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
Three Months Ended September 30, 2009
Our net sales for the third quarter of 2009 were $2.025 billion, which included net sales from divested businesses of $2 million, as compared to net sales of $1.978 billion for the third quarter of 2008, which included net sales from divested businesses of $12 million, an increase of $47 million or two percent. Excluding the impact of foreign currency exchange rates, which contributed a negative $11 million to net sales, and net sales from divested businesses, our net sales increased three percent for the third quarter of 2009, as compared to the same period in the prior year. See Quarterly Results for a discussion of the components of our net sales. Our reported net loss for the third quarter of 2009 was $(94) million, or $(0.06) per share, as compared to $(62) million, or $(0.04) per share, for the third quarter of 2008. Our reported results for the third quarter of 2009 included litigation-related net charges, as well as restructuring and restructuring-related costs (after-tax) of $278 million, or $0.18 per share, as follows:
• $257 million ($236 million pre-tax) of litigation-related net charges, associated with an agreement in principle reached with the U.S. Department of Justice, and the reduction of previously recorded reserves associated with certain other litigation related matters; and

• $21 million ($28 million pre-tax) of restructuring and restructuring-related costs associated with our Plant Network Optimization program and 2007 Restructuring plan, described in Strategic Initiatives.

Our reported results for the third quarter of 2008 included intangible asset impairment charges; acquisition-, divestiture- and litigation-related net charges, as well as restructuring and restructuring-related costs (after-tax) of $202 million, or $0.14 per share.
Nine Months Ended September 30, 2009
Our net sales for the first nine months of 2009 were $6.109 billion, which included net sales from divested businesses of $9 million, as compared to net sales of $6.048 billion for the first nine months of 2008, which included net sales from divested businesses of $62 million, an increase of $61 million, or one percent. Excluding the impact of foreign currency exchange rates, which contributed a negative $179 million to net

sales as compared to the third quarter of 2008, and net sales from divested businesses, our net sales increased five percent for the first nine months of 2009, as compared to the same period in the prior year. See Quarterly Results for a discussion of the components of our net sales. Our reported net income for the first nine months of 2009 was $51 million, or $0.03 per diluted share, as compared to $358 million, or $0.24 per diluted share, for the first nine months of 2008. Our reported results for the first nine months of 2009 included intangible asset impairment charges; acquisition-, divestiture-, and litigation-related net charges; restructuring and restructuring-related costs; and discrete tax items (after-tax), of $515 million or $0.34 per share, consisting primarily of:
• $8 million ($10 million pre-tax) of intangible asset impairment charges associated primarily with certain Urology-related intangible assets;

• $17 million, on both a pre-tax and after-tax basis, of purchased research and development charges, associated with the acquisition of certain technology rights;

• $69 million ($94 million pre-tax) of restructuring and restructuring-related costs associated with our Plant Network Optimization program and 2007 Restructuring plan;

• $497 million ($523 million pre-tax) of net charges associated with various litigation matters; and

• a $74 million credit for discrete tax items related to certain tax positions taken in a prior period.

Our reported results for the first nine months of 2008 included intangible asset impairment charges; acquisition-, divestiture- and litigation-related net charges, as well as restructuring and restructuring-related costs (after-tax) of $225 million, or $0.15 per share.
Business and Market Overview
Cardiac Rhythm Management
We estimate that the worldwide cardiac rhythm management (CRM) market, including Electrophysiology, will approximate $12.6 billion in 2009, representing a slight increase from 2008. During the third quarter of 2009, results were published in the New England Journal of Medicine from the Boston Scientific sponsored MADIT-CRT clinical trial which provide evidence that Boston Scientific's cardiac resynchronization therapy defibrillator (CRT-D) therapy significantly reduces the relative risk of all-cause mortality or first heart failure intervention when compared to traditional implantable cardiac resynchronization (ICD) therapy. These results demonstrated that early intervention with Boston Scientific's CRT-D therapy in certain patients can slow the progression of heart failure. In addition, during the second quarter of 2009, we announced eight-year follow-up data from our MADIT II clinical study, which demonstrated that the life-saving benefits of ICD therapy improved over time. We expect to complete a pre-market approval filing with the FDA for an expanded CRT-D indication by the end of 2009, and believe that we can reasonably expect FDA approval by mid-2010. We believe an expanded indication would create an opportunity to strengthen the CRM market and further enhance our position within that market.
Our CRM group net sales represented approximately 30 percent of our consolidated net sales for the third quarters of 2009 and 2008. Our worldwide CRM group net sales increased $34 million, or six percent, in the third quarter of 2009, as compared to the third quarter of 2008. During the first nine months of 2009, we made significant investments in increasing the size of our CRM sales force and clinical support team in the U.S., EMEA and Japan. The increased sales force has not yet impacted our CRM net sales; however, we expect that these additional sales representatives will generate incremental net sales in future periods. The following are the components of our worldwide CRM group net sales:

                                Three Months Ended                      Three Months Ended
                                September 30, 2009                      September 30, 2008
   (in millions)         U.S.      International      Total      U.S.      International      Total
   ICD systems          $ 314       $      131       $ 445      $ 291       $      132       $ 423
   Pacemaker systems       90               73         163         86               63         149

   CRM products           404              204         608        377              195         572
   Electrophysiology       30                8          38         30               10          40

   Total CRM group      $ 434       $      212       $ 646      $ 407       $      205       $ 612

Our U.S. CRM group net sales increased $23 million, or eight percent, in the third quarter of 2009, as compared to the third quarter of 2008. Our U.S. net sales benefited from the continued success of our next-generation COGNIS® CRT-D and TELIGEN® ICD systems, and our ALTRUA™ family of pacemaker systems, as well as growth in the size of the U.S. CRM market. In 2010, we will continue to execute on our product pipeline and expect to launch a next-generation line of defibrillators in the U.S. by the end of that year, which include new features designed to improve functionality, diagnostic capability and ease of use. Our international CRM group net sales increased $7 million, or three percent, in the third quarter of 2009, as compared to the third quarter of 2008. Excluding the impact of foreign currency exchange rates, which contributed a negative $9 million to third quarter 2009 CRM group net sales as compared to the same period in the prior year, international sales of our ICD systems (including CRT-D systems) grew $5 million, or four percent, driven by continued adoption of our COGNIS® CRT-D and TELIGEN® ICD systems. Further, our international pacemaker system net sales increased $11 million, or 19 percent, excluding the impact of foreign currency exchange rates, for the third quarter of 2009, as compared to the third quarter of 2008, driven primarily by growing adoption of our ALTRUAÔ family of pacemakers. We recently received approval from the Japanese Ministry of Health, Labor and Welfare to market ALTRUAÔ in that region and we were granted the top tier (Category 4) reimbursement level. We also expect to launch our COGNIS® CRT-D and TELIGEN® ICD systems in Japan in the fourth quarter of 2009 and are targeting the completion of our international launch of these systems in early 2010. In addition, in July 2009, we received CE Mark approval for our LATITUDE® Patient Management System and have begun a phased launch in certain European countries. 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. We also plan to launch our next-generation INGENIO™ pacemaker system 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 well within the worldwide CRM market.
Net sales from our CRM group represent a significant source of our overall net sales. Therefore, increases or decreases in our CRM group net sales 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:
• the ability of CRM manufacturers to maintain the trust and confidence of the implanting physician community, the referring physician community and prospective patients in CRM technologies;

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

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

• the impact of market and economic conditions on average selling prices and the overall number of procedures performed;

• the successful conclusion and variations in 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; and

• new competitive launches.

