Summary of BOSTON SCIENTIFIC CORP

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

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 business strategy is to lead global markets for less-invasive medical devices by developing and delivering products and therapies that address unmet patient needs, provide superior clinical outcomes and demonstrate compelling economic value. We intend to achieve leadership, drive profitable sales growth and increase shareholder value by focusing on:

· Customers

· Innovation

· Quality

· People

· Financial strength

In the first quarter of 2008, we completed the divestiture of certain non-strategic businesses. We are involved in several post-closing separation activities through transition service agreements, some from which we continue to generate net sales. These transition service agreements expire throughout 2009 and 2010. Refer to Strategic Initiatives and Note G - Divestitures to our unaudited condensed consolidated financial statements contained in Item 1 of this Quarterly Report for a description of these business divestitures.

Financial Summary

Our net sales for the first quarter of 2009 were $2.010 billion, including sales from divested businesses of $4 million, as compared to net sales of $2.046 billion for the first quarter of 2008, including sales from divested businesses of $32 million, a decrease of $36 million or two percent. Excluding the impact of foreign currency, which contributed a negative $85 million to net sales, and sales from divested businesses, our net sales increased four percent for the first quarter of 2009, as compared to the same period in the prior year. See Quarterly Results for a discussion of our net sales. Our reported net loss for the first quarter of 2009 was $13 million, or $0.01 per share, as compared to net income of $322 million, or $0.21 per share, for the first quarter of 2008. Our reported results for the first quarter of 2009 included acquisition-, divestiture-, litigation- and restructuring-related charges; and discrete tax items (after-tax) of $201 million, or $0.13 per share, consisting primarily of:

· $240 million ($287 million pre-tax) of litigation-related charges associated with various litigation matters;

· $26 million ($37 million pre-tax) of restructuring and restructuring-related charges associated with our Plant Network Optimization and 2007 Restructuring plans; and

· a $63 million credit, on both a pre-tax and after-tax basis, for discrete tax items related to certain tax positions associated with prior period divestiture-related credits.

Our reported results for the first quarter of 2008 included acquisition-, divestiture-, litigation- and restructuring-related net credits (after-tax) of $74 million, consisting of gains of $114 million associated with the divestiture of certain of our non-strategic businesses, partially offset by $32 million of restructuring and restructuring-related costs, and $8 million of purchased research and development charges.

Business and Market Overview

Cardiac Rhythm Management

Net sales of our Cardiac Rhythm Management (CRM) products (excluding Electrophysiology) represented approximately 29 percent of our consolidated net sales for the first quarter of 2009 and 28 percent in the first quarter of 2008. We estimate that the worldwide CRM market will approach $11.0 billion in 2009. Worldwide CRM market growth rates over the past three years, including the implantable converter defibrillator (ICD) market, have been below those experienced in prior years, resulting primarily from previous industry field actions and a lack of new indications for use. However, for the last five consecutive quarters, we have seen consistent growth in the worldwide ICD market.

The following are the components of our worldwide CRM sales:

                                          Three Months Ended                                Three Months Ended
(in millions)                               March 31, 2009                                    March 31, 2008
                                U.S.         International        Total           U.S.         International        Total
ICD systems                  $      312     $           132     $      444     $      274     $           137     $      411
Pacemaker systems                    84                  61            145             82                  72            154
CRM products                        396                 193            589            356                 209            565
Electrophysiology products           29                   8             37             29                   9             38
Total CRM                    $      425     $           201     $      626     $      385     $           218     $      603

Our U.S. sales of CRM products in the first quarter of 2009 increased $40 million, or 11 percent, as compared to the first quarter of 2008, representing the fourth consecutive quarter of double digit growth. Our U.S. sales benefited from an increase in the size of 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, as well as the launches of our CONFIENT® ICD system, the LIVIAN® CRT-D system, and the ALTRUA™ family of pacemaker systems.

Our international CRM product sales decreased $16 million in the first quarter of 2009, or eight percent, as compared to the first quarter of 2008, due primarily to foreign currency exchange, which contributed a negative $27 million to first quarter 2009 sales as compared to the same period in the prior year. In addition, our net sales and market share in Japan have been negatively impacted as we move to a direct sales model for our CRM products in this region and, until we fully implement this model, our net sales and market share in Japan may continue to be negatively impacted.

During 2008, we received more than a dozen new CRM product approvals. We will continue to expand our product pipeline and expect to begin offering our LATITUDE® Patient Management System in certain European countries in the second quarter of 2009. The LATITUDE® technology, which enables physicians to monitor device performance remotely while patients are in their homes, is a key component of many of our implantable device systems. In addition, we expect to launch our COGNIS® and TELIGEN® systems in Japan in the fourth quarter of 2009, subject to regulatory approval. We also plan to launch our next-generation pacemaker system, INGENIO™, in the U.S., our EMEA (Europe/Middle East/Africa) region and certain Inter-Continental countries in the first half of 2011 and believe that these launches position us for sustainable growth within the worldwide CRM market.

