Boston Scientific Corporation (BSX) Earnings Call Transcript & Summary

So good morning, everyone. Thanks so much for joining us. And for those who don't know me, I'm Danielle Antalffy, I'm the U.S. medtech analyst here at UBS. Very lucky to have with us Boston Scientific. We've got the Head of Investor Relations, Jon Monson. Somewhere out there, we have the Head of the EP business, Nick Spadea-Anello. Did I pronounced it correctly? So I mean, while we're searching for Nick, let's maybe start with the big question on everyone's mind for Boston Scientific is how to think about growth for 2025. You guys have had a phenomenal year-to-date 2024. You raised guidance recently. How conceptually, appreciating you're not going to give guidance here on this podium today. How should we think about the puts and takes to 2025? And can you sustain the momentum? And the question I get asked pretty consistently is, can you still grow double digits?

Sure. Well, first, Danielle, thanks so much for having us here today, and thanks, everyone, for your interest in Boston Scientific. And maybe if I could, let me start with 2024. We had a tremendous quarter here in Q3, and we're on track for a tremendous year in '24. So just to recap, we grew our organic revenue 18.2% here in the third quarter, delivered adjusted operating margin of 27.2%, and grew our EPS 27% in the quarter. And then for the year, we've raised our guidance to 15% organic revenue growth. We expect to expand our operating margin 70 basis points to approximately 27% op margin, and guiding to 20% to 21% adjusted EPS growth. And that's on top of a strong year in 2023, where we grew the top line 12% and bottom line EPS 20%. So I feel we're delivering on our objective to be the highest-performing large-cap med tech company. And the performance there has been very broad-based. So we see across each of our business, a very strong performance. That's driven by our category leadership strategy, our differentiated portfolio. And then we have two very strong growth catalysts in WATCHMAN and EP, and particularly FARAPULSE, which is just transforming the AF ablation market, which I know Nick here, he's eager to talk about a bit. So a long way of saying love the momentum, love the broad-based growth that we have, the two strong growth catalyst, and we see that carrying into in '25. But you're right, I'm not going to give guidance for '25 yet. We'll do that when we get to end of January, early February.

Okay. I'll just keep asking until you surrender...

All good.

So okay. Well, and thank you, Nick, for joining us.

So maybe let's talk about FARAPULSE since we only have about 30 minutes on the stage here. So I just want to make sure we touch on that since we do have Nick here. And just maybe talk about -- I'd be curious here. So you guys talked about the fact that you are tracking ahead of that 40% to 60% of ablation or PFA at this point, or by 2026, you're tracking ahead of that. How has the AF ablation market evolved since your Analyst Day in September of 2023? And how is your thinking about the market changed. And particularly appreciate that PFA is taking a bigger share of the market, but really thinking about that denominator of how many AF ablations are now being done.

Yes. Well, first of all, thank you for the invite and it's great to be here. So we are seeing some accelerated adoption of electroporation specific with FARAPULSE. And a lot of that hinges upon our ability to supply customers. We've made some significant investments many quarters beyond what we thought our launch date was going to be even with a 9-month pre-approval. So generators, catheters being readily available for those customers who are ready to commit. And the commitment came rather fast. And so we're really excited to see that from a lot of these major centers around the world in where we received approval. We also have seen the user experience to be adopted rather quickly. People see that it's a very easy tool to use. They appreciate the safety and the efficacy associated with it. And so once one starts to use it, it becomes very simple to rebook another patient. So we've seen that accelerate rather quickly. And we see that happening a little bit on the higher range of what we said at Investor Day a few quarters ago. So we're really excited to see that play out and we see that continuing to happen as we go to new markets.

Okay. Got it. I think the other big question on folks' minds is, obviously, we've gotten two more PFA approvals within the last month. How this has been such a big growth driver for Boston Scientific over the last year? How to think about the competitive dynamics as we head into 2025? And I'd love to hear a little bit more about how you guys have built a competitive moat, how wide, how deep is that competitive moat, and how we should think about that?

