Boston Scientific Corporation (BSX) Earnings Call Transcript & Summary

Good afternoon, everyone. If you want to take a seat. Robbie Marcus, I'm the med tech analyst at JPMorgan, saving the best for last here to wrap up day 1 of the healthcare conference. Happy to present CEO Mike Mahoney of Boston Scientific. He'll do a presentation, followed by some Q&A. Mike?

Good afternoon, everyone. Thank you for attending the 5:15 coveted slot for Boston Scientific. It's an honor to help lead the company with Dr. Stein and Dan Brennan and our colleagues around the world. I'm going to skip through the regulatory and financial disclaimers very quickly there. It's an honor to be here to talk about Boston Scientific. Here's just maybe a couple of takeaways from the presentation. You had lots of presentations today. We had an excellent 2023, followed by an even better 2024. We won't give our results until the first week of February but an excellent performance across the board in '24. We guided to 15% organic growth, quite a bit 70 bps of margin improvement, plus 20% EPS growth. We did 4 -- we signed 5 tuck-in deals in 2025 and closed 2 of them, and really a great year for the company. I think what's most importantly for what drives us besides advancing science for life and innovation and being a great place to work is our financial goal is we continue to aim to be the highest-performing differentiated large-cap med tech company last year, this year, and that's our aim through 2030. And many key enablers for that. You'll see some of that presentation today, a relentless focus on innovation, consistently increase our weighted average market growth rate, which we've done year-over-year for many years now, highly engaged global team and this category leadership strategy. And so we detail this a bit more in these slides. I'm proud of this one because it shows the consistency and the evolution of the company. Years ago, we were struggled. We grew well below market, then we went through a phase where we grew at market, then we grew above market. And then we've really accelerated. And as I said, our aim is to be the highest-performing med tech company likely in 2023, potentially in 2024, and ongoing through 2030. So consistent enhancement of our revenue growth over many years. Same thing on the margin side. On the operating income side, we used to lag about 19 points. We guided this year being 2024 at least to about 27% operating margin growth. So a consistent margin growth year-over-year, typically in excess of 50 bps per year. We delivered double-digit EPS over the same time horizon. And this year, as I said -- or last year, 21% growth. And also, kudos to the finance team, our operations team. We continue to increase our free cash flow and focus on our free cash flow conversion and put that to use in productive ways for shareholders and for Boston Scientific. I think this is a really important slide because it speaks to the strength of the company. And we show this slide every year, but there's actually some updates from our Investor Day 2023. In 2024, we believe the markets that we compete in had a WAMGR of about 8%. We've enhanced our 2026 WAMGR to at least 9%. So this is the weighted average market growth rate of the markets that we serve in. This came from a negative WAMGR in 2012, about a 4% in 2016. It's also interesting to note that since 2013, we have grown faster than our weighted average market growth rate every year. So not every one of our businesses grows faster than market, but most all do. And since 2013, our actual performance have exceeded our weighted average market growth rate, which again will be our goal in 2025 and beyond. And the big driver, as you look at 2024 and 2026, obviously, the combination of the EP market, which has seen explosive growth, the WATCHMAN market which we created, and we think will be a $6 billion market, and 2 nice tuck-in acquisitions with Axonics and Silk Road further enhance that weighted average market growth rate. In the coming slides, I'm going to touch a bit more on FARAPULSE and a bit more on WATCHMAN. It's difficult to cover the entire portfolio in 20 minutes. But here, if you look at our overall portfolio in 2025, here are the areas that will drive the growth and the differentiated performance. I won't detail AGENT DCB. We're really excited about being the first company to provide this technology with strong reimbursement, our imaging company. So the ICTx portfolio, in general, I think, is maybe less understood or less focused on, but a strong double-digit grower for the company. We'll talk about WATCHMAN and EP and CRM. In our Peripheral Interventions and our Interventional Oncology business, our IO business is a mid-teens grower. We have strong category leadership and we're driving new clinical indications to expand that a bit more. And really 2 powerhouse divisions, endoscopy and neurology. Very accretive to Boston Scientific's operating income margin, grow faster than markets and typically in the kind of the 6% to 9%, 7% to 9% growth CAGR range in Neuromodulation business, which in 2024 through third quarter wasn't quite at expectations. But we expect '25 to be a strong year for this division as we go organic with an acquisition from Relievant and the commercial changes that we made in 2024 stake -- take hold in 2025. I couldn't be more proud of this slide. It's very rare in med tech to have the largest market in the industry that we estimate here is going to grow 20% and the fastest market within that, the AFib market, we estimate growing 25%. But it's very rare to find the largest market that happens to be the fastest-growing market, transformed or disrupted. We were the lagging #4 player in EP, a distant #4. We expect to be the #2 player by midpoint 2025. And our aim is to be the #1 player in this global business over the coming years. And we have the solutions, the team and the focus to execute just on that. Remarkably, we're only 10 months into our launch in the U.S. So there's many new accounts to open, many more accounts that we can add additional consoles and catheters to and open up new markets in China and Japan. But what's remarkable is the transformation in PFA adoption from the legacy radio frequency -- not legacy, but the standard radio frequency and the standard cryo. So this is a bit updated. So in the -- globally, we estimate by 2026, at least 60% of all procedures will be done with PFA. We think in 2024, that number is 20%, which is global, and likely more than 40% in 2024 in the U.S. So it's been adopted very, very quickly, and we are a clear market leader in this, and we intend to expand our market leadership position in 2025 and beyond through new account openings, launching in China and