Introduction

Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of medical devices that are used in a broad range of interventional medical specialties. Our mission is to improve the quality of patient care and the productivity of healthcare delivery through the development and advocacy of less-invasive medical devices and procedures. We accomplish this mission through the continuing refinement of existing products and procedures and the investigation and development of new technologies that can reduce risk, trauma, cost, procedure time and the need for aftercare. Our approach to innovation combines internally developed products and technologies with those we obtain externally through our acquisitions and alliances. The growth and success of our organization is dependent upon the shared values of our people. Our quality policy, applicable to all employees, is "I improve the quality of patient care and all things Boston Scientific." This personal commitment connects our people with the vision and mission of Boston Scientific.

Financial Summary

Three Months Ended September 30, 2008

Our net sales for the third quarter of 2008 were $1.978 billion, as compared to $2.048 billion for the third quarter of 2007, a decrease of $70 million or three percent. See Quarterly Results section below for a discussion of our net sales. Our reported net loss for the third quarter of 2008 was $62 million, or $0.04 per share, as compared to a net loss of $272 million, or $0.18 per share, for the third quarter of 2007. Our reported results for the third quarter of 2008 included litigation-related charges, acquisition- and divestiture-related net credits, restructuring charges and restructuring-related costs, and intangible asset impairments (after-tax) of $211 million consisting of:

· a $266 million ($334 million pre-tax) charge resulting from a ruling by a federal judge in a patent infringement case brought against us by Johnson & Johnson;

· a $184 million ($250 million pre-tax) gain related to the receipt of an acquisition-related milestone payment from Abbott Laboratories;

· an $8 million credit, on both a pre-tax and after-tax basis, to purchased in-process research and development;

· a $17 million income tax benefit associated with our previous sale of non-strategic businesses;

· $25 million ($34 million pre-tax) of costs associated with our restructuring-related activities; and

· $129 million ($155 million pre-tax) of intangible asset impairment charges.

Our reported results for the third quarter of 2007 included acquisition- and divestiture-related charges (after-tax) of $435 million, consisting of: a loss of approximately $352 million (on both a pre-tax and after-tax basis) attributable principally to the writedown of goodwill in connection with the sale of our auditory and drug pump businesses; $75 million (on both a pre-tax and after-tax basis) of in-process research and development acquired from Remon Medical Technologies, Inc. during the quarter; and $8 million ($10 million pre-tax) of integration costs related to our 2006 acquisition of Guidant Corporation.

Nine Months Ended September 30, 2008

Our net sales for the first nine months of 2008 were $6.048 billion, as compared to $6.204 billion for the first nine months of 2007, a decrease of $156 million or three percent. See Quarterly Results section below for a discussion of our net sales. Our reported net income for the first nine months of 2008 was $358 million, or $0.24 per share, as compared to a net loss of $37 million, or $0.02 per share, for the first nine months of 2007. Our reported results for the first nine months of 2008 included litigation-related charges, acquisition- and divestiture-related net credits, restructuring charges and restructuring-related costs and intangible asset impairments (after-tax) of $172 million, consisting of:

· a $184 million gain ($250 million pre-tax) related to the receipt of an acquisition-related milestone payment from Abbott Laboratories;

· $21 million, on both a pre-tax and after-tax basis, of purchased in-process research and development;

· $132 million ($250 million pre-tax) of net gains associated with the sale of our non-strategic businesses;

· $72 million ($99 million pre-tax) of costs associated with our restructuring-related activities; and

· $129 million ($155 million pre-tax) of intangible asset impairment charges.

Our reported results for the first nine months of 2007 included acquisition- and divestiture-related charges (after-tax) of $456 million, consisting of: a loss of approximately $352 million (on both a pre-tax and after-tax basis) attributable principally to the writedown of goodwill in connection with the sale of our auditory and drug pump businesses; $72 million (on both a pre-tax and after-tax basis) of purchased in-process research and development charges; and $34 million ($42 million pre-tax) in Guidant acquisition-related charges, including integration costs and a fair value adjustment to the sharing of proceeds feature of the Abbott stock purchase, discussed in further detail in our 2007 Annual Report on Form 10-K.

