Becton, Dickinson and Company (BDX) Earnings Call Transcript & Summary

Thank you, everyone, for joining us for day 3 of the 2021 Morgan Stanley Healthcare Conference. I'm Drew Ranieri, one of the medical device analysts here. And it's my pleasure to have Simon Campion, EVP and President of the Interventional segment at Becton Dickinson here with us today. So before we jump into it, just a couple of housekeeping items. Just for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales rep. I'm going to open it to Kristen Stewart just to read some opening disclosure statements on their end, and Kris can take it away, please.

Thanks, everyone, for joining us. Just a reminder, during today's discussion, we may be making some forward-looking statements, and it is possible that actual results could differ from our expectations. There continues to be uncertainty around the duration and contemplated impact of COVID-19. Risks, uncertainties and other factors that could cause such differences can be found in our SEC filings including our 2020 Form 10 and subsequent Form 10-Q filings. The statements made in this presentation were made as of today's date. BD undertakes no responsibility to update such statements to reflect events or circumstances occurring after such date. With that, I'll turn it over to Simon. Simon?

Good morning, everyone, and thank you for the opportunity to speak to you all and the audience today. As mentioned in the introduction, I lead the Interventional segment at BD. Essentially, the interventional business is 3/4 of the old C.R. Bard business. So now we are actually bigger than Bard was. The segment consists of three approximately equal business units: Peripheral Intervention, Urology and Critical Care and Surgery. I've been fortunate in my 14-year career at Bard and BD to have the opportunity to work at 3 of the legacy 4 Bard by businesses, including Peripheral Intervention and Surgery, and work with all 4 businesses so that I've seen and participated in the significant developments that have taken place in those businesses over the years. Our strategy is growth through new product development and enable expansion tuck-in M&A and out-executing our competitors in the global marketplace. Not only is our segment well balanced across our 3 businesses, but our 3 businesses are also well balanced across the platforms that compose them. We've seen the benefits of this over the past number of years, as Surgery has overcome Hurricane Maria. Peripheral Intervention overcame the pressure of the drug-coated balloon market slowdown and UCC has proven to be rather resilient in the face of the COVID-19 pandemic. We've also worked diligently to simplify our businesses through strategic SKU reduction programs and leveraging some core BD capabilities while taking opportunities to invest strategically around the globe in certain businesses. We have been rather pleased with the support that BD has provided our segment over the past number of years with respect to M&A. Our M&A activities continues to be very robust as evidenced by the acquisitions of PureWick, Straub Medical, WavelinQ, Sensica, Pristine and more recently, Tepha. We have been pleased with the performance of these acquisitions to date and appreciate capabilities that we've been able to onboard to our businesses with the employees of these acquisitions. It's a core capability of ours, early identification of targets that fit our strategic intent, rapid integration, execution in the marketplace and ongoing incremental innovation. I would expect that, that capability will continue to bear fruit for our segment in 2022. Of course, our segment has been impacted the greatest by the COVID pandemic. I'd like to take a moment to acknowledge 2 groups of people. Firstly, the clinicians on the front line, who put themselves at risk to treat patients with COVID-19 and also to continue to treat patients, who have other ailments that need addressing. They have been magnificent. Secondly, the employees of BD, but particularly employees of the Interventional segment, who have continued to serve their customers, have continued to manufacture and distribute products from our factories and warehouses, have continued to progress our R&D programs and have continued to drive our agenda forward. We have also kept our finger on the pulse of our customers and patients over the past 18 months. We've surveyed our interventional employees and use their responses as a proxy for patient sentiment. And we've just completed our ninth comprehensive customer survey. The data that we've gathered from these surveys has helped inform us greatly in Interventional and indeed across BD. It will not come as a surprise to you that most recent data indicates renewal of pressure on elective procedures, though not as significant as before. We began to see that in early July as it began to impact the complex hernia business swiftly. These are overnight and complex procedures. And as every COVID wave forms, the impact was felt acutely in that platform. However, as hospitals have learned to cope with an influx of COVID patients and are eager to resume profitable procedures, the impact across our businesses has certainly attenuated with each wave. Outpatient procedures, for example, have been significantly less impacted as each wave manifests itself. Of course, there are localized zones of tremendous impact. I would expect to see -- continue to see cyclic impacts such as these for some time until vaccination rates reach critical mass. However, the balance of the Interventional segment allows us to absorb some of the punitive nature of these outbreaks, and you've observed, I hope, our ability to rebound robustly and rapidly once the window of opportunity arises with diminishing COVID volumes. I'm honored to lead the interventional segment through this complex period. Our outlook continues to be very positive due to the ongoing investment in our business, the ongoing simplification of our portfolio, the continued support of BD for M&A activities and the continued commitment of our employees. We are certainly in a position to rebound as COVID is controlled, and I would expect that we will continue to be reliable bellwether of performance within the BD organization. Thank you.