Net sales from our CRM products represent a significant source of our overall net sales. Therefore, increases or decreases in net sales from our CRM products could have a significant impact on our results of operations. We believe we are well positioned within the CRM market; however, the following variables may impact the size of the CRM market and/or our share of that market:

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

· future product field actions or new physician advisories by us or our competitors;

· our ability to successfully launch next-generation products and technology;

· the successful conclusion and positive outcomes of on-going and future 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; and

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

Coronary Stents

Net sales of our coronary stent systems represented approximately 24 percent of our consolidated net sales in the first quarters of 2009 and 2008. During the first quarter of 2009, we increased our leadership position in the worldwide drug-eluting stent market with an estimated 44 percent market share. The size of the coronary stent market is driven primarily by the number of percutaneous coronary intervention procedures performed, as well as the percentage of those that are actually stented; the number of devices used per procedure; average selling prices; and the drug-eluting stent penetration rate (a measure of the mix between bare-metal and drug-eluting stents used across procedures). We estimate that the worldwide coronary stent market will approximate $5.0 billion in 2009. Uncertainty regarding the efficacy of drug-eluting stent systems, as well as the perceived risk of late stent thrombosis 1 following the use of drug-eluting stent systems, contributed to a decline in the worldwide drug-eluting stent market size during 2006 and 2007. However, data addressing this risk and supporting the safety of drug-eluting stent systems positively affected trends in the growth of the drug-eluting stent market throughout 2008 and into 2009, as referring cardiologists regained confidence in this technology.

We are the only company in the industry to offer a two-drug platform strategy with our TAXUS® paclitaxel-eluting stent system and the PROMUS® everolimus-eluting stent system. The following are the components of our worldwide coronary stent system sales:

                          Three Months Ended                         Three Months Ended
(in millions)               March 31, 2009                             March 31, 2008
                 U.S.        International      Total       U.S.        International      Total
TAXUS®          $   132     $           162     $  294     $   218     $           192     $  410
PROMUS®             114                  37        151                              18         18
Drug-eluting        246                 199        445         218                 210        428
Bare-metal           16                  28         44          26                  36         62
                $   262     $           227     $  489     $   244     $           246     $  490

U.S. sales of our drug-eluting stent systems increased $28 million, or 13 percent, in the first quarter of 2009, as compared to the same period in the prior year. Despite an increase in competition following two new market entrants in 2008, during the first quarter of 2009, we maintained our leadership position with an estimated 50 percent share of the U.S. drug-eluting stent market, as compared to 47 percent share during the fourth quarter 1 Late stent thrombosis is the formation of a clot, or thrombus, within the stented area one year or more after implantation of the stent.

of 2008 and 50 percent share during the first quarter of 2008. Included in our net sales for the first quarter of 2009 was a $14 million reduction of our sales returns reserves following the completion of our planned transition from our TAXUS® Express2 drug-eluting stent system to our second-generation TAXUS Liberté® stent system. We believe we have maintained our position within the U.S. drug-eluting stent market due to the success of our two-drug platform strategy and the strength of the TAXUS® Liberté® stent system and our TAXUS® Express2® Atom™ stent system, both of which we launched in the U.S. during the fourth quarter of 2008. In addition, increases in the number of stent procedures performed in the U.S. during the first quarter of 2009, as compared to the same period in the prior year, as well as increasing penetration rates, have had a positive effect on the size of the U.S. drug-eluting stent market and our net sales. Average drug-eluting stent penetration rates in the U.S. were 75 percent during the first quarter of 2009, as compared to 63 percent during the first quarter of 2008. Penetration rates in the U.S. have steadily increased for five consecutive quarters, indicating the on-going recovery of the U.S. drug-eluting stent market. Partially offsetting the impact of increased penetration rates on the market were reductions in average selling prices in the first quarter of 2009, as compared to the first quarter of 2008, due to competitive pricing pressure.

Our international drug-eluting stent system sales decreased $11 million, or five percent, in the first quarter of 2009 as compared to the first quarter of 2008, due primarily to the impact of foreign currency exchange, which contributed a negative $16 million to our first quarter sales, as compared to the same period in the prior year. Within our international business, net sales of our drug-eluting stent systems in Japan increased $13 million, or 23 percent, driven primarily by the February launch of our second-generation TAXUS® Liberté® stent system. We estimate that our share of the drug-eluting stent market in Japan was 54 percent for the first quarter of 2009, as compared to 44 percent for the first quarter of 2008. We expect to launch PROMUS® Element™ in our EMEA region and certain Inter-Continental countries in late 2009 and in the U.S. and Japan in mid-2012. We expect to launch the PROMUS® everolimus-eluting coronary stent system during the fourth quarter of 2009 in Japan, subject to regulatory approval.