Business and Market Overview

Coronary Stent Business

Coronary stent revenue represented approximately 23 percent of our consolidated net sales during the third quarter of 2008, as compared to 25 percent in the third quarter of 2007. We estimate that the worldwide coronary stent market will approximate $4.8 billion in 2008, as compared to approximately $5.0 billion in 2007, and estimate that drug-eluting stents will represent approximately 80 percent of the dollar value of worldwide coronary stent market sales in 2008, as they did in 2007. Market size is driven primarily by the number of percutaneous coronary intervention (PCI) procedures performed; the number of devices used per procedure; average drug-eluting stent selling prices; and the drug-eluting stent penetration rate (a measure of the mix between bare-metal and drug-eluting stents used across procedures). Uncertainty regarding the safety and efficacy of drug-eluting stents, as well as the increased perceived risk of late stent thrombosis 1 following the use of drug-eluting stents, has contributed to a decline in the worldwide drug-eluting stent market size as compared to prior years. However, more recent data addressing the risk of late stent thrombosis and supporting the safety of drug-eluting stent systems appear to have had a favorable effect on the size of the drug-eluting stent market, as cardiologists regain confidence in this technology. The third quarter of 2008 represented the third consecutive quarter of increasing penetration rates in the U.S., estimated to be 70 percent for the third quarter of 2008. In addition, U.S. PCI procedural volume increased five percent during the third quarter of 2008, as compared to the third quarter of 2007. We believe that these trends indicate that the health of the U.S. drug-eluting stent market is steadily improving.

The following are the components of our worldwide coronary stent system sales:

                          Three Months Ended                          Three Months Ended
(in millions)             September 30, 2008                          September 30, 2007
                 U.S.         International      Total       U.S.        International      Total
Drug-eluting
TAXUS®          $   112      $           159     $  271     $   240     $           201     $  441
PROMUS™              97                   28        125                               7          7
                    209                  187        396         240                 208        448
Bare-metal           19                   31         50          28                  31         59
                $   228      $           218     $  446     $   268     $           239     $  507

In July of 2008, Abbott Laboratories launched its XIENCE™ V everolimus-eluting coronary stent system, and, simultaneously, we launched our PROMUS™ everolimus-eluting coronary stent system, supplied to us by Abbott. As of the closing of Abbott's acquisition of Guidant's vascular intervention and endovascular solutions businesses, we obtained a perpetual license to use the intellectual property used in Guidant's drug-eluting stent system program purchased by Abbott. We believe that being the only company to offer two distinct drug-eluting stent platforms provides us a considerable advantage in the drug-eluting stent market and has enabled us to sustain our worldwide leadership position. However, under the terms of our supply arrangement with Abbott, the gross profit margin of a PROMUS stent system is significantly lower than that of our TAXUS stent system. Therefore, if sales of our PROMUS stent system continue to increase in relation to our total drug-eluting stent system sales, our gross profit margins will continue to decrease. In addition, we are reliant on Abbott for our supply of PROMUS stent systems. Any production or capacity issues that affect Abbott's manufacturing capabilities or the process for forecasting, ordering and receiving shipments may impact our ability to increase or decrease the level of supply to us in a timely manner; therefore, our PROMUS stent system supply may not align with customer demand, which could have an adverse effect on our operating results. At present, we believe that our supply of PROMUS stent systems from Abbott is sufficient to meet our current launch plans.