Thanks, Simon, for the prepared remarks. Looking forward to speaking, getting into some detail here. Just in terms of COVID, and you highlighted this a little bit in your opening remarks. But can you go into a little bit more detail about what you're seeing specifically in each of the 3 businesses? And Medtronic had provided some recent detailed commentary at the end of the month, just highlighting expectation, the case rates would be kind of early September with hospitalization and procedure volume kind of trending back to normalized levels a few weeks thereafter. So are you sharing that same view? Or do you have a kind of a different perspective on that?

Yes. I think pretty much similar, Drew. We -- as I said, we began to see an impact in early July in the Composix abdominal wall business. And certainly, we've seen that spread through the Surgery and Peripheral Intervention business. As you noted, the volumes are coming down with respect to COVID-19 patients, they are down. I think last saw was 5% or 6 %. So we should expect to see the situation improved as we move forward. Now there is a very localized impact in the South and Southeast, maybe all the way up to Indiana and so on. If you look at the Wall Street Journal or the New York Times, the MAX that they have there, and they are certainly the areas that are impacted the greatest. The data from our survey, where we surveyed 664 customers between PI and Surgery, are supporting that. Their volumes are down. The procedure volumes are down. Their visits to clinic are down. And the number of cancellations, for example, that they've seen over the past number of weeks as compared to the other survey that we did in June, they are down as well. So there are a lot of indicators supporting our -- what we communicated at earnings in August and just some sustained pressure on elective procedures moving forward.

And in that survey of the 664 customers, so they're clearly seeing an impact now. There's cancellations. If there are cancellations, did the survey kind of suggest that they would return kind of in the fourth quarter? Or was it kind of just solely kind of looking at what is happening today?

It's -- no, the backlog has certainly increased of procedures. The survey we did in May or June about half of our customers said that they had little to no backlog, and now they are saying that -- about half of them are saying that they have 3-month backlog or so. However, when you look at the other data that they provided to us, they believe that for the next 30 days, at least, they will continue to see sustained pressure on their elective procedures.

Okay. So maybe let's move on to some more interesting topics of -- for some longer-term perspective here. But maybe just to touch on kind of the strategic framework with BD Interventional, but constant emphasizing the BD 2025 strategy. I'm sure this is going to be a crucial element at the upcoming November Analyst Day. But as just kind of an early preview, how should investors view the Interventional business within the context of the grow, simplify and empower kind of framework that comes set out?

The markets that Interventional play in are -- the WAMGR of those markets I think are a little higher than the WAMGR elsewhere. We also, as with the rest of BD, tend to out execute those market growth rates. And we have been diligently exiting SKUs that are low performing, looking at markets that are more interested from a WAMGR perspective. So the growth profile of the Interventional segment currently and looking forward to the BD 2025 vision is very, very robust. And we have about 9 or 10 platforms in total that enable us to have a good balance across the portfolio. So we can weather things like Hurricane Maria, the drug-coated balloon slowdown and COVID too to a certain extent. So we have a very robust R&D funnel, as you would expect from the Interventional segment, and we have a very robust M&A funnel, some of which I described earlier on, and you should continue to expect more M&A from the Interventional segment as we move forward through the BD 2025 vision.