In July 2008, Abbott Laboratories launched its XIENCE V™ everolimus-eluting coronary stent system in the U.S., and, simultaneously, we launched the PROMUS® everolimus-eluting coronary stent system, supplied to us by Abbott. As of the closing of Abbott's 2006 acquisition of Guidant Corporation's vascular intervention and endovascular solutions businesses, we obtained a perpetual license to 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 and operating profit margin of a PROMUS® stent system is significantly lower than that of our TAXUS® stent system. The PROMUS® stent system has operating profit margins that approximate half of our TAXUS® stent system operating profit margin. Therefore, if sales of the PROMUS® stent system increase in relation to our total drug-eluting stent system sales, our profit margins will decrease. Refer to our Gross Profit discussion for more information on the impact this sales mix has had on our gross profit margins. Further, the price we pay for our supply of PROMUS® stent systems is determined by our contracts with Abbott. Our cost is based, in part, on previously fixed estimates of Abbott's manufacturing costs for PROMUS® stent systems and third-party reports of our average selling price of PROMUS® stent systems. Amounts paid pursuant to this pricing arrangement are subject to a retroactive adjustment at pre-determined intervals based on Abbott's actual costs to manufacture these stent systems for us and our average selling price of PROMUS® stent systems. During 2009, we may make a payment to or receive a payment from Abbott based on the differences between their actual manufacturing costs and the contractually stipulated manufacturing costs, and differences between our actual average selling price and third-party reports of our average selling price, in each case, with respect to our purchases of PROMUS® stent systems from Abbott during 2006, 2007 and a portion of 2008. As a result, during 2009, we may record a gain or loss based on this retroactive adjustment, and our on-going profit margins on the PROMUS® stent system may increase or decrease.

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 their ability to increase or decrease the level of supply to us in a timely manner; therefore, our supply of PROMUS® stent systems 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 customer demand. Further, our supply agreement with Abbott for PROMUS®

stent systems extends through the middle of the fourth quarter of 2009 in Europe, and is currently being reviewed by the European Commission for possible extension; and through the end of the second quarter of 2012 in the U.S. and Japan. We are developing a next-generation internally manufactured everolimus-eluting stent system, the PROMUS® Element™ stent system and expect to launch this system in our EMEA region and certain Inter-Continental countries in late 2009 and in the U.S. and Japan in mid-2012. We are incurring incremental costs and expending incremental resources in order to develop and commercialize the PROMUS® Element™ stent system and expect that this stent system will have gross profit margins more comparable to our TAXUS® stent system and will improve our overall gross profit and operating profit margins once launched. Our product pipeline also includes the next-generation TAXUS® Element™ coronary stent system, which we expect to launch in EMEA and certain Inter-Continental countries during the fourth quarter of 2009 and in the U.S. and Japan in mid-2011.

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.

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;

· the broad and consistent long-term results of our TAXUS® clinical trials, and the favorable results of the XIENCE V™/PROMUS® stent system clinical trials to date;

· the performance benefits of our current and future technology;

· the strength of our pipeline of drug-eluting stent products;

· 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 decline in net sales from our drug-eluting stent systems could 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:

· our ability to successfully launch next-generation products and technology features;

· physician and patient confidence in our current and next-generation technology, including drug-eluting stent technology;

· 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;

· the outcome of intellectual property litigation;

· variations in clinical results or perceived product performance of our or 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; 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.

During the first quarter of 2009, we successfully negotiated closure of several long-standing legal matters, including any outstanding litigation between us and Medtronic, Inc. with respect to interventional cardiology and endovascular repair cases, and settling all outstanding litigation between us and Bruce Saffran, M.D., Ph.D. However, there continues to be significant intellectual property litigation in the coronary stent market. We are currently involved in a number of legal proceedings with certain of our existing competitors, including Johnson & Johnson, and other independent patent holders. There can be no assurance that an adverse outcome in one or more proceedings would not materially impact our ability to meet our objectives in the coronary stent market, and our liquidity and results of operations. See Note L - Commitments and Contingencies to our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report for a description of these legal proceedings.