Japan, continuing to scale out our OPAL mapping integration system and new releases of clinical data where Ken Stein will be -- he won't be doing it, but he helped lead it, presenting our persistent study at the Boston AFib symposia later this week. We're also committed to leading this beyond 2025 and become the market share leader in this terrific field. And we'll do that through essentially strong portfolio investments that are outlined here. We have 3 different venture investments in this field to complement this internal portfolio and also to continue to be the leader in clinical science, where we're the undisputed leader in clinical science as it relates to PFA. As you see, the various studies that we're doing to continue to reinforce long-term clinical data with FARAPULSE, but also to broaden indications persistent to first-line and other capabilities. So big, big focus area for us to continue to drive portfolio execution, globalize this business and continue to lead in clinical science to drive even more confidence with the physician community and the patient community. This market, LAAC market, similarly as proud of. Whereas in EP, we've disrupted and transformed a hot large market. In WATCHMAN, we created this market over many, many years. And it's really taking a strong route now. It's a very common procedure. It's a very efficient procedure, very safe procedure and I'll talk about concomitant in just a minute. We estimate this LAAC market will continue to grow about a 20% CAGR. We have a very high market share, approximately 90% in the U.S. And we continue to fuel, just like the last slide, portfolio investments and clinical investments to continue to expand our advantage in this area with WATCHMAN FLX Pro, TruSteer and Access Solutions. We continue to drive market awareness and patient awareness with different physicians and would also anticipate even more physician training in '25 and beyond due to the option to study results with EPs who are doing ablation but not doing WATCHMAN likely wanting to be trained now for concomitant and also same thing with interventional cardiologists. And also, we'll leverage the recent concomitant news on reimbursement. So this is also a really nice win for us. You take the fastest-growing market in EP that scale, maybe the fastest overall market, which is LAAC, but not quite as big as EP. And now we have the ability to do both those procedures at the same time for the same patient at a reimbursement code that's very favorable to hospitals. And the overall procedure is maybe an extra 10 to 15 minutes when you're doing this concomitant procedure. So it's a wonderful win. It's based on the heels of our positive OPTION results, which Dr. Ken Stein can further detail in the Q&A if you'd like, further reinforced with the U.S. concomitant DRG reimbursement and our unique position with our Access Solutions, FARAPULSE capabilities and WATCHMAN. And so we expect to have a WATCHMAN label update in the second half of 2025, obviously, driving a lot of physician education, referring physician education, and helping hospitals optimize their workflow. I think one of the few headwinds that we see in the future is just lab capacity. And then given the huge patient demand that we're seeing throughout these therapeutic areas, so optimizing this in a concomitant procedure is a big winner for hospitals to optimize their workflow, have the patient have 2 procedures at one setting versus coming back multiple times for the appropriately indicated patient. In addition to our organic efforts and our product execution launches, we have a nice strong history of tuck-in M&A over many, many years. In 2024, it's really no different. We acquired these 5 companies in 2024, 2 of them, Axonics have closed, which will make us really a perfect portfolio add to our leadership position in urology. In Silk Road for carotid artery disease, which is a nice adjacency for us in our peripheral vascular business. Cortex is an advanced mapping solution for EP. Intera Oncology to augment our interventional oncology portfolio. And recently, Bolt Medical which is an IVL treatment for treating a complex calcium, which will be into our vast interventional cardiology portfolio and further complement that business. So we're proud of these tuck-ins, which are very similar, I would say, cadence and level that we've done historically, and our aim is to continue this momentum. One way we continue that is we're likely the most active VC investor in med tech. We have a portfolio of about 45 venture investments that we've made. And we did 10 new venture investments in 2024. And I don't know the exact percent, but I bet we acquire about 25% to 30% of the companies we acquire come from our venture portfolio. So it's a great way for us to look at disruptive technologies to further increase our weighted average market growth rate, which is what this slide does. All 5 of these will continue to improve that WAMGR that I talked about a few slides ago. Also -- good, I'm going to leave more time for Q&A. Also, it's super important for us to focus on being a highly differentiated company for the long term. And we're proud of the growth that we had in 2025 and 2024 and 2023. We're part of the margin improvement. But we really are focused on leading this company for the long term with highly differentiated performance through 2030 and beyond. And this slide is not just a bunch of spaces that BSX is interested in. This is a slide that we have significant investments in already, either via organic R&D large programs like our VITALYST to compete in high-risk PCI and shock and the circulatory support space or there are significant investments in our VC portfolio. And this slide, in combination with our organic R&D is what gives us confidence to continue to grow faster than our weighted average market growth rate even as that weighted average market growth rate continues to expand as a result of our BD and organic M&A activities. So I have a lot of confidence in our global team. The depth of our leadership team, our winning spirit as a company, and we will likely bring many of these new technologies and adjacencies to market. So for those of you who are wondering, hey, is this a 2- or 3-year story with WATCHMAN and PFA? It's not. We'll continue to increase our WAMGR and we have significant bets via organic R&D and our venture portfolio across these almost 20 different platforms that we're excited about. So with that, I'll wrap it up for Q&A. It's a pleasure to be here. It's an absolute honor to lead Boston Scientific, and we are very committed to delivering strong shareholder returns and differentiating BSX in the minds of shareholders and our employees. Thank you very much.

