Boston Scientific Corporation (BSX) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to Day 3 of the Stifel Healthcare Conference. I'm really pleased and glad to welcome Boston Scientific: Joe Fitzgerald, Executive Vice President and President of the Interventional Cardiology Division; Dan Brennan, EVP and Chief Financial Officer; Susie Lisa, Head of Investor Relations. This is a particularly timely discussion this morning given yesterday's announcement about the company's LOTUS TAVR valve, the decision to stop that program and focus on other growth platforms. But in no particular order, first of all, welcome to all of you. Thank you for being here. Really appreciate it.

Thanks, Rick. Thanks for the invitation. Pleasure to be here.

And Joe is a surprise guest, so it's fantastic to have you here with us today.

Joe, just maybe to start off. I was reflecting on it last night. Obviously, we've all been following the TAVR space for some time and watching decisions other structural heart TAVR-focused companies have made. And what did Boston think that you could achieve with a dual platform strategy? What was your thinking when the market leader ultimately felt that wasn't, in fact, the right way to go or not an optimal project? Just curious to hear your thoughts there.

Yes. So I think if you look at the market today, Rick, it's a huge market. It's growing faster probably than any segment of cardiovascular medicine. And I think we got it right at the outset with going after the intra-annular space because it was really us and Edwards. And today, that's 70% of the market. So I think our strategic decision 10 years ago was right. And then I think being opportunistic, because you also have a 30% segment, which is, again, huge, that's $1 billion-plus, in the supra-annular space. So I think the opportunistic move to buy Symetis and what we know today about ACURATE and ACURATE neo2, I think it was the right strategic move. Now we got some things to talk about on LOTUS and that journey and that decision. But I think we took a big swing at saying we're going to play in both of these huge segments, which are both growing fast and are both going to -- you know the growth profile and where you project the TAVR market. So I think it was the right strategy. It's obviously more difficult to go after 2 valves, but you've got 2 huge segments. And I'm not going to get into who predicts, is supra-annular is going to be 40% in the future, et cetera. We took a bet that we wanted to play both. And I think that was the right bet, albeit a more difficult strategy to execute.

No, that makes sense. And I apologize for asking, it's sort of a rude question, but what the heck took so long? I mean, the delivery issues have been front and center for years. You all are outstanding at manufacturing and so sophisticated. What took so long to make the decision to focus elsewhere?

Well, I think we have to get the valve -- and think about it this way. It is -- we purposely made this once we bought ACURATE. We niched this in Europe, right, just because of the COGS profile, et cetera. So we have prioritized ACURATE neo from the day we bought Symetis in Europe. And we really had to get LOTUS into higher-ASP geographies like the U.S. and like Japan. So really, when you think about it, with getting approval in April and then going into our limited market release a few months later and then really full launch this time last year, right? So we've had essentially 12 months. And oh, by the way, COVID is right in the middle of those 12 months. But we needed to get the U.S. experience to determine what's going to be the rightful place in the universe for the LOTUS valve. And the decision we came to after thousands of implants, we launched about 100 accounts in the U.S., was that LOTUS was going to remain a niche, a really important niche for a subset of patients. And that's the physician feedback we can get into later. But it is going to remain a niche. And it took launching in a country like the U.S. for us to figure that out because of the past of what we purposefully did in Europe. So I think, you look at it, and I think I would characterize it as it took us about 12 months after full launch to fully evaluate LOTUS, to fully understand ACURATE neo2. And Dan said it before, the easy answer would have been just keep going with both, but -- and let the market shares and which one's a workhorse or a niche. We know today that ACURATE neo2 is a super workhorse valve, right? And we made the decision largely based on the niche status of LOTUS and where we're projecting it to go. And we had to have we had to have the U.S., broad, high-ASP country experience to get to that decision.

Right. And you touched on it, and I'm glad you did, Joe. What has been the reaction that you've gotten so far? Have people -- are doctors beating you up? Are they glad you did it? Are they concerned that you don't have a TAVR device today? What's the customer reaction?