Yes, it's a great question because we've got this mentality that you never arrive. We're already thinking about the next-generation device as new strategics enter the market with Pulsed Field Ablation. And the good news is that other key strategics that have done a great job of leading the market in the past have realized that PFA is here and it's here to stay. And so that only helps push traditional RF and cryo users to Pulsed Field Ablation. And as the leaders in that, that really positions us to continue to innovate. Our user experience scores really well with a variety of different operators to date. We see that continuing to happen as we now have introduced the integration aspect of the FARAWAVE catheter, for the prefer to have some sort of integrated mapping option and less exchanges and not have to pull out another $3,000 mapping catheter. We see people taking advantage of the economics. So that is now available in the U.S. market will be available in other markets here in the very near future. And then we see us bring out yet another iteration of FARAWAVE here in the next couple of quarters as well as FARAPOINT in 2025. So we're going to continue to innovate and deliver new products and more options to customers, and try to really offset any sort of strategic competitive threat that we see.

Is the first-mover advantage here, a real thing if we think about it?

Absolutely. I see -- we've got some of the largest AF ablation centers in the U.S. and in Europe now that have done well over 1,000 cases. So they treated well over 1,000 patients. They've got their own personal experience, and they're seeing that as something that is the standard that has to be beat.

Yes. Okay. Just getting back to the number of AF ablations being done. And one of the things that strikes me about FARAPULSE is when I talk to doctors, it's democratizing. Give Jon credit for democratizing AF ablation for all electrophysiologists. Can you talk about that a little bit and the ease of use of the device? And my perspective is -- or my sense is that you guys are still just in the very high-volume EP center. So when this gets into your bread and butter EP, like how we could see growth here take off?

Yes. I think there's growth in many ways as you think about '25 and '26. First of all, we've got an indication for PVI. But as that expands, as we showcase the ADVANTAGE results in the first half of 2025, we believe now you can get into a persistent patient population. The versatility of the FARAWAVE pent to spine design is for real. People aren't waiting for the clinical data, the surface. They're already doing posterior wall work. They're already doing other ablation lines. And it's just super easy to use and super safe. And it happens to be effective and very, very, very efficient. Most hospitals who were treating, say, 10 patients on average a week, are now treating 13, or 500 per year, are treating 650. You see almost a 30-plus percent on average increase in terms of being able to treat more patients with the pent to spine design.

Okay. And the other question is just back to the competitive dynamic, are all PFA devices created equal. And I would love to hear your thoughts on that.

Well, they're certainly not. I think technically, and from an engineering standpoint, even our own catheters that have different form factors, they're all different. Because the way form and where the electrodes live and how that energy is delivered to the cells are slightly different. And you're going to get different results if it's not developed in a way that can achieve the efficacy that the engineers have designed the product to be. And the energy can't be underpowered and it can't be overpowered. And so they've really figured out, over the course of the last decade with the help of legacy FARAPULSE, what is that efficacy range in the wave form, where do these electrodes sit in these different catheter forms, tips that we have and how that really plays into efficacy and, call it, efficiency and ease of use. And that's why we really believe in voice of customer, understanding what they want and how you can deliver a really good efficacious efficient ablation.

Okay. And if we think about the competitive environment that's going to heat up here in the U.S., I mean, you've had competitors in Europe for a year-ish. Should we think of -- like is that a good proxy for what we could see here in the U.S.? And are you guys still growing above market in Europe?

So I mean, you're right. Most of the strategics have had products that are in the European market for either a year, well over a year. And quite frankly, every market is different. So you can't say that our market here in the U.S. and in Asia Pacific, where we're now launching in both China and Japan, will be the same. They're all a little bit different. But if it's any indication, I mean, we've got the vast majority of share in the European market. We've done really well there. We just think, to your point earlier, the user experience and the time, the first-mover advantage in big markets like the U.S., and what will now be in other markets throughout the world, we think that, that will allow us to have the majority share.

Okay. Can you talk a little bit about how your resurgence in the EP business has maybe helped other businesses that call on the EP. I mean Boston Scientific has a very big CRM business. You're calling on the EP for other products. Like what have you seen in your other businesses because of the success of FARAPULSE?

It is a very big advantage. We were very deliberate a number of years ago to have an AF portfolio, when you look at WATCHMAN, Baylis, and our legacy Cardiac Rhythm Management devices, we're now a loop recorder in LUX. All of those products are surrounded by same patient, generally the AF patients or people who have arrhythmias, as well as the same operators, electrophysiologists; same CVSL administrators at hospitals. So it's very convenient that we have those trusting relationships that allow us to take advantage of the opportunity of a process that we already know and how people work. And what it takes to really understand how you drive the adoption of these new technologies in an appropriate way that's economical and, in some ways, can be very advantageous if you want to bundle these products for that same operator.