Well, I was going to apologize upfront for asking so many WATCHMAN and FARAPULSE questions. But since you spent the entire presentation on it, I'm not going to apologize. And it's been an impressive year with FARAPULSE. The launch has gone exceptionally well. Probably puts you if not the best med tech launch, then top 3, I would imagine.

Still launching it, though.

Still launching it. And it's impressive because the number of adjacencies and new indications and accessory catheters are still coming out. So maybe you could talk about -- you talked about 20% AF -- 20% of AF procedures were PFA in 2024. You moved into 40%. And I would say the #1 question I've gotten over the past 6 months has been what does competition look like for Boston Scientific? And I always respond, I think it's the wrong question to ask. It's what percentage of procedures are going to be done with PFA. But that said, how do you feel about your competitive positioning in the market to be able to maintain the leading PFA position?

Well, we're always humble, but we're extremely confident that we'll continue to enhance our leadership position in PFA. We know there's able companies out there, but I would say I feel better about our strength now than I did a year ago. Given that we're 10 months into the launch, and we see the momentum that we're seeing across the globe with the adoption of FARAPULSE. And I think it's key, as you said. We probably have 40% adoption in '24 in the U.S. but growing to about 60% global adoption. So you have a lot of procedures in China and Japan and other parts of the world that aren't in that number yet. But we know there's healthy competition out there. We have a unique product. We have an excellent pipeline. We have a highly motivated team that's executing every day. And so we're quite confident we'll continue to expand our leadership in this market.

Dr. Stein, I remember, I think it was 2 years ago, you were saying not all PFA is the same, and we feel really confident in ours. We've seen one of your competitors voluntarily withdraw their PFA product in the U.S. from the market. How do you feel about your algorithm versus the competition, its safety profile and ability to continue to outperform?

Yes. Thanks, Robbie. And I think you hit the nail on the head, right, that everyone needs to understand that all PFA is not created equal. And the results that you get with any particular system is just inherently dependent on the wave form, the energy source that's used, the catheter design and the dosage recipe. Even though we're only 10 months into our launch in the U.S., months into our launches in China and Japan, we've already treated over 200,000 patients successfully with the FARAPULSE system. We've published clinical data and outcomes in almost 20,000 of those patients. And what I can tell you is our experience and our published experience has a safety profile that is second to none, an efficiency profile for physicians that is second to none. And now we're starting to see data published that actually shows efficacy when you look at atrial fibrillation burden that's superior to legacy ablation sources. And that's why Mike was able to tell you, that's what's behind the success of the launch. So it's behind our leadership position today.

I think the old rule of thumb was, even if you had a catheter, you couldn't be successful in EP without a mapping system. You have RHYTHMIA. But really, FARAPULSE on its own drove the success and is used with a lot of other mapping systems. How do you feel about that rule of thumb today? Clearly, you've done it without leading with the mapping system. But maybe if you flip it around, can you take the catheter and pull through all the rest as you're adding RHYTHMIA integrated mapping, you have a great access catheter with Baylis?