Further, our supply agreement with Abbott for PROMUS stent systems extends through the fourth quarter of 2009 in Europe (subject to a possible extension by the European Commission) and through the end of the second quarter of 2012 in the U.S. and Japan. We are incurring incremental costs and expending incremental resources in order to develop and commercialize additional products utilizing everolimus-eluting stent technology and to support an internally developed and manufactured next-generation everolimus-eluting stent system. We expect that this stent system, the PROMUS™ Element™ stent system, will have gross profit margins more comparable to our TAXUS stent system and will improve our overall gross profit margin once launched. We expect to launch PROMUS Element in Europe in late-2009 and in the U.S. and Japan during mid-2012. Our product pipeline also includes the TAXUS® Liberté® and TAXUS® Element™ coronary stent systems. We received FDA approval for our TAXUS Liberté stent system in October 2008. We plan to launch the TAXUS Liberté stent system in the U.S. in the fourth quarter of 2008, following the launch of our new TAXUS Express2™ Atom™ drug-eluting coronary stent system, which was approved by the FDA in September 2008. We expect to launch our TAXUS Liberté drug-eluting stent system in Japan during the first half of 2009, and our first-generation PROMUS everolimus-eluting coronary stent system during the second half of 2009 in Japan. We expect to launch our TAXUS Element stent system in Europe during the fourth quarter of 2009 and in the U.S. in mid-2011.

During the third quarter of 2008, U.S. sales of our drug-eluting stent systems declined $31 million, or 13 percent, to $209 million from $240 million during the third quarter of 2007, due primarily to a decrease in our share of the market as a result of recent competitive launches, including the XIENCE V stent system in July 2008 and Medtronic, Inc.'s Endeavor® zotarolimus-eluting coronary stent system in the first quarter of 2008. We believe that our share of the U.S. drug-eluting stent market was 45 percent for the third quarter of 2008, as compared to 56 percent for the third quarter of 2007. In addition, the average selling price of our TAXUS stent system in the U.S. for the third quarter of 2008 declined approximately seven percent as compared to the

Historically, the worldwide coronary stent market has been dynamic and highly competitive with significant market share volatility. In addition, in the ordinary course of our business, we conduct and participate in numerous clinical trials with a variety of study designs, patient populations and trial end points. Unfavorable or inconsistent clinical data from existing or future clinical trials conducted by us, by our competitors or by third parties, or the market's perception of these clinical data, may adversely impact our position in, and share of the drug-eluting stent market and may contribute to increased volatility in the market. In addition, the FDA has informed stent manufacturers of new requirements for clinical trial data for pre-market approval (PMA) applications and post-market surveillance studies for drug-eluting stent products, which could affect our new product launch schedules and increase the cost of product approval and compliance.

We believe that we can sustain our leadership position within the worldwide drug-eluting stent market for a variety of reasons, including:

· our two drug-eluting stent platform strategy, including our TAXUS® paclitaxel-eluting and PROMUS™ everolimus-eluting coronary stent systems;

· the broad and consistent long-term results of our TAXUS clinical trials, including up to five years of clinical follow up, and the favorable results of the XIENCE/PROMUS clinical trials to date;

· the performance benefits of our current and future technology;

· the strength of our pipeline of drug-eluting stent products, including opportunities to expand indications for use;

· our overall position in the worldwide interventional medicine market and our experienced interventional cardiology sales force; and

· the strength of our clinical, marketing and manufacturing capabilities.

However, a further decline in revenues from our drug-eluting stent systems could continue to have a significant adverse impact on our operating results and operating cash flows. The most significant variables that may impact the size of the drug-eluting stent market and our position within this market include:

· the entry of additional competitors into the market, including the recent approval of two competitive products in the U.S.;

· our ability to successfully launch next-generation products and technology features, including our TAXUS® Liberté® paclitaxel-eluting stent system, in the U.S. market;

· physician and patient confidence in our technology and attitudes toward drug-eluting stents, including the continued abatement of prior concerns regarding the risk of late stent thrombosis;

· changes in drug-eluting stent penetration rates, the overall number of PCI procedures performed, average number of stents used per procedure, and average selling prices of drug-eluting stent systems;

· delayed or limited regulatory approvals and unfavorable reimbursement policies;

· the outcomes of intellectual property litigation;

· our ability to retain key members of our sales force and other key personnel; and

· changes in FDA clinical trial data and post-market surveillance requirements and the associated impact on new product launch schedules and the cost of product approvals and compliance.

