Boston Scientific Corporation (BSX) Earnings Call Transcript & Summary

Hi. Good morning, and thank you all for joining us on day 2 of the Barclays Global Health Care Virtual Conference. I'm Kristen Stewart, the medical supplies and devices analyst. It is my pleasure to kick off day 2 with Boston Scientific. With us today, I have Mike Mahoney, the Chairman and Chief Executive Officer. As a reminder, if you'd like to participate actively on this virtual, fireside, beachside, desk-side, "whatever you want to call it," chat, you can e-mail me any questions at [email protected]. You can also chat me your questions on Bloomberg. I am going to be actively monitoring my chats.

Without further ado, I'm going to kick it off with the question that everyone has, Mike, on COVID-19. I was wondering if you could just kind of give us an update on what you're thinking on this, obviously, very fluid dynamic, evolving, ever-changing, kind of pick-your-adjective situation. You did quantify the potential impact on your earnings call when you had it at about $10 million to $40 million in Q1. Obviously, since then, we've just seen the situation continue to evolve with more and more cases spreading throughout Europe and, obviously, here in the United States, prompting a lot of changes in travel, obviously, including our own. So I'll pass it over to you to give us kind of your updates as you see them. Thanks so much again for accommodating all the changes last minute. Mike?

Yes. Thanks for having us on the webcast. We feel very sterile here. We're all separated. So it's -- we're following the protocols. But happy to talk about the company. The COVID-19, obviously, is getting daily, hourly attention. When we provided guidance, full year, we talked about 6.5% to 8.5% growth in our call. And then we, obviously, saw the COVID-19 impact pretty early. So we tried to do our best to call out a potential negative impact from China back in February 5, which, as you said, was $10 million to $40 million. And so longer term, we're very comfortable with the 3-year CAGR we've talked about on the 6% to 9% organic growth. I'm sure we'll talk about a lot of the growth drivers and products. But the COVID-19 has been quite a big challenge for us, as I'm sure it is for most everybody. Starting in China, a lot of focus on our employees and our actions there. And you basically saw procedures slow down significantly in first quarter based on the impact there, most of our reps working from home, leveraging digital tools in the hospitals, managing the virus. And it's super early. There's maybe some hopes that the China situation is getting a little bit better, but it's been a significant impact since that call. And obviously, it's spread some of the impact to other regions in Asia and in Korea as well as some challenges in Japan and obviously in Italy. And now you're seeing all -- the impact in the U.S. with some hospitals preventing sales reps from entering in the hospitals and quarantine situations and so forth. So it's certainly been an evolving situation. When we look at it, we're doing everything we can to support our employees and our patients. We feel very good about the underlying growth of the core Boston Scientific business, ex COVID-19, but we continue to challenge -- be in a challenging situation. We're not going to reiterate our guidance at this point. We're not going to update our guidance from that February 5 call, and we'll do that on our April call.

Okay. So at this point, you said not reiterating guidance, but not updating at this point either.

Correct.

Okay. Perfect. So basically, I guess, it's a matter of seeing some obvious postponement of procedures in affected regions and just kind of continuing to see kind of an evolving situation. And it's just a little bit too hard to kind of see where everything's going to shake out.

Yes. Yes, we knew there would be an impact when we tried to frame the potential impact. It's been -- it's spread worse than that. And so at this point, updating Q1 full year at this time doesn't make sense for us. So hopefully, we'll be able to do that for you at our earnings call.

Okay. That makes sense. How do you think about just kind of I guess, big picture for you and your sales force and just kind of as you have all these products, just with all these medical meetings being canceled, just communicating to the physician community all these new products that you have? Because you do have obviously a lot of products, a lot of new data coming out. Do you feel like that, too, is a bit of a disruption to think about just from a big-picture perspective on -- and also kind of thinking about forecasting for the rest of the year as well, does that also give you a little bit of pause on some of the second half on inability to kind of go out and communicate, "Hey, we've got these new products in the pipeline," or "Here's some new data that could be coming out that could help to generate a bit of a momentum shift for the second half." Is that also weighing in on kind of the outlook?