Yes. Okay. And you guys are launching mapping system, FARAWAVE. And just curious about how to think about that. Because right now, you don't have a mapping system, you've had the success with FARAPULSE without mapping. You have other mapping systems in the market that have adapted to FARAPULSE. How should we think about FARAWAVE in the mapping system and adoption there in the U.S.?

Yes, great question. We have had a mapping system. It was connected to our RF portfolio. What we didn't have was the integration of the FARAWAVE catheters with, call it, this mapping system now. And together, what this does is, for those that like mapping, historically, you can impede and extract via our, call it, traditional mapping catheter, the ORION, or even competitive mapping catheters if one felt comfortable doing that. It's an expensive way of doing this. So we felt it was important to put a sensor in the FARAWAVE catheter that people like. Again, that scores well and the user experience. Take that catheter and be able to magnetically track it for more precision, less exchanges, and to drive that continued efficiency and not impact whatever workflow you feel comfortable using that catheter today. So today, we think it brings yet another option for those that like mapping to have true integration. And we just launched it a few weeks ago, it's scoring really well. And we think that just gives another option for those that desire to have integration.

Okay. Got it. Can we talk a little bit about the OPTION trial that's coming up here Saturday. We'll see the data. And how we should think about that, not just for WATCHMAN but also post-ablation patients, so relevant for EP. And I know we have to wait for the data, and we'll see what the data says. But assuming it's positive, what could that mean for WATCHMAN?

Sure. Well, Nick, maybe I'll take the first part, you can add any comments on EP. So maybe just a quick reminder OPTION is our clinical trial, comparing WATCHMAN head-to-head versus oral anticoagulants in post-AFib ablation patients for stroke prevention and non-procedural bleeding, and I'll read out this Saturday at AHA, as you said. If that reads out positively, we see it as adding another 1 million to 2 million patients into the indicated patient population over time. That's on top of the 4 million patients that are currently indicated today for WATCHMAN. So as it relates to the LAAC market, we see that as supporting the strong underlying growth that we see there. And together with CHAMPION, we see those two trials helping us drive that market from roughly $1.7 billion today to $6 billion in 2030. So I'd say, we see more of an impact to the WATCHMAN franchise than the EP franchise. But certainly having the two together, I think that puts Boston Scientific in a very unique advantage position.

Yes. I think Jon did a great job of highlighting the design and the intent there. Dr. Oussama Wazni at the Cleveland Clinic is a principal investigator that will be presenting this data set here very shortly, and we're excited to see with that brings. We think it can help another population of patients. We've had a really good track record of helping these patients who are struggling on their blood thinners for a variety of reasons. And this is the large ablation trial that's ever been executed given the 1,600-plus patients. So we're excited to see what the results show, and we think that our intent is not only to focus on innovation, but how do you focus on clinical evidence. And these are big trials because if they go really well, they can be incredibly rewarding. And if they don't, they could challenge us a little bit. And so we're excited to see what that brings in a few days here. And I think it's an opportunity to particularly help a lot more patients.

Yes. And I know, Jon gets frustrated with me because he has to rein me in on my WATCHMAN estimates. Well, yes, no. But he's like, "Well, here are all the reasons that maybe you're getting a little too excited." So maybe talk about the steps from -- let's assuming the trial is successful, like why wouldn't this be an inflection point in 2025 for U.S. WATCHMAN sales?

Sure. Well, to be clear, we're looking forward to that data reading out. I'd say the biggest barrier to adoption today for WATCHMAN is that indication. And so to date, oral anticoagulants are frontline therapy. So to receive a WATCHMAN, a patient needs to be contraindicated to OACs, or in the U.S., have a medical rationale for receiving OAC. So with OPTION and CHAMPION, we're looking to establish WATCHMAN as a frontline alternative. So that patients, physicians can choose WATCHMAN or OACs. So after OPTION reads out, we would then expect to submit for the indication expansion. We expect to receive that second half of 2025. Up next then would be the readout of our CHAMPION trial. And that's the bigger unlock for us. That's our all-comers trial, WATCHMAN head-to-head versus OACs. We expect that to read out in the first half of 2026. And with the two together, assuming they read out positively, we see that as increasing that indicated patient pool from the 4 million, I just mentioned, to 18 million in 2030. But we need the trial to read out positively, get the indication expansions and ultimately, we use those to get guideline changes for WATCHMAN, so it is a frontline therapy. So we expect that to play out over time, but expect that to sustain, again, that very strong market growth that we're seeing.

