Boston Scientific Corporation (BSX) Earnings Call Transcript & Summary

Good Morning. I'm happy to kick off day 3 here with Boston Scientific. I'm Robbie Marcus, medtech analyst at JPMorgan. Very happy to introduce Mike Mahoney, the CEO of Boston Scientific. And afterwards in Q&A, we're going to have Dan Brennan and Lauren Tengler join us as well. But with that, Mike, I see you're in San Fran. You're ready to go.

I am.

I'll hand it off to you.

We're planting the flag in support of your meeting here. Well, thank you, Robbie. As you know, it's a -- we feel honored to help represent Boston Scientific at this JPMorgan conference. For those who are less familiar with it, it's a very exciting company, very innovative, focused on patients. And obviously, there's been some macro challenges over the last few years with COVID and supply chain challenges. But I can tell you, I really feel like our team is stronger forward with the capabilities that we built, and really have never been more confident in our plans for '22 and the LRP that we laid out at our Investor Day. And I'll share an overview of the company in about 20 minutes here as quick as I can and look forward to any future discussion. On the next slide, you see our safe harbor and our forward-looking statements. I clearly won't read that for the sake of time. On Slide 3 is a nice list of our regulatory disclaimers. And then on Slide 4 is a hefty list of some financial disclaimers at your disposal. So hopefully, that covers all of those pieces. Now getting to just a high-level overview on Slide 5 lays out our mission and values, and you may see some similar slides from some other companies. At the end of the day, our employees are so motivated to help patients and advance science for life, and we'll be approaching over 35 million patients served I think as we exit 2021. And we have a diverse global business of about 130 countries, and these values really unite our employees around the world. As carrying values, meaningful innovation, high-performance, global collaboration, diversity and a winning spirit. And we're really proud of the culture that we have with Boston Scientific, and we have extremely high employee engagement broadly. So these are very important to us, and we bring them to action in our daily work. On Slide 6 is a 1-page overview of the company. And I have a future slide that will show the sort of market growth. But the summary is, in 2021, we estimate we're -- we compete in a market that has over $50 billion growth market, with a WAMGR, a CAGR of approaching 6%. And so 6% as you look at the '21 to '24 LRP period. And that's quite impressive given the improvement of market growth rate in our served markets. You see these businesses outlined across this diagram. And really what connects these businesses together is we're primarily an interventional medicine company. And as you look to invest over the LRP period in the long term, I think that's a excellent tailwind for the company because we have minimally invasive technologies to treat unmet needs and patient conditions. And also, in terms of the economics for hospitals, we really support the productivity and cost effectiveness that they need given that many of our procedures can be done in the same day. And you've seen a significant shift that way during the COVID period. There are overlapping call points. I won't go through each business, but there are overlapping call points, clearly, in our interventional cardiology, peripheral intervention, cardiac rhythm management and electrophysiology. But also, it's important to note that we leverage a lot of capabilities across these businesses, whether they be therapeutic capabilities in RF, cryo, microwave, postural ablation, sensors, leads, microprocessing. So there's a significant amount of R&D leveraging in our quality and ops groups beyond our common call points in many of our businesses. So an exciting set of portfolio. On the next slide, Slide 7, is a 1-page summary of our historical performance and our forward-looking outlook that we presented recently at our Investor Day in 2021. And you can see prior to COVID, we had a nice cadence of increasing our organic growth profile for many years. And in 2017 through 2019, our organic growth rate, excluding acquisitions, was a little over 7% organic. Obviously, 2020 was a challenge. And then we provided our guidance in 2021. And I'm not going to share our fourth quarter sales performance today at this conference, yet we're very comfortable with the guidance range that we provided for the fourth quarter and for the full year 2021. And then going forward, we've laid out a 6% to 8% growth CAGR during the LRP period. If you look at the middle column, we've had a really nice track record of improving operating income margin prior to COVID, yet you've seen some nice improvement over the past 12 months in particular. And we maintain our goal of increasing our operating income margin in the average of 50 basis points a year, clearly through this LRP period. And even with that, we aim to get to a 30% number. And we look forward to a consistent march of improving operating income margin while growing faster than our peer group. And obviously, that combination will deliver strong double-digit adjusted EPS growth. Very excited about the financial outlook for the company. On the next slide is maybe the slide I'm most proud about and really highlights the shift that we've purposely undertaken quarter after quarter, year after year into increasing our WAMGR as a company. As I said in the first slide, we now approach about a 6% market growth rate that we anticipate in this LRP period. And that's been through consistent portfolio management, some divestitures, a number of acquisitions, R&D investments