So obviously, we spent the majority of yesterday and the rest of this week talking to our physician group. But I want to step back for a minute, Rick. And I think one of our hallmarks at BSC is we are super close to our clinical customers, right? So in reality, the physicians on our advisory boards, our executive physician counsels, et cetera, right, they helped us make this decision because we've remained so close to them. So to many, right, this was not a surprise because these are large TAVR coronary therapies KOLs. And after they got their experience, they helped us come to the decision that it's a highly niched device into these difficult patient characteristics. Are they disappointed? Yes, because of that older, highly calcified bicuspid, it is clear LOTUS works better than anything in the world in those patients. So I would say, disappointed? Obviously. Surprised? Not really. And I think they've also helped us come to the conclusion that if we're going to win in TAVR and structural heart, we need more focus. And then that points to all of the feedback that we've gotten as U.S. physicians have gotten their hands on neo2 and the IDE. And now that we're a few months in, we'd already done a premarket study in Europe, but the feedback in Europe. I think that made it obvious for us.

Yes. Joe, we've known each other a long time. I've been lucky enough to see and observe and witnessed a great job you did on the CRM side of Boston and through some complex and challenging times. But again, to ask it in sort of a rude way, which is more fun for me. What in the heck is the CRM guy doing on interventional cardiology? And what should I understand that you bring to this field, after all these years on the electrophysiology side, that should give me confidence that you're going to drive this thing forward and make it all work?

So I'm smiling, Rick, because that's the same thing when I went over to CRM, they said, "What the hell is a cardiovascular guy with a little bit of EP experience know about CRM?" So I've heard that question before. And I think the answer is this, right? So I spent 20 years in the cardiovascular space prior to going over to run CRM in 2011, okay? In 2008, I formally joined the CV management team with Hank Cushman, right? So I have been deep in Boston Scientific's broad cardiology, spanning peripheral, rhythm and interventional cardiology literally for the past 12 years, right? The other thing I will tell you is keep in mind that for the vast majority of WATCHMAN's life, I ran WATCHMAN. And that pulled me directly into super close collaboration with the IC team. Because as we've said, it's about half and half in terms of who implants a WATCHMAN. So I think the short answer is, prior to going to rhythm for 10 years, I was 20 years in cardiovascular. And there are a lot of similarities when you think about big, highly profitable markets like interventional cardiology and CRM, but they're slower growth. And then when you look at WATCHMAN and structural heart, they look very familiar to me to the EP journey that we've been on, fast, high-growth markets that you just got to have that -- you got to have the management team and the management sort of agility to operate across both. And I think we have that both in rhythm and in interventional cardiology.

Yes. And at a high level, Joe, just briefly because our time is short. But after a short time there, what are your -- what's your -- what's the Fitzgerald platform here? What are your priorities? And you're a fresh pair of eyes. What do you see? And what are you trying to make happen, again, that's going to drive that solid, hopefully, above-market growth, which we'll come back to, looking ahead for years to come?

Okay. I could go on for an hour on that, so I'll try to make it really brief, right? First, and it's the same formula I think we run across all of BSC. I think Mike has really made this sort of the way we do this, the way we do things at BSC. First, we have to have the right people in the right jobs, right? And I walked in here 6 months ago, and I'm telling you, our Interventional Cardiology Group is as stacked with talent as our Rhythm Management Group was when I left it. That's a really good thing. Because when I first took over rhythm, I would not have said that. But I can clearly say it on my exit of rhythm. When I walked into interventional cardiology, top-notch talent, top-notch leadership, top-notch people. Secondly, right, we have to remain focused on innovation. And if you look, whether it be in our Imaging Group, our Plaque Management Group, our DES Group, Structural Heart and WATCHMAN, we have to innovate, right? We're never going to achieve growth at the top end of our peer group or better than our peer group if we don't keep our innovation machine running. So I think, honestly, if I picked 2 things, that's it. And I like what I see, and we've got multiple high-innovation projects in all of those areas that I've talked about, for instance, at the TCT webinar. I'm just -- I'm -- we've got more things. Our biggest problem is how do we whittle our list down, right, and make sure we're working on the top x projects? And why have we, call it, defocus some of the other ones.