Interventional Cardiology (excluding coronary stent systems)

In addition to coronary stent systems, our Interventional Cardiology business markets balloon catheters, rotational atherectomy systems, guide wires, guide catheters, embolic protection devices, and diagnostic catheters used in percutaneous transluminal coronary angioplasty (PTCA) procedures; as well as ultrasound and imaging systems. Worldwide net sales of these products decreased to $249 million in the first quarter of 2009, as compared to $266 million in the first quarter of 2008, a decrease of $17 million or six percent. This decrease includes the unfavorable impact of foreign currency exchange, which contributed a negative $13 million to our net sales. Our international net sales were $140 million in the first quarter of 2009, as compared to $146 million in the first quarter of 2008. Excluding the impact of foreign currency exchange, our international net sales increased $7 million, or five percent, primarily due to the strength of our ultrasound and imaging systems sales. U.S. net sales represented $109 million in the first quarter of 2009, as compared to $120 million for the same period in the prior year, a decrease of $11 million or nine percent. This decrease was a result of the timing of new product introductions. However, in November 2008, the FDA approved our Apex™ PTCA dilatation catheter, used in treating atherosclerotic lesions, and we continue to hold a strong leadership position in the U.S. PTCA balloon catheter market with a 59 percent market share.

Peripheral Interventions

Our Peripheral Interventions business product offerings include stents, balloon catheters, sheaths, wires and vena cava filters, which are used to diagnose and treat peripheral vascular disease. Worldwide net sales of these products decreased to $158 million in the first quarter of 2009, as compared to $177 million in the first quarter of 2008, a decrease of $19 million or 12 percent. The decrease was a result of U.S. sales declines of $9 million, as well as declines in international Peripheral Interventions sales, due primarily to the unfavorable impact of foreign currency exchange, which contributed a negative $7 million in the first quarter of 2009 as compared to the same period in the prior year. Despite the sales declines in the first quarter of 2009, we believe that we are well positioned in the growing Peripheral Interventions market. In the fourth quarter of 2008, we received FDA approval for three new products: our Carotid WALLSTENT® Monorail® Endoprosthesis for the treatment of patients with carotid artery disease who are at high risk for surgery; our Express® SD Renal Monorail® premounted stent system for use as an adjunct therapy to percutaneous transluminal renal angioplasty in certain lesions of the renal arteries; and our Sterling™ Monorail® and Over-the-Wire balloon dilatation catheter for use in the renal and lower extremity arteries. We believe that these product offerings will provide momentum and generate growth for our Peripheral Interventions business.

Neurovascular

We market a broad line of products used in treating diseases of the neurovascular system and hold leading market positions in several product markets. Worldwide net sales of our Neurovascular products decreased to $87 million in the first quarter of 2009, as compared to $92 million for the first quarter of 2008, a decrease of $5 million or five percent, primarily as a result of new competitive launches. U.S. Neurovascular net sales represented $31 million in the first quarter of 2009, as compared to $32 million for the same period in the prior year, and international Neurovascular net sales represented $56 of our net sales million in the first quarter of 2009, as compared to $60 million for the same period in the prior year. We plan to launch a next-generation family of detachable coils, including an enhanced delivery system with reduced coil detachment times, in the U.S. in the second half of 2009. Within our product pipeline, we are also developing next-generation technologies for the treatment of aneurysms, intracranial atherosclerotic disease and acute ischemic stroke, and are involved in numerous clinical activities that are designed to expand the size of the worldwide Neurovascular market.

Endosurgery

Our Endosurgery group develops and manufactures devices to treat a variety of
medical conditions, including diseases of the digestive and pulmonary systems
within our Endoscopy division, and urological and gynecological disorders within
our Urology/Gynecology division. Our Endosurgery group net sales accounted for
17 percent of our total net sales for the first quarter of 2009 and 16 percent
for the first quarter of 2008. The following are the components of our worldwide
Endosurgery net sales:

                                     Three Months Ended                                Three Months Ended
(in millions)                          March 31, 2009                                    March 31, 2008
                           U.S.         International        Total           U.S.         International        Total
Endoscopy               $      122     $           110     $      232     $      116     $           113     $      229
Urology/Gynecology              83                  21            104             77                  23            100
                        $      205     $           131     $      336     $      193     $           136     $      329

Worldwide net sales of our Endoscopy products grew one percent in the first quarter of 2009, as compared to the first quarter of 2008. An increase in U.S. net sales of five percent was partially offset by declines in international net sales of three percent, due primarily to the impact of foreign currency exchange, which contributed a negative $12 million to first quarter net sales as compared to the same period in the prior year. Excluding the impact of foreign currency, our worldwide Endoscopy sales increased six percent for the first quarter of 2009, as compared to the first quarter of 2008. This increase was driven primarily by the performance of our biliary and hemostasis franchises. We continue to see strong adoption of our SpyGlass® Direct Visualization System for . . .