Yes. And from a competitive perspective, I mean, you have one competitor on the market today, and you guys still have 90%-plus market share. You will have, presumably, assuming they have positive data, I don't know really the timing for this, but within the next few years, another competitor. I mean, again, back to that competitive moat, I mean, you guys have executed so well with the first competitor. How do we think about that competitive moat for WATCHMAN?

Yes. We've maintained a very high share position and are doing very well there. And Nick mentioned it earlier, the key is we haven't sat still on innovation. The tail end of last year, we launched our WATCHMAN FLX Pro Device. That's our third-generation WATCHMAN technology. We're already working on our fourth-generation device. The technology is easy to use, it's safe, it's highly effective. We are also innovating and launching differentiated technology in the accessories to the procedure. So we launched our TruSteer access system at the start of the year this year. We have our VersaCross transseptal crossing technology. So very high focus on innovation. So that's key for maintaining our leadership position. We've talked about the clinical evidence with OPTION and CHAMPION. We've got a number of other trials. So we're generating a lot of clinical evidence to advance the field and to deepen our understanding of the benefits of WATCHMAN. And then we have a tremendous commercial team and physician and clinical support team. So for all those reasons, I feel very confident that we'll maintain our leadership in left atrial appendage closure.

And Europe has been -- it's interesting because this is a market that has taken off in the U.S., but Europe is still pretty small. I think OUS sales are like 10% of WATCHMAN sales. And I think part of it is because we haven't seen that definitive clinical evidence of noninferiority versus NOAC. So how do we -- I appreciate CHAMPION is the big unlock, but I mean OPTION is going to be the first look at this, right? And is that something that we could see really drive the European market?

I think that CHAMPION trial will be the key to really getting the guidelines changed outside of the U.S., and helping to drive that market and that patient population.

Okay. And then last question on WATCHMAN, and I'll go back to EP, sorry, Nick. But this is going to be the first look. And appreciate these are different patient populations, if you're looking at OPTION versus CHAMPION. But is there any sort of read-through to potential success of CHAMPION, if OPTION is successful? I mean, how do we think about that?

Well, they're separate trials, so we need to follow each of the end and read them out. But I think that's reasonable to assume if we see a positive outcome here this Saturday in OPTION, it would increase our confidence in the CHAMPION trial.

Okay. Got it. All right. And then back to the EP...

We can talk about WATCHMAN. I spent 10 years of my life with it. I love that product as well so...

It has been pretty phenomenal. But no, while I have you here, I'm going to go back to the EP business. And just thinking about -- you're launching in China and Japan in 2025. Can you maybe frame the market opportunity there for us, and how to think about that for the OUS piece of the business?

Yes. Both of those markets combined are a multibillion-dollar opportunity, well over $1 billion, both Japan and China. And we've never really had a stronghold in China with our EP ablation business. We do a great job with our WATCHMAN business. So again, that presents a really good opportunity to bridge that new introduction, and we just launched there a few weeks ago, and it's going really, really well. We just see, as we enter those new markets, they're large markets, a tremendous number of AF patients, not only today, but continuing to grow over the course of the next 5-plus years. And so we see us taking a leadership position in both of those markets and trying to do really, really well in treating those patients and contributing this growth story over the next several years.

How quickly could those markets ramp? Like is it -- the U.S., you guys have ramped phenomenally. So just thinking about like how to think about it.