in organic markets that grow faster than our corporate average. And you've seen a consistent shift quarter-over-quarter in the growth rate of the company. And now you're seeing likely sub 20% of our portfolio sales mix will be in slower growth, low-growth markets. And for example, in 2021, we did 5 acquisitions. All those companies compete in markets that are accretive to our market growth rate. So you continue to see us do this over the LRP period to enhance the growth profile of the company while driving our category leadership strategy that I'll outline. On the next slide, sure enough, that's what we're going to talk about. Medtech, for me, it's clearly about engagement employees, having a talented team that's highly motivated, and innovation, innovation around the world whether it be organic R&D, whether it be M&A or venture portfolio or many strategic alliances that we have with incubators. We've created a number of spin-out companies. And it's really seeking innovation globally relentlessly to continue to drive our category leadership plans. On the left side, you see our internal R&D investment rates. That are slightly higher than our peer group. And we've had quite a cadence of tuck-in M&A activity, and I'll highlight these 5 companies in the next slide. And overall, you see we'll continue to be acquisitive with smart tuck-in M&A to accelerate our growth profile and provide differentiation in our portfolio. You see the number of acquisitions that we've done over the past 10 years. And the venture portfolio has been an excellent source of finding these activities. And you see, 7 of our 14 most recently closed M&A deals came from our venture portfolio. And I believe 3 of the 5 that we did in 2021 came from our venture portfolio. And we have a very strong mix of future venture portfolio opportunities that many of our potential M&A activities will come from. Our next slide is a little more detail on the 5 deals that we did in 2021: Preventice, Farapulse, Lumenis, Devoro and Baylis. And I'm really excited about, as you might imagine, these set of companies. Preventice adding significant diagnostics capabilities with our LUX platform with CRM. Farapulse, we think could be a game changer in the pulse field ablation market, which really can transform the EP business for Boston Scientific and for patients and physicians. Lumenis, Devoro Medical and Baylis Medical, which has not closed yet, but we anticipate that closing in the first quarter. And also, besides, as I highlighted, these companies are all accretive to our market growth profile. On a pro forma basis, these acquisitions will add over $600 million in revenue in 2022, as I said, all within accretive growth markets. So I'm really excited about this. And really, the team's capability to integrate tuck-in M&A, I think we've become quite good at it globally. We have a nice recipe for it. And these integrations except for Baylis, which hasn't closed yet, are really going quite well. On the next slide, Slide 11, shows the key growth drivers for MedSurg. So the next 3 slides, I'm going to go super quick. But it just really highlights the key growth drivers that you'll see in 2022. Previously, we've done our Investor Day which is a little more long-term oriented. You can find that in our Investor Relations website. But these highlights our '22 key drivers. Really, we're extremely strong category leaders in Endo. This business continues to have a market growth rate of 6%, a strong #1 position. And you see the diversity of the portfolio that we offer in endoscopy, which, quite frankly, is highly differentiated from our peer group. And we really provide an end-to-end solution for our hospital customers in pancreatic, biliary, GI cancer and bleeding, single-use capability, pulmonary and infection prevention. And similarly, I would say we have a similar position in terms of our strong category leadership in our urology business. And primarily, this has been done historically through very strong M&A activity. We've had less so in our Endo business. But with the recent acquisition of Lumenis AMS space, where we really have the most comprehensive portfolio for urology customers in stone disease, prostate health and prosthetic urology. Both of these businesses are primarily more oriented to 510(k) regulatory pathway. We invest higher than our peer group in R&D and also have some more significant scale. So these are 2 very strong, high-performing companies that we continue to expect to do so in '22 and beyond. On Slide 12 is our cardiovascular group, and heading off this is LAAC, which is likely one of the most important growth drivers for the company. And this product continues to build strong momentum. We have over 200,000 patients that have been implanted. We had great momentum in 2021, and we continue to expect that in '22 and beyond. We're excited to receive the -- we anticipate having to adapt approval on label in the first half of 2022. And we have a strong cadence of portfolio enhancements and clinical trials to expand the indication for this key growth platform for us. And we're excited about launching WATCHMAN FLX in China in a full year and Japan in 2022. A lot of progress with our ACURATE neo2 TAVR valve where we're enrolling our clinical trial. And our team continues to invest in our Imaging and Coronary Therapies business. And our complex PCI and Imaging business is now greater than -- 50% greater than our drug-eluting stent business globally and provides a differentiated capability for the company. Our Peripheral Intervention business has really had very strong performance during COVID as well. And we break out in these 3 segments: arterial; interventional oncology; and venous, with Eluvia and Ranger, very differentiated drug-eluting