I don't have many concerns about the ability to communicate to doctors about our products and our portfolio and clinical data. We have lots of reps around the world. They all use digital tools. They're very -- they have close connectivity to the physician community. So just because some conferences and meetings are being canceled, I don't think that -- it's certainly unfortunate because it's an efficient form to share that kind of clinical data and the product launches. But I think the -- there's enough connectivity with the physician community and digital tools and relationships where I'm not so concerned that the product, the new information and new clinical data will be communicated effectively. I think it's more on just the forecasting ability right now is a challenge given how dynamic the virus is. And as we said, we see some glimmers of hope in China, which is great. But in the U.S., obviously, is in a different situation now than it was even a week ago. So it's tough to call more on the forecasting, but less concerned about the ability to educate and detail our products to our doctors though.

Okay. And I guess, where would you see the greatest potential for disruption if you look across your business lines, just from a procedure or potential delay or deferment basis? Would it be -- cardio seems to me to be maybe not as elective, but there are some spots within there that maybe you could postpone. Maybe just talk there where you maybe have a little bit more of a difficulty in terms of being able to forecast. Or where might you see a greater ability of -- inability to, I guess, to forecast?

Well, in China, where the most impact has taken place, it's really impacted across the portfolio. As you said, we do have some products that are certainly less elective in cardiology, whether it be some defibrillator indications or MI. And so there's certainly some acute procedures that take place, given the patient need. But many of our products that the patients will defer, they ultimately will need. And that's why we're optimistic that many of these procedures, we'll continue to see in the second half that they're being deferred and not being completely eliminated. But specifically in China, it's really impacted across the businesses. And as you said, some businesses have slightly less impact, some segments of businesses based on whether there's acute need for patient PI, uro, endo, neuromod, many of these procedures are being deferred in China.

Okay. Okay. Maybe let's shift and talk kind of big picture and just kind of bigger opportunities over the next 5 years, kind of looking beyond the COVID-19 opportunity or disruption, I guess, rather. What would you say would represent, you think, the larger opportunity for you? Because as I look down the list, you've got quite a bit. If I look across the portfolio, obviously, WATCHMAN has been a very great product for you. You continue to do some selective DTC advertisements there. It's obviously a large patient population. You've got some additional trial work going on. You've got LOTUS and ACURATE. You've got disposable scopes. You have a number of new products within electrophysiology. You've been building out interesting portfolio within the area of interventional oncology. Rezum, maybe not necessarily quite the opportunity that you hoped initially, but it sounds like you're optimistic you can maybe get a little bit more growth out of that going forward. And I don't know if you thought about maybe if Medtronic's on-and-off med trial is successful, renal denervation, comes back. So I don't know where you want to start or what you think might be the most interesting opportunity for Boston Scientific or underappreciated by the street. Maybe just let's talk about what you find to be the most interesting.

Sure. Well, I think you went through a lot of topics there and that's why we're very optimistic about the future of the company because of all -- there's others to talk about as well in neuromod and so forth, but you laid out a bunch of them. And so we feel quite confident that we've said years '20 to '22, the next 3 years, will be better than the past 3. In terms of our organic growth profile, we targeted 6% to 9%. So we're optimistic that our organic profile will continue to increase during this LRP period, similar the past 2 or 3. We'll continue to improve margins, and we have a lot of -- our free cash flow is quite strong with less liabilities that were really hampered with some legal challenges historically that'll free up. So that's why we're overall optimistic on the next 3-year journey there. A couple of other key points there before we get to the pipeline. We continue to shift our business into faster-growth markets. CRM and DES, although important products for us for cash flow generation and to help fuel a lot of investment in those other areas as a percent of our mix, they continue to get smaller and smaller each quarter and all of the faster-growing businesses continue to get larger. So we have more access to free cash flow. Our growth mix is more positive, and we have a big pipeline that you talked about or you highlighted. So maybe just a couple of areas. The largest dollar grower likely in '20 and over the 3 years will be in structural heart, and it's led by WATCHMAN. So we've given guidance for 2020 of $900 million to $1 billion in structural heart, and that's really fueled by WATCHMAN, LOTUS, ACURATE and SENTINEL, and in the future, Millipede, in mitral. So I'd maybe just talk a little bit about WATCHMAN. That's the largest dollar grower of the group. And very excited about the momentum we have and we enjoyed in 2019 and in '20. And we're seeing increased utilization across all of our users -- not all of them, but almost all of our users in the U.S. And we're seeing excellent patient outcomes, more awareness and knowledge on the referring base of general cardiologists that are comfortable in referring WATCHMAN product because of the outcomes that they've seen. And we continue to expand our clinical indications by 2 big trials we're doing. You've heard about the CHAMPION trial to move into the lower bleeding risk patient population as well as the ASAP-TOO and the OPTION study. So I think we're doing a lot to grow the category, to increase the TAM for this business. And in addition to that, we have our next-gen product coming in the second quarter. And so we'll enjoy the benefit of that in the second half of 2020. And that product is doing quite well. It's called FLEX over in Europe. So I'll pause. I'm not sure -- I'm happy to talk about any other area that you want rather than me just going on and on here.