Coronary Stent Systems
Net sales of our coronary stent systems represented approximately 22 percent of our consolidated net sales in the third quarters of 2009 and 2008. We estimate that the worldwide coronary stent market will approximate $5.0 billion in 2009, consistent with 2008. The size of the coronary stent market is driven primarily by the number of percutaneous coronary intervention (PCI) procedures performed, as well as the percentage of those in which stents are implanted; 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). Uncertainty regarding the efficacy of drug-eluting stent systems, as well as the perceived risk of late stent thrombosis1 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 thus far in 2009, as referring cardiologists regained and maintain confidence in this technology. Recently presented data from a single-center, non-double blinded, underpowered study sponsored by one of our competitors are inconsistent with the overall body of evidence supporting our TAXUS® paclitaxel-eluting coronary stent system. However, perceptions of these data could negatively affect physician and patient confidence in our technology and net sales of our TAXUS® stent systems.
We are the only company in the industry to offer a two-drug platform strategy with our TAXUS® stent system and the PROMUS® everolimus-eluting coronary stent system, supplied to us by Abbott Laboratories. In November 2009, we announced receipt of CE Mark approval to market our next-generation internally-manufactured everolimus-eluting stent system, the PROMUS® Element™ stent system, and simultaneously launched this stent system in our EMEA region and certain Inter-Continental countries. We expect to launch our PROMUS® Element™ stent system in the U.S. and Japan in mid-2012. Our product pipeline also includes the next-generation TAXUS® Element™ stent system, which we expect to launch in EMEA and certain Inter-Continental countries during the first half of 2010, in the U.S. mid-2011 and Japan in late 2011 or early 2012. The following are the components of our worldwide coronary stent system sales:

                              Three Months Ended                      Three Months Ended
                              September 30, 2009                      September 30, 2008
     (in millions)     U.S.      International      Total      U.S.      International      Total
     TAXUS®           $ 106       $      139       $ 245      $ 112       $      159       $ 271
     PROMUS®            116               50         166         97               28         125

     Drug-eluting       222              189         411        209              187         396
     Bare-metal          14               27          41         19               31          50

                      $ 236       $      216       $ 452      $ 228       $      218       $ 446

Our U.S. sales of drug-eluting stent systems increased $13 million, or six percent, in the third quarter of 2009, as compared to the same period in the prior year. Despite an increase in competition following two new market entrants during 2008, we maintained our leadership position with an estimated 49 percent share of the U.S. drug-eluting stent market. We believe we have maintained our position in this market due to the success of our two-drug platform strategy and the strength of our TAXUS® Liberté® stent system, as well as our TAXUS® Express2® Atom™ stent system, launched in the U.S. during the fourth quarter of 2008. In the second quarter of 2009, we received FDA approval for the TAXUS® Liberté® Atom™ stent system and, in July 2009, we received approval for the TAXUS® Liberté® Long stent system, further adding to our industry leadership for the widest range of coronary stent sizes. In addition, 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 third quarter of 2009, as compared to 70 percent

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.