Yes. I think time will tell you exactly the answer to that. But I can tell you we've got a great supply chain and manufacturing team that gave us a competitive advantage to be able to build enough generators and catheters for both of those markets. We've advanced hire a number of mappers and people in those geographies who know electrophysiology to help us have a really good representation in those markets. So I would anticipate some relatively rapid growth there as well. I think the tool -- the versatility tool beyond just the pulmonary veins where the indication is today in the U.S. has been aggressively pursued even beyond that. People aren't waiting for the data, and they're doing posterior wall work. I think in markets like Japan, you'll see more compliance until we expand those indications. In China, it remains to be unknown whether they're going to use the tool in a very versatile way before the data hits their markets.

Okay. And maybe let's talk about indication expansion. So first, we'll have ADVANTAGE in second half of 2025?

We'll have the ADVANTAGE data publicly available in the first half of 2025. It will be publicly published sometime in the back -- I'm sorry, the back half of the year was where we think we can get that indication.

Indication. And how do we think about that expanding?

Yes. I mean it's very opportunistic. I think one thing we can all agree upon is that we need better solutions for persistent patients. And we see people already motivated to go treat them today before the data is even out there. We'll see that data hear in the first part of 2025, and we're very optimistic about how we can treat that patient population as well.

And then I have to ask about AVANT GUARD.

Yes, yes. You should.

You can't say a lot. But I've talked to Jon about this multiple times. And there's the totality of evidence out there. I think the big question for AVANT GUARD is there some smoking -- it's about that indication, it's more about is there some smoking gun, we don't know about FARAPULSE yet.

You should ask the question. I can appreciate the unknown is very uncomfortable. And I think what you need to take away is we're very excited about this trial. We want to complete it. In order to do that and do what we ultimately wanted to do, we have to be very, call it, confidential about the data until it gets published. So that's all I can tell you at this point. I think the good news is, and Ken did a -- Dr. Stein did a good job at the earnings call really highlighting our intention to restart this trial. And here we are today, we restarted it. And I would just tell you that in the coming quarters, as we get that completed and published, I think it will make sense to everybody what our observations were.

Yes. And we can look at the totality of evidence that's out there today. And that's pretty indicative of like the safety and efficacy of this device.

That's exactly right, Danielle. We've got the largest experience, well over 125,000 patients. We'd hope to double that, if not more, next year this time. We just feel very optimistic about the body of evidence and people's personal experience in some of the largest centers of the world and how beneficial this has been. And to patients, to them as operators and to the administration in being able to treat more patients.

Well, and so just on that point, capacity has been a big issue. The AF ablation market has been growing double digits for over a decade, but we're still only talking about 350,000 patients treated last year out of 2 million paroxysmal and another 2 million persistent patients. So how are you seeing capacity -- these centers deal with the capacity issues?

Hospitals do a good job of figuring that out over the course of time. Whether it's adding more electrophysiologists to treat these patients, adding more cath labs, adding more capacity in the pre-operative and post-operative setting, not just the intraoperative setting. So I think hospitals are doing their part to make sure they can capitalize on this because they want to treat more patients. And it's economically viable for them to do that. And I also think what people ask me a lot about is Ambulatory Surgery Centers, what does this mean in the future? We envision that happening in the future. And so when we design and develop these products, the products have to be able to meet the demands of different environments. We think we meet the environment really well in the hospital setting by giving these options. We believe in an Ambulatory Surgery Center, it will likely be non-mapping for a lot of these paroxysmal patients. So we are very favorably positioned, if that's where things go over the course of time, to be able to give that option to those patients and operators, to be able to meet those capacity constraints and trying to expand and help treat more patients with what's out there.

Okay. And I'd be curious, so we touched on earlier that 40% to 60% of ablations being done, PFA, you're being ahead of that. You said that by 2026. What has surprised you, Nick, the most in this launch that -- I mean, it's exceeded even the most bullish expectations and it's exceeded our own. So why?