Cardiac Rhythm Management Products

Cardiac rhythm management (CRM) product revenue represented approximately 29 percent of our consolidated net sales for the third quarter of 2008, as compared to approximately 25 percent for the third quarter of 2007. We estimate that the worldwide CRM market will approximate $10.8 billion in 2008, as compared to approximately $10.1 billion in 2007, and estimate that U.S. implantable cardioverter defibrillator (ICD) system sales will represent approximately 40 percent of the worldwide CRM market in 2008, as they did in 2007.

The following are the components of our worldwide CRM product sales:

                              Three Months Ended                         Three Months Ended
(in millions)                 September 30, 2008                         September 30, 2007
                     U.S.        International      Total       U.S.        International      Total
ICD systems         $   291     $           132     $  423     $   261     $           111     $  372
Pacemaker systems        86                  63        149          82                  63        145

                    $   377     $           195     $  572     $   343     $           174     $  517

Our U.S. sales of CRM products for the third quarter of 2008 increased $34 million, or 10 percent, as compared to the third quarter of 2007. Our U.S. sales benefited from growth in the U.S. CRM market and from the successful launch of our next-generation COGNIS™ cardiac resynchronization therapy defibrillator (CRT-D) and TELIGEN™ ICD systems in August, as well as the launches of our CONFIENT™ ICD system, the LIVIAN CRT-D system, and the ALTRUA™ family of pacemaker systems earlier in the year. Our international ICD system sales increased $21 million, or 19 percent, in the third quarter of 2008, as compared to the third quarter of 2007, due primarily to an increase in the size of the international ICD market. However, our net sales and market share in Japan have been negatively impacted as we move to a direct sales model in Japan and, until we fully implement this model, our net sales and market share in Japan may continue to be negatively impacted.

Worldwide CRM market growth rates over the past two years, including the U.S. ICD market, have been below those experienced in prior years, resulting primarily from previous industry field actions and from a lack of new indications for use. While we have begun to see increased rates of market growth and expect that growth rates in the worldwide CRM market will improve over time, there can be no assurance that the market will return to its historical growth rates or that we will be able to increase net sales in a timely manner, if at all. The most significant variables that may impact the size of the CRM market and our position within that market include:

· our ability to increase the trust and confidence of the implanting physician community, the referring physician community and prospective patients in our technology;

· our ability to successfully launch next-generation products and technology in the U.S. market, including our next-generation INGENIO™ pacemaker system;

· the successful conclusion and positive outcomes of on-going clinical trials that may provide opportunities to expand indications for use;

· variations in clinical results, reliability or product performance of our and our competitors' products;

· delayed or limited regulatory approvals and unfavorable reimbursement policies;

· our ability to retain key members of our sales force and other key personnel;

· new competitive launches;

· average selling prices and the overall number of procedures performed; and

· the outcome of legal proceedings related to our CRM business.

We continue to execute on our product pipeline, with more than a dozen new CRM product approvals thus far in 2008. We plan to launch our next-generation pacemaker, the INGENIO™ pacemaker system in both the U.S. and Europe in the second half of 2010 or first half of 2011. We believe that these launches position us for sustainable growth within the worldwide CRM market.

Regulatory Compliance

In January 2006, legacy Boston Scientific received a corporate warning letter from the FDA notifying us of serious regulatory problems at three of our facilities and advising us that our corporate-wide corrective action plan relating to three site-specific warning letters issued to us in 2005 was inadequate. We have identified solutions to the quality system issues cited by the FDA and have made significant progress in transitioning our organization to implement those solutions. The FDA reinspected a number of our facilities and, in October 2008, informed us that our quality system is now in substantial compliance with its Quality System Regulations. The FDA has approved the majority of our requests for final approval of Class III product submissions previously on hold due to the corporate warning letter and is currently reviewing our requests for Certificates to Foreign Governments (CFGs). We have since received approval to market the following new products in the U.S.:

· TAXUS® Express2™ Atom™ Paclitaxel-Eluting Coronary Stent System, designed for treating small coronary vessels;

· TAXUS® Liberté® Paclitaxel-Eluting Coronary Stent System, our second-generation drug-eluting stent system; and

· Carotid WALLSTENT® Monorail® Endoprosthesis, a less-invasive alternative to surgery for treating carotid artery disease.

