Boston Scientific Corporation (BSX) Earnings Call Transcript & Summary

Okay. Good morning, everyone. My name is Vik Chopra. I work on the medical supplies and devices team at Credit Suisse. Very happy to host Boston Scientific this morning. We have Meghan Scanlon, SVP and President of Urology and Pelvic Health as well as Susie Lisa and Lauren Tengler from the Investor Relations department. So Meghan, thank you once again for making the time. We really appreciate your participation this morning. And I think we can just start it off with some Q&A perhaps.

Absolutely. Thanks for having me, Vik.

Yes. Of course, of course. And then just kind of looking at overall general trends on -- in the business that you run, the Urology and Public Health business. Just kind of help us understand how that business has been affected by COVID-19? And which franchises are sort of driving recovery and which ones are still playing catch-up?

Absolutely. So maybe what I'll do, Vik, is let me start with just a reiteration of a bit of the mix of our business. So the different franchises that we have are kidney stone franchise, our men's health broadly. Within men's health, there is BPH, prostate cancer and a category we call prosthetic urology, which serves urinary incontinence and erectile dysfunction. And then we also have a small women's health franchise that is focused on stressed urinary incontinence. So that just gives you a grounding for what our business composition looks like. And that's an important backdrop as I talk about what the COVID impact has been and the recovery. So what I'll say is that the COVID impact has obviously been quite meaningful as it has for all in medical devices. But I will say that the urology business end market has proven to be much more resilient than we had actually originally anticipated. So there's without a doubt, like at its nadir, if you will, our business was down 60% in April, right, at the height of the COVID crisis. But we saw a very rapid uptick in both our kidney stone and prostate cancer franchises, right? Because while many on the surface might look at our business as being more elective in nature, and yes, that's true when you look at parts of our portfolio like stress urinary incontinence, BPH, erectile dysfunction, when you look at patients who are suffering with kidney stones, if you have a friend who's ever had a kidney stone and an emergent kidney stone issue, that is not something oftentimes that can be delayed. So the pace of our kidney stone recovery was quite nice. Additionally, prostate cancer, while that is a slower growing cancer and oftentimes patients can wait a month or 2 for treatment, typically, they don't want to and they're very eager to get their treatment regimen underway. So we saw a very nice return of our business really in Q2. Ultimately, while April was sort of at its lowest with minus 60%, our Q2 ended at minus 32%. So you get a sense for the kind of recovery that happened coming out of that dip in April. And then in Q3, we saw almost flat, so minus 1% growth. And what was fun to see in Q3 was our business like our ED business, our BPH business really starting to contribute to the recovery, which was wonderful to see that patients were finally able to get the treatments that they were seeking for so long. Oftentimes, the journey for patients in those categories is multi, multiyear journeys. And once they make the decision, they want to have a final therapy. It's in their and their physician's best interest to get that treatment done pretty swiftly.

Great. That's super helpful color. So just sticking to kind of the trends you saw in Q2 and Q3 and with the recent COVID spikes we've kind of seen flare up across parts of the U.S. and across the world, how are you thinking about performance in Q4 and kind of your expectations for the next couple of months of the year?

Sure. So we continue to see a recovery of the business, which is great. Obviously, with Q4 around the world, we're starting to see some heightened COVID restrictions being put in place, particularly in Europe. I would categorize it as to -- as premature for me to comment on what we believe that impact is going to be at this point. There's obviously just some sustained variability there. But in the U.S., even with some COVID flareups, what we're finding is given the highly -- given the fact that most of our procedure base is outpatient, very little of our procedures require an overnight stay. I mean we're talking single digits of our procedures that require an overnight stay. That office-based and outpatient procedure has proven to be a characteristic of resiliency for the Urology and Pelvic Health business. So for us in Q4, we aim to grow, and I think that's consistent with what we've said externally. And I'm really pleased with the recovery that I continue to see. We see Rezum, for instance, in Q3, which is an acquisition we made now almost 3 years ago, had its best quarter ever in Q3, right? So you talk about the momentum that's starting to build across the business. It gives me a lot of confidence in what Q4 will look like for this business.

Great. And just talking about your different care of settings, outpatient, ASCs, in the office, just kind of help us understand the site of care for the various procedures and kind of trends in mix. Perhaps which one you said was high single digits or perhaps which ones are -- do require an overnight today and how often?