Yes. So I think there's a lot we can talk about here in my 30-plus years in medtech. If you develop the tool to be able to meet the various demands of these operators because it's -- when you look at just the heterogeneity of how people and electrophysiology do things, like there's no one way. And so we're very deliberate about being able to provide a product that is very versatile. So for me, the biggest surprise was the RF users, those loyalists, like that was 80% of the market, how interested and how fast they moved. So that was probably point number one. And point number two, the versatility tool to be able to use it well beyond pulmonary veins. And that's why we're doing trials like ADVANTAGE, call it, AVANT GUARD. And we'll start a new trial, REMATCH, here next year. So we're going to continue to expand indications and the versatility of what other lesion sets we can provide to patients, and these operators like the versatility of that tool. But we're also going to innovate and offer new tools. We'll have FARAPULSE in 2025, a point PFA catheters. We're working on FARAFLEX. That's our large area wide -- I should say, a wide area focal catheter that I think is going to be another addition. And these are all different tool sets that are going to provide options for different reasons, different operators. We're going to compete with ourselves here. We admire what the strategics have done over the course of time. We are the leader in Pulsed Field Ablation. We're going to continue to innovate amongst ourselves. If we've got a great product, we're not going to settle there. We're going to continue to innovate and offer more. And we think that with that approach, it's worked for us on the WATCHMAN side of the business, it's working on the Baylis side of the business, and it's also going to work for us in the Pulsed Field Ablation side of the business with FARAPULSE, and being able to just continue to innovate, make things better for patients, simpler for operators and more efficient for administrators.

Okay. And just on the WATCHMAN PLUS EP side of things. I mean 65% of WATCHMAN procedures are done by the EP. So same call point. I appreciate that's in the structural heart side of the business. But how do you leverage those two products to sort of cement Boston Scientific's leadership position?

And Jon can also pipe in here. When you look at the cardiology portfolio, we've got a really good presence with interventional cardiologists because of all the other things we've offered over the course of time, really good presence in stents. And also, our Cardiac Rhythm Management business. So when you look at both sides of those equations, we've got a cardiology team that represents the broader business. And everything from representation, technically, economically, contractually, as you look at all that, we can be a one-stop shop for those that want to take advantage of that efficiency, whether it's a health system, whether it's a hospital. Those key relationships, we think, could be very advantageous to us, Danielle. And it's because of the trust and the pioneering spirit that we've had with all these different therapies across the board. And we think we're going to continue to leverage that with both interventional cardiologists and electrophysiologists with all the products that we offer in the cardiology portfolio.

Yes. Do you see that 65% being done by EPs, do you see that shifting over time to more interventional cardiologists? Or do you think it's, especially with OPTION, I feel like it's going to be shifting...

It remains to be unknown. There's still a lot of electrophysiologists. If Dr. Sutton on the stage, he would tell you as an electrophysiologist, there's a lot of electrophysiologists that still don't do WATCHMAN. If OPTION is positive, you'll probably see more EPs doing this. And it depends on the market. Certain markets, the European market is primarily interventional cardiologists treating these patients with WATCHMAN. So it depends, right? And so each market is a little different. You can make the argument in China, it's a little different than it is in Europe as well. But at the end of the day, we want to be able to treat that cardiology patient with these different specialties and everything we offer.

Okay. And sticking with interventional cardiology, I have to ask about ACURATE as well. And not to promote myself, but we hosted a very good call yesterday with an EU KOL. And he -- and this was consistent with feedback we've gotten thus far. No change to practice in Europe, where you guys have a decent share position. So maybe talk about how you're looking at the risk to European sales because of the ACURATE IDE? And then anything you can tell us about regulatory pathway from here. It sounds like you guys are very committed to commercializing this. So...

Yes. And maybe just quickly, we've kind of called 60% EPs, 40% ICs for the split...

For WATCHMAN?

You got it. But...

Nick, you told me 65%...

But on ACURATE, so we like the business that we have in Europe. It's about a $200 million business today. We received very strong physician feedback. We're just now launching our ACURATE Prime valve, our next-generation valve in Europe, has frame enhancements, larger size. That's a portion of the market that we'll be able to participate in now. And so I think you're right, Danielle. The physicians in Europe are looking at their real-world experience, where they see the benefits of ACURATE, the positive patient outcomes, the totality of the evidence and they're drawing on the learnings from the ACURATE IDE in the U.S., those procedural optimization steps and ensuring those are embedded in their procedure and their workflow to the extent they aren't already. And so we don't expect a significant impact to our business in Europe. And as it relates to the U.S., we're collaborating with the FDA now on that regulatory path forward. And as we have updates there, we'll be sure to let you know.

All right. Well, with that, we are about at time. So gentlemen, thank you so much for joining us.

Danielle, thank you. Thank you. Yes, yes.

Thank you.

Thanks, everyone. Appreciate it.