Maybe specifically on the WAMGR for a moment. But I think in the last earnings deck, there were some new product launches in Interventional. I think some of those growth areas might be high single-digit or double-digit growth opportunities. But kind of across the $4 billion Interventional portfolio, how should we kind of think about your overall WAMGR and your overall market opportunity at this point?

Well, I think it's -- I don't think I'll go into the specific details of the overall WAMGR for the Interventional segment. And I'll just reiterate the comments that I made that the space that we grow tend to be higher growth than elsewhere. And that is the key strategy for us moving forward to continue to play in those spaces and indeed expand them, as we roll forward. With respect to product launches in the past year, I think we've been pretty pleased with those launches. We have a number of interesting launches and label expansions coming up in 2022. And one of the ways we look at product launches is it's not necessarily what we do in the first year. It's the second, third, fourth and fifth years that we begin to see real traction. So the launched that we've completed in '21, we would expect to see those begin to expand even more in 2022. So the Sensica automatic urine output technology that we released, the next-generation Arctic Sun that we also released and continued driving of our PureWick business and we should expect to see that continue to expand in 2022 and beyond.

Okay. And the new product pipeline is something that I want to make sure we have time for. And with BD Interventional just sitting in the broader BD platform, we've been thinking about the company and you kind of guided to a mid-single-digit plus overall topline growth for the company. Just prior to pandemic, the Interventional segment was maybe a 5% organic grower, 5% plus so should we kind of be thinking that's the right framework at least initially? Or could there be opportunities for further growth ahead with some of the new products since you're talking about it's not year 1, it's year 2, 3 and 4 that really kind of matter for product launches?

Yes. I think as we provided in the earnings call in August, our growth over '19 has been pretty robust in the Interventional segment. And we would diversify if we don't continue to drive our growth in a very meaningful way as we roll forward. I won't give you specific numbers, obviously. You can see those from Q3, but they should be a good barometer of what we feel we're capable of with our launches, with our M&A activity and with executing in the global marketplace.

Got it. Just as a follow-up question...

We'll obviously give you more color on how we see the businesses over the longer term at our November Analyst Day. So stay tuned for some additional color on the longer-term growth metrics and how we look at the overall markets for the businesses and stay tuned.

Understood. Simon, I just wanted to circle back to some of the commentary in your opening remarks on International specifically. So Peripheral, it just seems like it's maybe the most balanced U.S. OUS in the portfolio. Surgery and Urology and Critical care are more exposed to the U.S., but how should we kind of think about international growth more broadly or maybe just opportunities for new product launches internationally? Or just is it more about just registering kind of the existing bag of products?

It's a little bit about registering, as you pointed out, Drew. It's also about making some investments. We've made some investments in ANZ for Surgery and also as part of the integration of Bard and BD, we invested in biosurgery in Europe and created a sales team over there. And that continues to exceed our expectations with respect to the modeling that we did on that. For sure, you are correct, PI is the most balanced between U.S. and international, and it remains a focus for us to drive UCC and surgery to be more global in nature. And again, over the coming months, I would hope that we can share more information with the investment community on our activity internationally with respect to some business.

And then just within international, as you probably don't want to provide detail, but just in terms of kind of the emerging market representation that you have for interventional, how does that compare to kind of the overall company at like 13%? And maybe kind of your China exposure would be kind of unless you give an update on where the interventional business stands.

What was the number you provided there, Drew?

Like the overall company, overall BD, I think is about 13% emerging markets, 5% China. So just wondering kind of how Interventional kind of stacks up against that.