portfolio. And the acquisition of BTG has gone extremely well with TheraSphere Y-90, and we continue to expand that one globally. Our next slide, Slide 13, is, again, is a 20,000-foot view of our Rhythm Management and our neuromodulation companies. A lot of activity in the portfolio in this area in 2021 occurred that we look forward to fostering in '22 and beyond. Specifically, we are confident this business will grow, given the market growth dynamics, the CRM are not as strong, essentially a flattish growth market. We're pleased to really invest more significantly in diagnostics and electrophysiology, which are very high-growth markets. And in '21, as I mentioned, we had the acquisition of Preventice, with their deep portfolio of diagnostic capabilities from long-term Holter short-term Holter and MCOT devices. And our LUX platform has really done a really nice job in terms of cardiac monitoring. And when I may be most bullish in the company is the opportunity, assuming that we execute well, for us to really disrupt and be a much stronger significant player in the high-growth EP business. And really, that will be on the tails of some significant capability that we will have with the Baylis acquisition once that closes, given the momentum that Baylis has in EP with -- and WATCHMAN and structural heart, the Farapulse platform, which is approved in Europe. And we anticipate we'll enroll the first -- finish enrollment of the clinical trial likely in the first quarter of 2022. And the POLARx Cryoablation. So really a transformative portfolio that we look forward to selling in Europe in '22 and bring into the U.S. as quickly as we can as we go to the clinical trials. The Neuromod business has been more impacted by COVID over the past 2 years, but continues to gain share against our competition based on the innovation and the commercial excellence that this team has, despite the COVID headwinds that we anticipate will be hopefully easier in 2022, driven off the WaveWriter Alpha program and our fast algorithms in our Vercise Genus deep brain stimulation. On the next slide, just moving away from pure product portfolio, just a 1-pager on our digital capabilities. During COVID, like many companies, we pivoted to significantly stronger investments in digital across the company. And you see the 5 pillars that we focus on: driving patient engagement through our patient awareness apps; and capabilities with WATCHMAN, for example, in pain; and really driving a much more comprehensive global education capabilities for our physician customers, hospital administrative customers and internally; always focusing on driving sales rep productivity; and really, like many companies, leveraging that the incredible capabilities of AI, whether it be in our sensor portfolio, whether it be in our algorithms with Preventice and CRM, or whether it be looking to automate some of our quality capabilities in our manufacturing plans by leveraging AI capabilities. And ultimately trying to make our company easy to work with for customers, whether it be on EDI automation, e-commerce or a lab agent. So you continue to see us invest in these areas. And also, this will be a source of productivity for us as we seek to continue to enhance our SG&A profile. On the next slide, Slide 15, is just a snapshot of, again, of our historical financial performance in 2017 through 2019, the '21 guidance, which I indicated, we're very comfortable with the guidance that we provided for fourth quarter and for full year. But the details of that in terms of specific business unit performance, specific EPS and so forth will be highlighted at our first quarter earnings call -- I'm sorry, fourth quarter earnings call, which will happen in February. And you see the long-term goals that we have in '22 and '24. Simply put, growing 6% to 8% organic, excluding the acquisition activity faster than our peer groups, improving operating income margin, driving double-digit EPS growth. And also, what we're very quite proud of is the strong free cash flow of the company, that we estimate it will be in the $2 billion range in 2021. And also, less of a burden of legal liabilities in '22 and going forward versus what we faced, quite frankly, since I've been with the company now for 10 years. We'll continue to do tuck-in acquisitions that make strategic sense, a strong return on invested capital. And we'll continue to focus on our debt-to-EBITDA leverage as we approach likely 2.5x debt to EBITDA at the end of 2021. And we have room to pull that down as appropriate or flex that if needed to achieve our tuck-in M&A activities, which will be complemented from time to time with share repurchase. On the next slide, again, is just the values once more and also relates to -- beyond the internal values of the company, our focus on ESG. And this has not been a new initiative for the company. Many, many years of investment in our carbon neutrality programs fully by 2030 are net 0. You see the focus that we have on diversity inclusion, which truly drives patient engagement, employee engagement and the great culture of the company. So we'll continue to be motivated to help patients transform care, invest in this company, and continue to grow it and perform for you. And the last slide is the last slide, what to expect from us going forward. I won't go through each one of these bullets. But I will just end, we are very confident and excited about 2022. We really believe in the LRP targets that we've laid out, supported by the innovation that we have and the global team that we have. It's an exciting company. And we're quite motivated to perform for our shareholders and our customers and our patients. And it's a pleasure to be with you. And I look forward to the Q&A discussion.