Got you. And yesterday, Mike highlighted why you like the ACURATE valve platform. ACURATE neo2 launching, it sounds like it's going really well. But inevitably, The Street looks to -- just I think human psychology. You look, "Oh my God, LOTUS is gone." We saw 2 data sets over a 12-month period for Gen 1. I understand why, but not ideal data sets. Why do you think -- why -- what's your case that ACURATE is that workhorse and it's going to win for Boston Scientific?

Yes. I think Ian gives a great answer to this, so I'm going to parrot him. Number one, you got to remember, SCOPE I and SCOPE II was a first-gen ACURATE against third-gen or second-gen products. And I think, on the physician panel, many said, "if you would have run the same study, Sapien versus Sapien 3, you would have had similar outcomes," right? So first point, SCOPE I, SCOPE II, there are a lot of things we love about that data set. We don't like missing the primary endpoint, but I think it points directly to the big change on ACURATE neo2, which is PVL. Right? So we have a 60% larger skirt on neo2. We've seen that in the European pre-market. We've got hundreds of patients enrolled in our IDE, and now we're beyond a few hundred patients in our CE Mark -- post-CE Mark launch in Europe. So -- and again, I won't repeat everything. You've heard us say it before. But PVL is a big thing in neo2, really big improvement.

Okay. And sort of a broader question. I don't know if this is for you, Dan or Joe. Have at it. But again, inevitably, a highly visible disappointment like LOTUS, the SCOPE early data, it makes people question Boston's ability to innovate successfully. I mean, it seems illogical to me given the scores, hundreds, thousands of successful product technology launches. But Dan, does it say anything about Boston and its ability to take on programs like this and complete them successfully?

No. Frankly, I think I hold the same view that you do. Because as you look at the diversification and the pipeline and the portfolio across the entire company, and I'm not going to go through and name all of them. But if you look at EXALT and RANGER and Eluvia and SpyGlass and WATCHMAN, all the different areas of innovation, and I missed a bunch, obviously, I feel very good about the pipeline and the portfolio and our ability to innovate and execute. I look at the LOTUS situation as one where, right decision to make, tough call. We made it and we'll move forward. It'll provide a little bit more opportunity for us to invest in other areas, both within Joe's world as well as outside. And I'm confident in our ability to continue to execute and innovate.

Yes. I would add to that, Rick. I think the totality of the evidence, and I won't list them all, but look at what PI has done in drug elution, interventional oncology, leader in arterial, leader in venous. Look at CRM, we're the only company, I think, that we can say actually took share over the last 5 years while doing multiple acquisitions, from S-ICD all the way through the Cryterion and the pending Farapulse potential. And then you look across this very complex suite of things that we do in interventional cardiology, everything from WATCHMAN to intravascular imaging, and I think the totality of evidence really points to BSC executes better than our peer group. And then you throw in the fact that -- look at what we've done with acquisitions, how we bring them in, how we nurture them, how we transfer them into our plant network. And I think it's the exact opposite. And then I'll close with this. I think if you look at -- others have tried, one of our major competitors in structural heart tried to achieve a mechanically re-capturable/reposition. So you can look at LOTUS as half empty or half full, right? And I look at it and say we took an incredibly complex technology and actually got it approved all over the world and got it to market. And then we made the decision, and there were bumps along the way. But I think -- I look at that as, what did we learn? What kind of capabilities did we build along the way to be a structural heart valve player in the future? I don't like the outcome on LOTUS, but it's prepared us for the next couple of decades in terms of our leadership journey there.

And Rick, I would just probably add, probably one of the better examples we have in the company is within neuromod, the DBS franchise. We started that from scratch, on our own, and now have taken a significant leadership position in that market. And we'll continue to launch new technologies through 2021 and beyond. So if you're looking for kind of the poster child of does Boston Scientific innovate well? That's a great case study to go and look at. And we can say what we want. But I think also by the numbers, if you -- I mean, COVID's obviously impacted the entire industry and beyond. But if you look back to the 3 years prior, '19 backwards, we grew at 7.3% organic revenue, and that's kind of at the top of the peer set. So -- and obviously, COVID has challenged everybody in 2020.

Rick, I'd add single-use scopes to that list of internal innovation as well, right up at the top.