Yes. Listen, we've been very pleased with our growth in China. PI and Surgery, in particular, had very robust growth over the past number of years in the Chinese market and indeed broader emerging markets. we've made some investments in that space, too, and the Chinese team has really out-executed and outdelivered their commitments to us. So we foresee our growth trajectory in China continued to be very robust.

Maybe just to shift gears to M&A strategy. And tuck-ins have -- were really a critical component of the Bard strategy. And over the past 18 months or so, many of BD's tuck-in deals have focused on the Interventional business. So can you just talk a few -- can you talk a little bit about some of those recent deals that you've done, maybe what are you most excited for? And then just to layer this in, just how will M&A kind of continue to play a role going forward for Interventional?

Sure. Well, as I said in my opening statement, M&A is a core competency within the Interventional segment, and we do tend generally to do tuck-in deals that was the model by Bard and continues to be the model in Interventional. However, what we do -- think we do rather well and enjoy doing it is we rapidly incrementalize the acquisitions that we have -- that we make. So for example, the Lutonix acquisition back in 2014 and 2015, at my last count, there were 18 incremental product launches or label expansions as a result of the Lutonix acquisition. The recent Tepha acquisition that we made, we obviously had the rights to one of their technologies early on for the past several years, and we incrementalize that 12x with new products and label expansions. And so that will continue to be a model for us moving forward. We already incrementalized WavelinQ. We're done to WavelinQ 5 French. We have plans in place to incrementalize Sensica, the automatic urine output management technology, and we will continue to do that moving forward. It's a great way to continue to bring value to the models that we generate for those acquisitions, continue to solve unmet clinical needs and continue to drive our market share in those spaces.

Would you think these kind of prior deals over the past 18 months, I mean, would these be a good proxy for size going forward for potential M&A?

Yes, we've done a range of deals over the past 18 months from smaller technology acquisitions all the way up to the likes of Sensica, the likes of WavelinQ and the likes of Tepha. So we don't think about it in terms of how much we spend. We think about it in terms of -- is this a technology or a space that we want to play in and can we drive it in the marketplace and incrementalize it? And also the global nature of those technologies is also increasingly important to us as well.

Got it. Just to shift gears for a moment to the pipeline and just the product portfolio. But -- maybe I'm incorrect in this, but I kind of always have thought of BD as a company of singles and doubles at a company level. But as we're focusing on the Interventional segment today, does that hypothesis kind of still work? Or are there some triples or home run products in the portfolio that we should kind of better appreciate?

Well, personally, I've always been a fan of singles and doubles and the occasional triple. The singles and doubles allow us to spread our risk across our businesses so that we're not at the -- we will not be holding to some clinical trial data, some changes in regulatory pathways or things like that. And so singles and doubles work tremendously well for Bard. They have worked well for Interventional as part of BD. I think we have some interesting products in our -- interesting options in our portfolio moving forward that I would certainly classify as a triple at least. But given the nature of the regulatory pathways for some of these products through the time line is out there; however, we are looking at larger market spaces. But in the interim, you should expect to see continued singles and doubles and the occasional somewhere between second base and third base.

I'll have to wait and see for the Analyst Day to hear more about some of the upcoming portfolio.

You may indeed hear some more about it at Analyst Day, yes.

Maybe just to touch on Peripheral for a moment. Could you kind of walk us through some of your efforts in building capabilities around dialysis and bringing dialysis care to the home, particularly around kind of the fistula and dialysis access for ESRD patients?