Yes. So I'd actually probably characterize it as mid-single-digit procedures that require an overnight stay. So that would largely be in our kidney stone franchise. So most kidney stone procedures can be done on an outpatient basis. And they are done in both hospital outpatient and ambulatory surgery centers. So we have a big customer mix in the United States called LUGPAs. These are large urology group practices, which are done in an ASC setting. Now within kidney stones, there's a small subset of procedures, percutaneous nephrolithotomy. So it's PCNL, where they have to actually go through the kidney to be able to get directly at the stone and break that up. Those procedures typically require an overnight stay. But they are a much smaller mix of our product -- or procedural offering. For BPH, most of that, I'd say our Rezum procedures are almost all done in the outpatient -- I mean, in the office setting. And then GreenLight, which is our surgical solution, that is done either in a hospital outpatient or an ambulatory surgery center. So BPH is mostly outpatient. On our prosthetic urology business, those are done both in a hospital outpatient setting and in the ambulatory surgery centers. Occasionally, depending on if the patient has some comorbidities or areas of concern, you might keep a patient overnight just to watch them. Those are some of the procedures that we might see getting delayed during intense COVID times. And then, lastly, our prostate cancer franchise, that's almost all outpatient -- office or outpatient. So many of those procedures that hydrogel is able to be placed in an office setting, it's a relatively quick procedure. No overnight stay required. So that outpatient mix is a big part of, I think, of what's fueling our recovery because we go nowhere near any kind of overnight stay capacity demand in the hospitals.

Right. Right. Okay. That's helpful. You talked about Rezum, the acquisition's about 3 years ago. Are there any sort of other opportunities for additional tuck-ins or perhaps platform investments in the Urology and Public Health business?

Yes. Actually, one of the elements of Urology that's quite exciting for me as the leader is I think there's a number of compelling opportunities for us to expand our portfolio, both organically and inorganically. So let me talk first to -- we made 2 really important acquisitions in the last couple of years, in Rezum and SpaceOAR, that built up our prostate health franchise. And that franchise is truly one of our most exciting growth drivers for the division and for Boston Scientific. In addition to that, and we've talked about this externally before, OAB remains a large untapped patient population in an area we have some smart venture capital bets for the future. So I'm not in a position to talk in any more specificity beyond that, but that remains an area of adjacency. And there are also multiple platform tuck-ins that we continue to actively scan and assess. But aside from acquisition opportunity, I'd say there's a lot of organic innovation opportunity that lies ahead of us. So when you look at the 3 patient-facing markets we serve, which I would -- which are BPH, prostate cancer and ED, right? Those are 3 patient-facing markets we serve, which we see great innovation opportunities. These are large really untapped patient populations, and we have exciting things happening in our pipeline against all 3 of those opportunities. But then -- even when we go to kidney stone, we've -- in our Investor Relations Day, when was that, last year, Susie, I forget what month it was. We talked a lot about transformational innovation we're making in a platform called StoneSmart. So StoneSmart is reimagining the way flexible ureteroscopy can be done to bring efficiency, safety and improved outcomes to the entire ureteroscopy suite, with imaging, with energy to break up stones and with fluid management to make it all go faster and safer. So that's a big part of our R&D investment. That's going to give us a lot of runway for growth in the future.

Meghan, could you -- you touched on efficiency. Could you just talk about some of the throughput issues on the Stone side? I don't think people are familiar with that.

Oh, happy to. So fun fact about urology is it's actually one of the specialties that I think -- and I apologize, the stat, if I recall, it's for every 10 urologists that are going to retire, only one is coming into the specialty yet the patient population is growing, right? So urology burnout is high. Capacity demands are starting to become real. And so we see this as an opportunity to make flexible ureteroscopy become a much more predictable and reproducible procedure. The biggest time sink and the biggest source of frustration and variation in flexible ureteroscopy is the time it takes to break up kidney stones, right? So they can go in there with lasers or mechanical baskets to try to pulverize these stones into small enough fragments to be able to either suck them out with sort of fluid or go in and basket them out one tiny bit at a time. And so we aim to reduce the length of these kidney stone and flexible ureteroscopy procedures, say that 5x fast, it's not graceful. We aim to reduce the time to do those procedures by upwards of 50% is what we're really aiming for because we need to make sure that for the urologists that are doing these procedures, we can allow them to treat as many patients as possible. Did I freeze?

Yes, you froze.

Okay. I'm frozen on mine. But can you hear me?

We can hear you fine.

That's -- I can hear you fine. Yes.

And there's my bedroom. So I'm going to try to -- it does this all the time. So we will put that back. Okay. All right. There we go. I made my bed. Yes. So Susie, to your -- I think I probably hit that question. Huge opportunity to drive throughput, to treat more patients in a specialty that has been, I think, underappreciated by hospitals. Interestingly enough, urology is one of the most profitable service lines in some hospitals. And so we're doing a lot of work with hospitals across the U.S., in particular, to help educate them on that, to understand the types of investments that are going to be needed and warranted for this patient population and the specialty.

Great. That's super helpful. Just perhaps switching gears to products and pipeline. You've talked a fair bit in the past about your single-use scope strategy. I'm just kind of wondering how that has evolved at all during the last 6 to 9 months during the pandemic, if at all?