I guess maybe we could talk a little bit just about what you're seeing kind of within the TAVR business. I know that was an area where one of your competitors had highlighted and commented that maybe you were gaining a little bit more market share within that category. Where are you there? And you should have also ACURATE, too, in Europe. I guess midyear is what you're targeting. So how are you feeling with that?

Sure. It's one of the biggest investment areas in the company. We're the only company, and we're looking long-term here. So the short term, in 2020, we're essentially on our plan goals on LOTUS of 150 accounts opened in the first year, lots of focus on training in the U.S. Europe requires a little bit less of it because the doctors are more familiar with LOTUS in Europe, and we're seeing excellent PVL, and many doctors are enjoying the benefit of LOTUS, and we continue to get kind of smarter and better as we proctor our new physicians in the U.S. But we're the only company that has the intra-annular valve, which is LOTUS Edge and ACURATE. And what's important is we have nice product cadence behind each one of those platforms. And there's a lot of clinical work being done in intermediate risk with LOTUS Edge. And we're also starting our clinical trials in the U.S. with ACURATE. And then we'll have our ACURATE neo2 approved, hopefully, for the second half of 2020, which allow us to open up more accounts in Europe. And as I said, we've started the enrollment in the U.S. So overall, that category is growing nicely for us, and we're building momentum and more capabilities internally. And we have a nice product cadence behind it over the coming years. And we've also introduced the SENTINEL-protected TAVR study, and we're seeing continued momentum with the SENTINEL device.

Great. Maybe if we could just shift a little bit to EXALT. I know that was another product that you had that was going to be launching this year. You had FDA clearance in December. You were going to do a roll out this quarter. Obviously, now with COVID-19, I'm not sure if hospitals are going to be necessarily focused on rolling over a lot of new products or bringing them to the hospital. How should we just think about EXALT-D and just kind of uplift in 2020? Obviously, that's a big priority, a big picture of just reducing infections and whatnot in hospitals, and this certainly should gain momentum longer term. But how should we just think about that product?

Yes. So we're really pleased with this. This has been the largest R&D priority within endo for a number of years. And as you know, we have a lot of experience in launching this with our uro business and with LithoVue as well as with digital SpyGlass in endo. So we have a lot of capabilities internally in R&D, manufacturing quality with these single-use scopes and, as you know, we received the FDA breakthrough designation. We started shipping our first units very late December as well as the early part of first quarter here. And we're really essentially on track with our internal ramp plans, and you'll see this business continue to grow each quarter with a more significant impact in 2Q and, obviously, in the second half and excited. It's a large TAM. We think this, for EXALT-D, the duodenoscope, we think it's about $1 billion market opportunity, and I think we've detailed that in the past. We have a platform of additional launches coming with Spy Discover (sic) [ SpyGlass Discover ]. That'll be in the -- in 2020 for laparoscopy to remove gallstones, and then you'll see a bronchoscope the following year. And so with this platform, you'll be able to improve and reiterate the existing product, just like we've done with LithoVue and digital SpyGlass. So we'll be able to make enhancements to EXALT fairly rapidly as they're needed as well as launch new platforms. So we think this whole platform of these single-use scopes will be a significant value driver for the business. And it's a nice, big, unmet need for hospitals or for patients.