In addition, the FDA approved the use of our TAXUS® Express2™ Paclitaxel-Eluting Coronary Stent System for the treatment of in-stent restenosis 2 (ISR) in bare-metal stents, the first ISR approval granted by the FDA.

The corporate warning letter remains in place pending final remediation of certain Medical Device Report (MDR) filing issues, which we are actively working with the FDA to resolve. This remediation will result in

Strategic Initiatives

In 2007, we announced several new initiatives designed to enhance short- and long-term shareholder value, including the restructuring of several of our businesses and product franchises; the sale of non-strategic businesses and investments; and significant expense and head count reductions. Our goal is to better align expenses with revenues, while preserving our ability to make needed investments in quality, research and development (R&D), capital improvements and our people that are essential to our long-term success. We expect these initiatives to help provide better focus on our core businesses and priorities, which will strengthen Boston Scientific for the future and position us for increased, sustainable and profitable sales growth. Our plan is to reduce R&D and selling, general and administrative (SG&A) expenses by $475 million to $525 million against a $4.1 billion baseline, which represented our estimated annual R&D and SG&A expenses at the time we committed to these initiatives in 2007. This range represents the annualized run rate amount of reductions we expect to achieve as we exit 2008, as the implementation of these initiatives is taking place throughout the year; however, we expect to realize the majority of these savings in 2008. In addition, we expect to reduce our R&D and SG&A expenses by an additional $25 million to $50 million in 2009.

Restructuring

In October 2007, our Board of Directors approved, and we committed to, an expense and head count reduction plan, which we anticipate will result in the elimination of approximately 2,300 positions worldwide. The plan is intended to bring expenses in line with revenues as a part of our initiatives to enhance short- and long-term shareholder value. We initiated activities under the plan in the fourth quarter of 2007 and expect to be substantially complete worldwide by the end of 2009. Refer to Quarterly Results and Note G - Restructuring-related Activities to our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report for information on restructuring-related activities and costs.

Divestitures

During 2007, we determined that our Auditory, Vascular Surgery, Cardiac Surgery, Venous Access and Fluid Management businesses were no longer strategic to our on-going operations. Therefore, we initiated the process of selling these businesses in 2007, and completed their sale in 2008, as discussed below. We received pre-tax proceeds of approximately $1.3 billion from the sale of these businesses and our TriVascular Endovascular Aortic Repair (EVAR) program, and eliminated an additional 2,000 positions in connection with these divestitures.

In January 2008, we completed the sale of a controlling interest in our Auditory business and drug pump development program, acquired with Advanced Bionics Corporation in 2004, to entities affiliated with the principal former shareholders of Advanced Bionics for an aggregate purchase price of $150 million in cash. In connection with the sale, we recorded a loss of $367 million (pre-tax) in 2007, attributable primarily to the write-down of goodwill. In addition, we recorded a tax benefit of $6 million in the first quarter of 2008 in connection with the closing of the transaction. Also in January 2008, we completed the sale of our Cardiac Surgery and Vascular Surgery businesses for net cash proceeds of approximately $705 million. In connection with the sale, we recorded a pre-tax loss of $193 million in 2007, representing primarily a write-down of goodwill. In addition, we recorded a tax expense of $56 million in the first quarter of 2008 in connection with the closing of the transaction. In February 2008, we completed the sale of our Fluid Management and Venous Access businesses for net cash proceeds of approximately $415 million. We recorded a pre-tax gain of $234 million ($129 million after-tax) during the first quarter of 2008 and a tax benefit of $17 million in the third quarter of 2008 associated with this transaction.

Further, in March 2008, we sold our EVAR program obtained in connection with our 2005 acquisition of TriVascular, Inc. for $30 million in cash. We discontinued our EVAR program in 2006. In connection with the

In June 2008, as part of our initiative to monetize non-strategic investments, we signed definitive agreements to sell the majority of our investments in, and notes receivable from, certain publicly traded and privately held entities for . . .