout will be dependent on how quickly we train people. But that is going along very, very well. So I don't think you can expect to see a major inflection this quarter but you will see, we believe you will see going through the rest of this year a nice contribution coming in from the addition of the cervical disc.

[Operator:]

Your next question comes from Tim Lee - Caris & Co.

[Tim Lee:]

I wanted to follow up on the Prestige reimbursements. When do you think we could see widespread reimbursement? Is that two quarters away? Is that three quarters away? When can we see it when it is in place and no longer on a one-off basis?

[Bill Hawkins:]

That is a hard question to answer. Again, we are working payer by payer right now. We have been in discussions with some of the large regional payers. Again, I wish I could tell you, I wish I did control the timetable there. But again, what I will say is what I said, in that the conversations are going extremely well. We have the right people with our medical director, Dr. Matthews, who is in there, and the other people that we have in front of these groups. I think people recognize the superiority benefits that we have with the cervical disc and appreciate the clinical data that suggests that patients with these procedures can return to work that much sooner. So we believe we have all of the right information to get ultimate approval from the different payers. We will keep you abreast of that. As we learn things, we will let you know.

[Tim Lee:]

In terms of your share buyback program, given your pending Kyphon acquisition and your potential use of proceeds or operating cash flow for that transaction, could we expect to see you be more conservative on your share buyback program from the recent run rates that we have seen?

[Gary Ellis:]

Obviously, we will be in a situation there where we are going to have to make sure that we have the cash, whether it is through debt or using our existing cash, to make sure we can complete the transaction with Kyphon. On the other hand, I think as we shared at the June analyst meeting, the cash flows this company generates, not only for the current year but as we go forward, is very, very significant. As a result of that, I think we still have the financial flexibility to do both as necessary. But I think you can assume that yes, we will be a little bit more cautious as we go through the next quarters here and make sure we've got everything lined up before we do major stock buyback. But from our perspective right now, we think we have the financial flexibility to do both of them.

[Operator:]

Your final question comes from Tim Nelson - Piper Jaffray.

[Tim Nelson:]

Some comments on the international ICD market growth, if you please. It seems to me that it is a little bit less robust than it was last quarter and I'm just wondering whether there is any significant changes in the source of that growth in terms of geographic mix?

[Bill Hawkins:]

I wouldn't read anything into it. We are in the summer months right now. There's always a little bit of a slowdown, particularly in Europe in the July timeframe. But all the trends are very positive. We remain very optimistic about the long-term growth prospects for defibrillators outside the U.S. Again, you just look at the number of defibrillators implanted per million in the U.S. versus outside the U.S., and 600 in the U.S. and something on the order of 80 in France and 28 in Japan. So there's a lot of headroom, there's a lot of runway left to increase our business.

[Tim Nelson:]

Was Japan as robust as it was last quarter?

[Bill Hawkins:]

Yes. Japan continues to be a very strong market for us. Again, there is a lot of runway left in Japan with the fact that today the penetration rates are so low there. There is more and more government support. They recognize that they are behind in some areas in providing the latest medical technology for their patients. I was over there just recently, and it is pretty clear that the government is very keen to make sure that patients in Japan have access to the latest and the best technology. So I am encouraged by the long-term prospects in Japan.

[Tim Nelson:]

Finally on the cardiac surgery business, the old cardiac surgery business, can you make some comments on how heart valves did and some of the other components in the old business?

[Bill Hawkins:]

Overall, the heart valves hung in there very well. We continue to feel very good about the competitive position that we have with our tissue valves. I think we, for the quarter, gained a little bit of share. So we feel good about the prospects going forward there. Being mindful of the time, it is exactly 4