Great. That's my queue. Thanks, Mike. Welcome, Lauren and Dan. So Mike, you didn't preannounce at the conference here, so not asking for specifics, but you did mention you feel comfortable with the guidance range. So any qualitative comments you could give us on fourth quarter, the trends you saw due to COVID? And I think a lot of people are really looking for how it ended and what we should expect going forward if possible.

Yes. So we -- as mentioned, we didn't want to -- we plan on giving our full numbers appropriately in a few weeks or 3 weeks during our earnings call. But we at least want to give the investors that -- the confidence and feel comfortable that we feel very comfortable with the guidance that we provided. And so we continue to be appreciative and impressed with hospitals resiliency and fortitude and ability to work through COVID. It's clearly not -- everything is not working perfectly given the challenge that you're seeing in staffing, given some of the shutdowns that you see. But the hospitals are amazingly resilient and continue to do great work. And our products, as you know, we've been in the cycle for 2 years now. They can't be deferred forever. And so the -- essentially, we've seen a -- as we've had various waves, we've seen a decreasing impact on our business through each wave. So there is an impact, but it's decreased each wave. And it gives us more confidence in 2022, as hopefully, this Omicron will plateau so -- hopefully in the U.S., maybe or western markets, hopefully sometime in February. And we think 2022 will be impacted less by COVID than 2021. And you'll see in 2021, we had quite a strong year overall, and we think '22 will be better. So it's going to be difficult for us to predict every wave, but the hospitals are managing it. Our business performance is less impacted during each wave that we've seen, and we're quite bullish on '22.

It's -- 2022 guidance is a task I'm not jealous of you of not having to do. I'll leave it to you. .

Yes.

We've heard other companies say that this wave with Omicron, it's more about people testing out of being able to do a procedure, whether it's a nurse, a doctor, the patient themselves, versus Delta where it was a lot more -- the hospitals were filled and no procedures were done. This is about more rescheduling missed cases. Is that the sense of what you're seeing, especially with 2/3 of your business in the outpatient setting?

Yes. I think you're seeing a bit of a peak right now. So there will be some impact to companies during the peak of the way. But we're seeing, just as you said, less hospitalization from it. So it's really been a -- it will be a push out of some scheduling. And you see it in your own employee base, in your manufacturing plants. You have a wider spread of COVID, but less impactful broadly. And quarantine periods maybe be reduced to 5 days. And so you're seeing an impact, but almost like a turnover that way. So we're really impressed with our supply chain team's ability to manage that and also in the hospital. So there is some impact, clearly, and the staffing shortage is real. But we're quite confident we'll be able to set strong guidance for the year and the abilities for hospitals to continue to do procedures. And again, we're an interventional medicine company. Many of our procedures are less than an hour and same day, and they're needed for patients. So we've been through this kind of cycle for 2 years now. And we're getting better at forecasting through it and provided enough guardrails for investors, and we're excited about the year.

