Boston saw another quarter of sales declines from its drug-eluting stent and cardiac rhythm management businesses, and we anticipate this pattern to hold into 2011. On the CRM side, third-quarter revenue fell 9.5% year over year; the firm has been caught flat-footed and has not launched any new products to meaningfully refresh the product line for about a year now. Considering that rival St. Jude Medical STJ has rolled out new CRM products in the meantime and Medtronic MDT is on the cusp with its MRI-compatible pacemaker, we think Boston remains in a weak position and will face soft sales as well as price declines as its aging CRM product line looks less and less attractive. The only weak ray of light comes from the anticipated launch of Boston's next-generation Foresight defibrillator in the United States and Europe. We will be carefully watching the uptake of the Foresight system in 2011 for hints that Boston's implantable defibrillator sales have returned to a growth trajectory.

We still see considerable pricing pressure in the DES market, and Boston's quarterly sales fell 11% compared with the prior-year period. The stent business has always been prone to quick share shifts upon the entrance of any new products. However, the number of competitors has remained steady at four over the past two years, and the addition of Promus has saved Boston's bacon in the U.S. market. At this point, Boston's Promus and Abbott's ABT Xience stent dominate the field with an estimated 60% market share. Boston's Taxus, Johnson & Johnson's JNJ Cypher, and Medtronic's Endeavor stent franchises are peripheral players now, with domestic market share ranging roughly from 12% to 15% for each. Importantly, Boston has launched its Promus Element stent in Europe (capturing about 20% market share in the quarter) and should roll the product out in the U.S. and Japan around mid-2012. Since Boston will keep all proceeds from Promus Element (instead of sharing Promus revenue with Abbott), we anticipate the transition to Element will translate into a boost to profitability. Though the next year continues to look challenging for Boston's DES business, the firm's stent pipeline looks fairly healthy. Now that researchers suspect that the polymer holding the drug on the stent may be the culprit in vessel inflammation that leads to very late-stage thrombosis, stent manufacturers have been pursuing the development of stents with bioabsorbable polymer or no polymer at all. Boston's bioabsorbable polymer stent is already in the works, and over the summer the firm began enrollment in its Evolve trial (the data will be used to support its application for approval in Europe).

In terms of profitability, Boston is tracking closely along our estimates for the year. The third-quarter gross margin clocked in at 67%, just a hair above the 66% we projected. Boston has kept a lid on operating expenses, and we anticipate the operating margin should reach 14% in 2010.