Yes. And we've refreshed our RHYTHMIA system now, so our next generation is what we call OPAL. It has a software suite. That's the first software suite that's specifically designed around pulsed field ablation designed around the FARAPULSE ecosystem. Part of what we intend to do is to leave it up to physicians. We don't need to force you to use our mapping system if you want to use our catheter, all right? And we want to be able to support all 3 ways of doing procedures. If you don't need to map, and that's done in the majority of cases in Europe today, you don't need a mapping system to get great results with FARAPULSE. But if you're doing a more complex procedure or if you want a map, which is what we're seeing in the majority of cases in the U.S. and in Asia, we will continue to support your ability to do it with one of the legacy mapping systems. But we are really early into the launch now of our FARAVIEW software on OPAL, and we're really pleased with the reception that we're seeing as people have started to use the system.

Do you think you'll be able to materially increase your RHYTHMIA placements in 2025 with the addition of integrated mapping?

Well, I think we're certainly going to see more use of that. Again, the OPAL system.

OPAL, sorry.

That's what we're calling it now.

If I think about the PFA, this is one of your better margin products. And Dan, it's -- along with WATCHMAN, which we'll talk about in a bit, these are probably 2 of your higher, if not highest gross margin products at Boston Scientific. It continues to ramp aggressively. I think we'll talk about WATCHMAN. That should also have a great year. How do you think about your margins moving forward? Could -- is 2024 as good as it could get on margin expansion? Or is there a potential to improve moving forward as these 2 high-margin products are a bigger part of the business?

I mean you saw on the slide that Mike presented, I mean, it's in the DNA of the company, the margin expansion that we've had over the last decade. That's not going anywhere. We're going to continue to do that. WATCHMAN and FARAPULSE are a big piece of that. The rest of the company is as well. What we try to do is strike a balance, so deliver margin expansion. So our guidance for 2024 was 70 basis points. That's differentiated versus our peer set, but it also allowed us to be able to invest in some of those things you saw on that last slide that Mike showed in terms of the different areas that are going to continue to sustain the top line growth of the company through this decade. And so that's what it's about. It's striking that balance, making sure that we have differentiated margin expansion, which I think we have, and also making sure that we fuel the top line growth for the long term, and I think we have that as well. So that's the balance we aim to strike and I feel like we're doing a pretty good job at.

I guess, we'll have to wait for fourth quarter earnings to get the official guidance.

Yes, first week of February.

Tying together WATCHMAN and PFA, you got concomitant reimbursement starting October 1, and I've done a number of calls where doctors were starting October 1, doing both procedures together. And even though it's not a Boston Scientific specific code, it clearly benefits your organization as you have the leading product in LAA and PFA. So maybe speak to the experience you've seen. I know you're not reporting the results out today, but maybe qualitatively, what you saw in the fourth quarter once the reimbursement code kicked in.

Well, on the business side, and Dr. Stein can talk about, obviously, the patient and physician benefit, we were comfortable with what we call the 20% market CAGR with concomitant further supporting that and the release of CHAMPION, which I didn't talk about, which will happen in 2026, which is a meaningful piece of evidence that hopefully will continue to drive the expansion of the market to $6 billion. So we think that 20% growth CAGR for the market makes sense. We continue to invest in -- we'll be on our fourth-generation WATCHMAN device likely before we see a new competitor in the market. But Dr. Stein, if you want to speak to the -- kind of the benefits you're seeing now?

Yes. When I was treating patients, you never call something a no-brainer. But the concomitant opportunity is as close to a no-brainer as anything ever gets in medicine, right? You're taking 2 procedures that both involve essentially the same skill set and the same approach to the patient. And instead of having to have 2 procedures and have the attendant risks doubled, you can do it all at one sitting. It's great for patients. As Mike said, it's great for doctors, and it's great for the whole ecosystem in terms of relieving some of the capacity constraints, right, that we think we may run into otherwise as the indications for both of these procedures continue to increase. And what really makes it a no-brainer are the results from the OPTION trial that Mike showed, right? And so OPTION, we presented at American Heart Association so in November, published in New England Journal, showed that in patients who need stroke prevention therapy after catheter ablation for atrial fibrillation, that the WATCHMAN device provides equivalent protection from stroke as do oral blood-thinning medications with significantly lower rate of clinically important bleeding complications over the long run. And so you sort of ask yourself if you're a patient, if I'm having an ablation procedure and if I know I'm going to need continued protection against stroke, why wouldn't I opt to have this done? And even though it's not unique to our technology, there are particular advantages to thinking about doing this on top of the FARAPULSE procedure. Because again, you take FARAPULSE with its safety and its efficiency. And then you add to that WATCHMAN FLX and FLX Pro with its safety and efficiency. And as I say, I mean, it's as close to a no-brainer as you can come.

You leverage Baylis in [ me too ].

And our Access Solutions technique for crossing the intra-atrial septum.

And what's the overlap of patients that have an AF procedure that are eligible for WATCHMAN after OPTION?