Great. Maybe speaking of guidance. Dan, you gave us first at the analyst event in September some margin commentary for 2022, which was 50-plus bps of margin -- operating margin expansion off of a second half '21 baseline of 26%. So we still need to get the top line sales guidance from you, but we know at least where you stand on margin expansion. So the question is really, we've heard time and time again this week about supply chain disruptions and price cost inputs going up. That was September. We're now in January. Do you still feel comfortable with that level of guidance? And just maybe give us a little behind the scenes of why you're so confident.

Yes. Again, we haven't given our guidance for '22 yet for operating margin. But you're correct. At Investor Day, the goal is to be 26% average for the second half of '21 and then put 50 basis points on top of that, so wherever we end 2021. So the inflation challenges are real. Supply chain challenges are real. They're not unique to Boston Scientific, obviously. But from our perspective, we're looking for the trade-offs that we make as we've made -- as you saw in Mike's slide, over the last 8 to 10 years, each year, looking at where we can make trade-offs within the P&L, where we can look to add operating margins. Some years, it's been gross margin. Some years, it's been R&D. Some years, it's been SG&A. And so that's our job, is to look and see where we can make the appropriate trade-offs. The obvious ones are in SG&A. As we're having this conference virtually, we're spending less on travel. We've talked about this before. We're spending more on digital and virtual, which is a good thing, I think, for the long term of the industry and for Boston Scientific. So we're prepared to make the trade-offs we need to make to continue to deliver on one of our key 3 operating tenets of our financial brand, which is a differentiated adjusted operating margin expansion.

Great. A couple of questions came in. I want to try and get to all of them here. Maybe we could start with an ESG question. And the question is, you mentioned this, it's something Boston Scientific has been focusing on for a while. But what have you done to improve quality -- product quality and benchmarking relative to peers? And how big of a focus is this for Boston Scientific?

This quality is -- it's a massive focus for the company. High-quality products are what our physicians rely upon every day. It's the -- really one of the most important things that we do as a company. And we have an incredibly strong leadership team led by Ros Burke and a global quality team. And we do measure ourselves in terms of complaint rates, obviously, any field actions. We benchmark ourselves against our peer group and our competition routinely. And we're constantly looking to drive down complaint rates and issues with the Six Sigma processes within our -- leveraging our R&D capabilities and our team. So it's really an impressive global network of people that are focused on our quality every day, as well as our -- quite frankly, our commercial and our clinical team. So their job is to call out any quality issues they see with products in the field. And I'm quite proud of our commercial team's engagement with our quality organization. But there's a significant amount of engineering and capabilities, investing in AI, as I mentioned, to really continue to improve our quality metrics. So it's a big investment area for the company. In terms of a percent investment overall sales, it's higher than most of our peer group in terms of how much we spend in quality given the nature of our products. And many of them are implantable devices, and we continue to focus on improving our track record.

Right. Maybe if we shift gears a little bit. You've acquired a lot over the past few years. Not so much massive acquisitions, but lots of small- to medium-sized acquisitions. It's -- I'd say it's a core competency of yours. You have an excellent venture strategy. It gives you access to early-stage assets. So a couple of questions came in here. I guess first question is, what do you expect? Or any kind of benchmarks you could give us for how this acquired revenue might perform this year and next year? Are there certain thresholds for growth you're typically looking for? Given if I look at just what you've acquired over the past year, it sums up to about 5% of your sales now. So it's a meaningful part of the incremental growth for Boston Scientific.