during the third quarter of 2008. Penetration rates in the U.S. consistently increased throughout 2008 and have remained steady at 75 percent for three consecutive quarters, indicating a recovery and stabilization of the U.S. drug-eluting stent market. Partially offsetting the impact of increased penetration rates on the size of the market were reductions in average selling prices in the third quarter of 2009, as compared to the third quarter of 2008, as a result of competitive pricing pressures. We estimate that the average selling price of our drug-eluting stent systems decreased approximately eight percent for the third quarter of 2009, as compared to the same period in the prior year.
Our international drug-eluting stent system sales increased $2 million, or one percent, in the third quarter of 2009 as compared to the third quarter of 2008, but were negatively impacted by $5 million, as compared to the same period in the prior year, as a result of foreign currency exchange rates. Within our international business, net sales of our drug-eluting stent systems in Japan increased $13 million, or 27 percent, driven primarily by the favorable impact of foreign currency exchange rates in that region, as well as 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 47 percent for the third quarter of 2009, as compared to 45 percent for the third quarter of 2008 and 53 percent in the second quarter of 2009. Until recently, our TAXUS® drug-eluting stent system was one of only two drug-eluting stent products on the market in Japan. In May 2009, however, an additional competitor entered this market, which has negatively impacted our share throughout the second and third quarter. We expect approval of the PROMUS® stent system in Japan during the fourth quarter of 2009, and expect to launch in the first quarter of 2010. Our net sales of drug-eluting stent systems in our EMEA region decreased $8 million, or nine percent, and net sales of these systems in our Inter-Continental region decreased $3 million, or six percent, both due primarily to the negative impact of foreign currency exchange rates and reductions in our average selling prices. In November 2009, we announced receipt of CE Mark approval to market our next-generation internally-manufactured everolimus-eluting stent system, the PROMUS® Element™ stent system, and simultaneously launched this stent system in our EMEA region and certain Inter-Continental countries. Our PROMUS® Element™ stent system incorporates a unique platinum chromium alloy offering greater radial strength and flexibility than older alloys, and provides enhanced visibility and reduced recoil. The innovative stent design improves deliverability and allows for more consistent lesion coverage and drug distribution. This latest product offering demonstrates our commitment to DES market leadership and continued innovation. Our product pipeline also includes the next-generation TAXUS® Element™ stent system, which we expect to launch in EMEA and certain Inter-Continental countries during the first half of 2010, in the U.S. mid-2011 and Japan in late 2011 or early 2012.
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, with an estimated 41 percent market share in the third quarter of 2009. However, under the terms of our supply arrangement with Abbott, the gross profit and operating profit margin of everolimus-eluting stent systems supplied to us by Abbott, including any improvements or iterations approved for sale during the term of the applicable supply arrangements and of the type that could be approved by a supplement to an approved FDA pre-market approval, is significantly lower than that of our TAXUS® stent system. Specifically, the PROMUS® stent system has operating profit margins that approximate half of our TAXUS® stent system operating profit margin. Therefore, if sales of everolimus-eluting stent systems supplied to us by Abbott 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. We expect that our PROMUS® ElementTM stent system, launched in our EMEA region and certain Inter-Continental countries in November 2009, will have gross profit margins more comparable to our TAXUS® stent system and will positively affect our overall gross profit and operating profit margins in these regions. Further, the price we pay for our supply of everolimus-eluting stent systems from Abbott is determined by contracts with Abbott and is based, in part, on previously fixed estimates of Abbott's manufacturing costs for everolimus-eluting stent systems and third-party reports of our average selling price of these stent systems. Amounts paid pursuant to this pricing arrangement are subject to a retroactive adjustment approximately every two years based on Abbott's actual costs to manufacture these stent systems for us and our average selling price of everolimus-eluting stent systems supplied to us by Abbott. During the fourth quarter of 2009 or soon thereafter, 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 the first quarter of 2008. As a result, during the fourth quarter of 2009 or soon thereafter, we may record a gain or loss based on this retroactive adjustment, and our on-going profit margins may be positively or negatively impacted. We are currently reliant on Abbott for our supply of everolimus-eluting stent systems in the U.S. and Japan. Any production or capacity issues that affect Abbott's manufacturing capabilities or our process for forecasting, ordering and receiving shipments may impact the ability to increase or decrease our level of supply in a timely manner; therefore, our supply of everolimus-eluting stent systems supplied to us by Abbott may not align with customer demand, which could have an adverse effect on our operating results. At present, we believe that our supply of everolimus-eluting stent systems from Abbott and our current launch plans for our next-generation internally-manufactured everolimus-eluting stent system is sufficient to meet customer demand. Our supply agreement with Abbott for everolimus-eluting 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. In November 2009, we launched our PROMUS® Element™ stent system in our EMEA region and certain Inter-Continental countries, and expect to launch this stent system in the U.S. and Japan in mid-2012. 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, including specialty stent sizes;

• the broad, consistent, and favorable 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, selling, 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, including the PROMUS® ElementÔ and TAXUS® ElementÔ stent systems;

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

• the impact of competitive pricing pressure on average selling prices of drug-eluting stent systems available in the market;

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

• the outcome of intellectual property litigation;

• the successful conclusion and variations in outcomes of on-going and future clinical results involving our products, 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 nine months of 2009, we successfully negotiated closure of several long-standing legal matters, including multiple matters with Johnson & Johnson; all outstanding litigation between us and Medtronic, Inc. with respect to interventional cardiology and endovascular repair cases; and 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 . . .