Sure. Overall, in my entire career at Bard and BD, one of the unapologetic areas of focus has been solving unmet clinical needs. And probably no population has greater unmet clinical needs than the dialysis patient population. They've been disproportionately impacted, as you probably know, by COVID. We have a range of technologies that are available to physicians who intervene on these patients. And of course, the most recent one was the Pristine dialysis catheter that we launched and prior to that was the endovascular fistula creation technology called WavelinQ. Moving into the home is an interesting area. I think we have been well placed within Interventional with our Home Care business in Liberator, and you've seen the -- you will have heard us talk about the great performance of PureWick in that space. I think the dialysis area is a harder not to track for a number of reasons. Number one is access of patients to take technology in the home. And number two is, I think there are some risks associated with that patient population and cannulation in the home space. So I would classify it as an area of much interest for us, an area that will -- I think will benefit patients. The burden on those dialysis patients, if they can get dialyzed at home, will be much reduced. I think the stat is 1 in 4 or 1 in 3 dialysis patients are unable to keep down a full-time job because of the pressure on their body after 3 dialysis sessions a week. So if we can begin to minimize that burden on patients by dialyzing them more frequently at home. I would think that the societal impact will be significant. But I think we all have hurdles to overcome before that is truly something that we can count on as a significant portion of the dialysis market.

It's really interesting. And just maybe going to DCBs for a moment, but has the DCB franchise fully recovered? And is it delivering kind of the pre-COVID type revenues? Just any sense or any comments there?

I'm always anticipating the DCB question, Drew. Listen, obviously, there's been several publications post Katsanos that have supported of DCBs in the SFA and in our instance, also in the AV market space. We are not at what should we call it pre-Katsanos levels, pre-FDA March 2019 levels yet. But the trends are certainly there. The last number of months in our business, we have seen, I think it's 3 of the 4 best months since the Katsanos publication from an AVs perspective. So we are -- it is certainly coming back. It is not all the way back yet. I think there's momentum -- if it weren't for COVID, I think we would be all rather close to where we were pre-Katsanos. But the noise level expected DCBs has certainly diminished. And our performance, I think, is reflective of that reduction in noise from our customer base.

Just sorry to go back to dialysis for a moment. But is the potential that Becton would ever get into PD or home HD an option from a long-term strategic perspective? Or do you kind of need to see where reimbursement in the home kind of shakes out for that market to develop a bit more?

I would say that would be -- that will -- well, what you classify as a home run, and I think we've got more work to do before we would commit to swing [indiscernible] now.

Okay. Okay. Just -- we're running out of time. I just want to hit the Urology and Critical Care business. But just Urology in the home kind of on the back of the success that you had for launching the PureWick platform in the acute care setting. Just how are you thinking about that in the home? And I mean, is this a broader part of your strategy to move care into the home care setting?

Yes, certainly reducing or moving people from the acute care into the non-acute care and indeed into the home is something we are particularly interested in. And Urology and Critical Care seems best placed for now to act on that. We've been tremendously pleased with the performance of PureWick in the home care setting. As you may know, we launched the DryDoc home system late last year or early this year, and the uptake has been very, very, very impressive with that. I think significantly, again, back to my earlier comments on a couple of occasions. What we do is we take an acquisition. We make it better and we incrementalize it as fast as we can. You should begin to see over the next 12 to 24 months continued incrementalization of the PureWick platform for females with the DryDoc and indeed for males as well. So it's a space that this patient population is very much underserved. The complexities associated with -- dealing with incontinence are immense and numerous, and we feel it's a significant opportunity for us moving forward and to continue to serve that patient group.

And lastly, just over the next 12, 24 months, I mean, is there anything from a regulatory environment perspective or anything coming out of Washington that you're concerned about that could be an impact to the international business?

I think there's always some noise around reimbursement. Generally, there's noise and then it wanes. And so that's always a watch out. Obviously, EUMDR over the past number of years, causes us to do added work and streamline some offerings with respect to our portfolio. So any of those type of events over the next couple of years would certainly cause us to do some more work. But I think, as you've hopefully seen over the past number of years, these extra regulatory burdens caused more work, but don't necessarily impact our business. So I would be expecting the same, if any, regulatory changes came our way from any of the global agencies.

Got it. Understood. Well, Simon, I think we hit the top of our session, but really appreciate the time today, and thank you for attending the virtual conference.

Thanks. Thanks for the opportunity.