Yes. So on Slide 10, we outlined the 5 deals that we did in 2021. Baylis not closed yet. And we wanted to call out in the fourth column there, the revenue that Preventice, Lumenis and Baylis will contribute. And Farapulse, when we acquired the company, didn't have revenue, but it certainly will nicely in '22, given the EU approval. And Devoro is more of an early-stage company. So you see plus $600 million in '22, assuming 0 from Farapulse, which won't be the case. And as I mentioned, we expect -- all of these businesses are in markets that grow faster than our average. And we expect all of these companies to grow significantly faster than the -- and be accretive to Boston Scientific's growth. And so we're quite excited about these. And so there are some macro headwinds, but clearly, this will be part of our organic -- our nonorganic growth story in '22. It will be an operational growth story in '22 for these, but organic growth story in '23.

And Mike, we have very clear visibility and your great at disclosing what the top line benefits are. But how are you thinking about down the P&L? Are these going to be headwinds to margin? Tailwinds? And do you usually have a thresholds for when you acquire a company, what it -- how fast it has to turn profitable to the bottom line?

It really varies by company. I would say this set of companies in terms of the bottom line is fairly healthy. You have some more mature companies really like Lumenis, which is going to improve the gross margins of our large urology business and extend our commercial capability globally. Companies like Baylis have strong operating income margins, very strong capabilities in that area. And then Preventice is probably under the Boston Scientific average, but we aim to approve that. Then you have 2 earlier stage -- excuse me, Farapulse and Devoro, which are clearly going to be lower and a little bit dilutive to Boston Scientific overall average. But given the growth profile of these capabilities, we will invest in these. So in this mix here, the early-stage companies are typically dilutive for a while. And then these more mature companies that have nice revenue and global scale are in line. And we hope to improve their profitability to make the composite kind of in line in the near term and then accretive longer term.

Great. Maybe getting to some more of these questions here. You're one of the leaders in disposable scopes. You had EXALT D launch, but it was delayed a little bit and its impact due to COVID. It was tough getting into hospitals. You have EXALT B as well. Any updates or color on how the EXALT D and EXALT B launches are going?

Yes. And we have a third one, Discover, as well. That's doing quite well. So there is a core competency of the company, leveraging the capabilities we have in our LithoVue business in urology, which continue to grow, and our SpyGlass capabilities in endoscopy. So extending those into those 3 platforms that you just highlighted. If you look at 2021, as you mentioned, EXALT D was impacted more by COVID. You are really changing a paradigm for the department with that duodenoscope, but it continues to make steady progress. And in 2022, obviously, it will be a more significant growth driver than it was in '21. And the team recently had some enhancements launched that EXALT D platform in the fourth quarter or late third quarter in 2021. You'll see some additional enhancements to the imaging chain in 2022. So these are 510(k) products. Every 6 to 9 months, you'll see a cadence of enhancements, and we expect that business to continue to grow and make a more meaningful impact. Quite frankly, in '22, EXALT B potentially could be a larger product than EXALT D. Given that's already established market, we have an excellent platform there. And as I mentioned, Discover is doing quite well. So the composite of those products would be a nice growth driver for our endo business. And that's also supported by excellent growth in our other segments in endoscopy. So it will be part of the equation with endoscopy. And endo will again continue to be faster and likely more accretive to the company in terms of growth rate and operating income margin.

Great. Farapulse, with pulse field ablation, that has the potential to be a blockbuster type of product and market. Boston Scientific has been #4 in ablation. Farapulse could hopefully kind of pull you up the ranks here if successful, when it's successful. Are there any other opportunities to build on in advanced EP and build out some other areas here in what's a really big, fast-growing market?

I really feel -- and we don't deserve a podium here, given our current share position at 4 and maybe track record. But we continue -- we've invested significantly in this business. And the portfolio that we've assembled moving forward, I think, is the most comprehensive portfolio and innovative portfolio in EP. Now we have to prove it and show it and demonstrate it. And you'll see more of that in Europe in 2022 and even more so in '23, and launching some of these technologies hopefully late second half '23. But if you look at the combination of Baylis, which really is the standard of care for left heart access and used so predominantly. And then the disruptive capabilities of pulse field ablation, you saw a competitor buy a product that kind of reinforces where the future of EP is moving to pulse field ablation. And in fact, is we have a head start. We're approved in Europe. We'll be potentially #2 in the U.S., but we feel like with a better platform with Farapulse. And then we're also supported with our cryo platform and our RHYTHMIA Mapping System. So we really have the -- you'll likely not see tuck-in M&A in EP in the next 18 months to 2 years because we really have the portfolio that we need to win. It's really about driving supply chain, operational effectiveness, delivering high-quality products and executing on our clinical trials.