So our single-use scope strategy hasn't changed. If anything, I'd say our commercial performance has delivered sustained double-digit growth in that single-use scope category. I'm actually happy to let you know we just surpassed 200,000 procedures done with LithoVue since its launch. We're in the fifth year of launch now with LithoVue, and to see the kind of sustained performance is really encouraging. And it's encouraging for a few reasons. One is LithoVue has been a big part of helping to lead our recovery as physicians really see the benefits of speed, ease of use, and importantly, sterility, right? Against the backdrop of a pandemic, sterility is really a message that resonates a lot with our clinical stakeholders. And our strategy hasn't changed. If anything, we're trying to lean in faster and harder to accelerate it, which is to take our LithoVue platform and leapfrog the category that we created to the next level. So we're working on the first-of-its-kind flexible ureteroscope that will bring pressure-sensing capability into the market, right? How you manage pressure in the kidney, the kidneys are really important organ. You don't want to put too much pressure into that important organ. And so giving clinicians the ability to monitor real-time that pressure is an innovation that we're going to be introducing into the market late next year. So we have actually leaned in harder and faster on that program during COVID times to make sure that our innovation engine at BSC doesn't slow down.

Great. And just wondering how you've addressed some of the challenges around premium pricing in this category. What pushback have you received from physicians or hospital systems? That will be super helpful to know as well.

Yes. Yes. There's always going to be an important conversation around price. And for us, it's important we pivot the conversation from price to cost. While it seems like they're the same thing, they're absolutely not. And so we do a lot of work in partnership with leading academic institutions to look at the overall cost advantages to deploying a disposable flexible ureteroscope. Those cost/benefits can come from a couple of different avenues. Reusable flexible ureteroscopes can break very frequently. Those breaks require -- they -- actually they cause -- when it happens during a procedure, it obviously delays the procedure time. You then have to send those scopes out to get repaired. And so there's a whole infrastructure associated with the maintenance, the cleaning, the repair of those scopes. So that's one element. And then the other is really is procedural efficiency and what you hear from physicians doing flexible ureteroscopy. So if you look at the kidney, there's all these different torturous angles where the kidney stone can hide and clinicians need to aggressively torque these scopes. So oftentimes, it's like a 270-degree angles to be able -- and hold it there to be able to get at these stones. And LithoVue does a beautiful job of being able to kind of -- it's very battle worn, because it only has to do it once, right? It only has to do it in that one procedure. So we have very comprehensive health economic conversations with our customers around the economic value of LithoVue, not the price point of LithoVue, right? Obviously, price is an input, but there are so many other inputs as well. And we have found -- and we look at a lot of different creative contracting strategies with our customers to look at various ways to deliver value across the whole kidney stone procedure, which is inclusive of LithoVue.

Okay. Maybe switching gears to EXALT-D, everyone's favorite topic. I think in the last call, you said about 100 or 100-plus accounts sold so far. I'm just kind of wondering how does that compare to internal expectations? Is that kind of where you want it to be at this point in the year? How has kind of COVID impacted that as well? And then I had a follow-up after that.

Sure. So I'll take that one. I think as we said, we're really encouraged by the opportunities Meghan said. The pandemic certainly has heightened the backdrop for concerns about sterility and avoiding contamination. We did say it's taken kind of 4 to 6 months out of our launch time frame just given how hospitals were solely focused on COVID initially in developing protocols. It was hard to introduce new technologies that weren't explicitly related to COVID, but that it certainly does heighten the need over time. And we're really pleased by the physician feedback and the tools and workarounds that we've developed here at Boston Scientific so that we can do things like remote installs in this type of environment to help ease some of the challenges as a result of the pandemic. And then I think, too, that performance continues to be very good and getting the transitional pass-through payment awarded by Medicare for the outpatient side of things is certainly both, I think, a strong testament to the newness and opportunity in the market and it also, frankly, on the outpatient side, essentially eliminates any sort of price hurdle. As Meghan said, our focus is on the health economic benefit overall with many of the same advantages she discussed with LithoVue. But essentially, it takes costs out of the equation in that Medicare outpatient population and that's certainly a nice tailwind for launching a new product. So I think pleased overall, and these are very long-tailed opportunities, as Meghan described, with LithoVue and we're excited near, medium and long term.

Great. And just on the account opening process, I mean, how has that changed, I guess, this year as you kind of doing it mostly online or digital? And just if you can kind of help us understand the number of accounts you're targeting over the next couple of years? You said it's a long-tailed opportunity. So I'm just wondering, I mean, obviously, 100 is not the be-all, end-all. But just kind of where are you expecting to get to by the end of 2022? And how many accounts we expect to penetrate?