Perfect. And maybe can you just give us a little bit of an update on BTG and the acquisition? I know that there was a little bit of -- maybe took a little bit longer to integrate or close the deal. And so it was a little bit of a slower start there just in terms of maybe sales attrition on the BTG side. How are you just feeling about the combined outlook? I know there's also a little bit of concern just on the competitive landscape for treatments for pulmonary embolisms. How should we just think about that franchise and just the outlook there within the Peripheral Intervention business?

Yes, I would say that's really going quite well now. We have -- the deal did take probably 4 months longer to close than we wished, and that led to some sales force attrition, given the extended closing period. But now we're through all that. The commercial changes have all been announced and have been set in motion. And so all that good work's been done. The cost synergies are on track really per the deal model. And the rationale of this deal really is proving through. The biggest value driver beyond cost synergies in terms of growth with the Interventional Oncology business and then the strengthening of our portfolio in venous. And the Interventional Oncology business, in particular, is doing extremely well, the -- represents a close to $2 billion market. That's a high-growth market, and we have strong category leadership position now with our legacy products as well as BTG, and we're seeing very strong growth in our Y-90 business, which is doing extremely well, gaining market share there. And we're looking to expand indications in the future with Y-90 as well as to expand the geographic reach of that, whereas today, it's only in the U.S. So longer term, more growth in Europe and a big opportunity in China. So I think the IO business and the stretch -- the rationale for this has really proven to be quite solid. And then there's a nice product line coming. You'll see a new microwave product and enhancements to our cryo product as well. So we really have the most comprehensive portfolio with cryo, microwave, the Y-90 capabilities, combined with the legacy Boston IO business. So that's doing really well. There really was limited disruption in that area. There's a bit more disruption in the venous area because we had to reshape the sales force given the breadth of the portfolio with our arterial and venous businesses. We had some commercial work to do there, but that's been in place. And so we're very bullish that the PI business will grow faster each quarter in 2020. We anticipated a slower first quarter that we signaled at the earnings call, and we expect that business to accelerate growth each quarter as that integration continues to tighten up and we launch new products into a larger channel.

Okay. So I guess on -- with respect to just the EKOS product line, I guess, it does sound like there could be some risk with some newer companies coming to market. But it sounds like the real juice was kind of more for you within the Interventional Oncology business.

EKOS is important. The biggest value driver was the IO part of the business, but we're pleased with EKOS. We're pleased with Varithena. The spec pharma business is doing very well as a stand-alone business within the company. But EKOS, if you look at the whole venous marketplace, we're pretty well positioned there with our AngioJet, with our EKOS product and other enhancements that we have. And that's, we think, will be a multibillion-dollar market. It's very underpenetrated, and EKOS has excellent clinical data, and we have some new enhancements coming to the EKOS portfolio. Without a doubt, there are some other narrower-focused competitors in venous that'll be good competition for us. But we look at the market growth of that segment and the ability to expand this more globally. There's certainly room for -- there's room for competition, but we're very bullish on EKOS and the venous category in general.

Okay. Then just going back to the IO portfolio. I think there was -- there were a couple of studies that were supposed to read out. What are the latest on those studies, I think EPOCH and STOP-HCC? Do you have any update on those? Or I don't know if that's a little too granular.

There's not much there. When I talk to the team, they expect those studies to read out potentially in late '20 or more likely 2021.

Excuse me. This is the operator. The presentation is about to end.

So I guess, any closing remarks from you? I mean it sounds like in general, things within your control are going well. It just sounds like, obviously, external factors outside your control are just kind of, at this point, a little less predictable, obviously.

Well, I think we're managing it. We have very capable team. There's some unfortunate circumstances, but it makes the company stronger. And we'll do our very best to continue to hit the near-term commitments, but feel very comfortable and optimistic about the future of the company based on the momentum we have. We continue to gain share in most of our business units, and we have a very deep pipeline.

All right. Well, I appreciate your time this morning. Thank you for your understanding in making this go virtual. I'd like to thank everyone who is listening on the webcast. And I hope everybody remains healthy and safe wherever they may be. So thanks, Mike, for joining us this morning. I really appreciate it.

Okay. Thank you.

Thank you. Take care.

Bye-bye.

Bye. Bye.