Great. Mike, jumping just back a little bit here. I had a couple of questions. On EXALT D, do you still feel like this is a real market opportunity with the truly disposable scope versus the disposable tip? And how do you feel about the competitive environment for EXALT D?

It's not -- yes. The answer is yes. We clearly think there's a market here. We had similar challenges with our Endo-Spyglass originally in our uroscope that we have. So there's clearly a market for us. It's not an established market of $1 billion that you're jumping into and competing with a better product. You're creating the market. So this growth rate will continue to improve. It's not going to be a hockey stick growth rate, but it will be a nice growth lever within our Endo business that contributes comprehensively. In terms of competition, I really don't view it. There are some competitors, but the bigger competitor is driving the workflow and commonality in the lab to use the EXALT D device and continue to improve the device and aligning ourselves with the capital equipment and a workflow in the hospital. And that's what's been more difficult during COVID, but it's getting better when we see the COVID waves lessen. So that's, quite frankly, the bigger obstacle than a competitor out there. But that -- we're gaining momentum. We're placing more capital equipment. Our team is getting better at training, and the product is getting better. So this is not going to be a WATCHMAN growth driver in terms of speed, but it will continue to improve over time. And it's complemented again by Discover and EXALT B within our business.

Great. Another question, circling back to your M&A strategy. And I guess the question is really around, you've done a lot more coming out of your VC portfolio. I imagine you're replacing everything you acquire. You're probably investing in 5 companies to replace them in future years in your acquisition pipeline. But how are you balancing internal R&D, your hit rate internal R&D and then your investment strategy, both in VC and external acquisitions? Is it agnostic to where it comes from? Or is it in response to changing hit rates internally?

It's never perfect, but it's pretty well coordinated. So in our organic R&D, we clearly have a multiyear road map of products and capabilities that obviously we'll share all that at Investor Day and these meetings, that we're building towards. And sometimes that can modify. But we clearly have a road map there. Where we see capabilities that maybe we're less good at internally, or quite frankly, it can't be funded, then we will do spin-out companies with maybe capabilities that we've done. When we look at our venture portfolio, many times, these are adjacent markets that are quite early or capabilities or technologies that are maybe riskier. And so we use that to maybe jump into the fields that we're not in, like in Preventice or diagnostics or Baylis. And so many of these fill in portfolio areas that we don't have strength in or not in it at all, but they complement our category leadership strategy. And oftentimes, when we do make these acquisitions, we will make some portfolio choices in our organic R&D profile to ensure that we continue to deliver the EPS and margin profile that we've committed to you. So when we do an acquisition, sometimes, that will result in us curbing or trimming some R&D activities. If the R&D activity -- if the M&A activity is less, maybe it can accelerate some of our organic R&D. But we have a pretty thoughtful plan as to what we want to do organically, what we want to acquire maybe established companies and what venture companies are of interest to us for the future.

Great. We have just 1 or 2 minutes left here. Dan, I thought maybe I'd throw one to you. Have a lot of people on the presentation who are very interested in helping us set their models for next year. Staying away from 2022 guidance, just more from a high level, any major headwinds or tailwinds you could point us to? Are there price cuts or reimbursement changes? Or anything we should be thinking about that might impact the business?

Yes. I can appreciate the desire to set up the models, but I think we're going to hold all that and just give it to you all at once, which I think makes a ton of sense on our call on February 2.

All right. I had to ask and you had...

You had to try.

All right. Well, unfortunately, we're out of time here. I really want to say thank you for a great discussion, and I hope you have a great rest of your day. Thanks again.

Thank you, Robbie.

Thanks, Robbie. Thank you. Bye-bye.