Boston Scientific Corporation (BSX) Earnings Call Transcript & Summary

We've got Chairman, President and CEO, Mike Mahoney; and Chief Medical Officer, Dr. Ken Stein here in Boston with the TD Cowen team. Thank you, guys.

Good morning. Can you hear us?

Think you, guys. That's coming through nicely.

I wanted to kick it off and just ask about just -- you've walked through this on the fourth quarter call, at the Investor Day last year just this 10%-plus growth guidance. You issued 10% to 11% on the fourth quarter earnings call. It looks very similar to the starting point of 2025, where you guys were at 10% to 12%. Maybe just discuss what's different this year compared to last year as you see it, and speak about your confidence about maintaining this -- these high double-digit rates of growth despite the challenging 2-year stack, 3-year stack comps that you're facing?

Yes. Sure. Good morning, everybody. Maybe a few things that remain the same for -- especially for the long-term investors. We continue to invest for the long term for Boston Scientific. And we've had good success over many years and plan to continue to do to a number of core tenants because I know we're going to talk about EP and WATCHMAN and lots of things here. But as the group knows, as we talked about at Investor Day, we want to continue to improve our WAMGR growth as much as we can. And we continue to do that, and you've seen the signed announcement of Penumbra and also a number of other venture investments that we've moved to continue to that. The other goal we continue to deliver on is exceeding the WAMGR in terms of our growth rate and also delivering higher end than pure performance in terms of our sales performance, consistent OI margin performance and double-digit EPS. And that's consistent with what the guide is for 2026, where we guided full year 10% to 11%, 50 to 75 bps, I believe, of margin improvement and double-digit EPS. So again, those figures would all put us above our WAMGR, high end of peer group, which is what our aim for. In terms of comparing to last year, one thing that is a bit different is, I would say, on our guide, the ability to dramatically exceed that guide is not what it was the last 2 years because there we had the transformation of PFA, and it was typically to the upside performance and also the WATCHMAN concomitant. So we're not going to give inter-quarter guidance for first quarter or for full year, but we're comfortable with the guide of 10% to 11% that we gave. Across our businesses, we see EP, we'll talk about, that's about 72% of our revenue, an important part of our business. But we have 83% of our business that's also doing extremely well. So other big differences, we have the CHAMPION readout coming up in March. We tucked in a few nice acquisitions with Nalu in Spinal Cord Stim, with Velencia. We announced the Penumbra acquisition, and we have a number of our businesses that are doing very, very well. Our ICTx business, our Interventional Oncology business, our Endoscopy business, our Neuromodulation business, our PI business. So we continue to have a consistent, really, playbook of investing in our business, driving growth above our WAMGR, and we expect to have a good year.

Thanks for that. And just in recent past or multiyear past, I mean, almost every one of your business units has outpaced it's -- the market that it's levered to. And I think that precedent is giving you guys confidence that, on average, the majority of your business units will outpace the market growth and you guys can exceed that WAMGR. I mean is that the formula you already just put on the table, just to confirm?

I think we've actually executed that. Not every business every quarter, but in totality, we grow faster than our WAMGR. And we really invest for the long term. We have such an exciting pipeline that goes out across ICTx, EP, all of our businesses and a very impressive VC portfolio. So I think especially for the long-term investor, this formula of continuing to deliver high performance, continuing to improve operating margin, continuing to double EPS, we see strong visibility of that in this 3-year LRP.

Maybe just to touch on the operating margin guidance, targeting 50 to 70 bps for the year, that would keep you on track to potentially exceed your 3-year LRP target, but maybe a similar type question, just what gives you -- your team the confidence and the drivers of the margin progress this year? Anything different -- that's different this year particularly relating to macro factors?

A lot of macro factors, but we feel comfortable with that guide. We still benefit from the strength of the mix enhancement with ICTx continuing to get larger and larger, with divisions like Interventional Oncology getting larger and larger, the contribution of WATCHMAN with concomitant, the contribution of EP, it's overall good mix. But we're also investing heavily in our supply chain, our manufacturing, place a lot of capital across Boston Scientific. So we see kind of gross margins in the similar range as 2025, but we expect to deliver that primarily through OpEx and SG&A.

Great. And maybe just to circle back on the top line guidance and also margin guidance, but there a major conflict arose over the weekend in the Middle East. There's a lot of unknowns. It's very, very early, but anything to call out or investors should consider for Boston's business as we move forward despite there being so many unknowns?

Yes, a lot of unknowns there. Obviously, we want the safety of all our employees and patients and hospitals and physicians. That business for us, kind of the area that you're talking about this impact, it's about 1% of our revenue. And so there could be some disruption depending on how long this plays out, but it's not a significant dollar amount for Boston Scientific.

Understood. Yes, we hope for the safety of all your team members and everyone over there. Maybe as you prompted this next question with your comments, we're definitely going to get into the EP business, but...

We want you to. We actually love it.

I know. Absolutely. Absolutely. You gave some more detail -- your team, some more detailed guidance on the EP franchise and PFA this year. And then maybe just to start specifically on the expectation that you'll maintain your global leadership position in PFA ablation catheters here despite increasing competition. Can you just help build out some of the assumptions that underpin those expectations?

Yes. First, very proud of our global team. We have really delivered terrific execution. We weren't a player in this market 4 years ago. And the team globally is doing a great job of executing actually ahead of our plans for last year and really right in line where we thought the market would be as we articulated that at the Investor Day. So as I mentioned in the first quarter earnings call, we see the overall market -- no one knows exactly, but we see the overall market in 2026, call it, 15-ish percent, and our goal for 2026, as it will be for [ years ] beyond that, is to grow in line or above market like we do with other businesses. And we see that as achievable in 2026. We're aided by -- if you have a 15% -- no one knows exactly if it's -- but we think 15%. So we're aided by the continued adoption of PFA, which we think that utilization will continue to tick up. We're also aided by the sweet spot where FARAPULSE plays in about 70% of the procedures. That market is growing faster. So we see that market as a high teens, potentially 20% segment where FARAPULSE plays. And the rest of the market growing maybe high single digits to get you about a 15% market growth overall. So that's how we see the market. In terms of the split kind of U.S., OUS, we do have more competitors in the U.S. We absolutely expect to maintain PFA leadership. But we see that U.S. market growing kind of 10% plus in 2026 and faster growth OUS to get us to that kind of at or above market growth overall for the year. We're really proud and Ken can talk more about it, but the key for us is widening the portfolio. And so we're really excited about this FARAPOINT product that's just been approved and had great feedback that Ken can talk about more. We're kind of leading the league in clinical studies, clinical science. We're really the pacesetter in that area. And the portfolio investments we're making and more importantly the execution of the team, everything from our Cortex partnership to our next-generation FARAPULSE, which is called Ultra, which will launch in the first half of next year, we think will be significant upgrade to the existing for FARAPULSE in terms of its capabilities, its delivery, it's tracking that Ken can articulate. So that will be a really big launch for us next year. And then we have FARAFLEX and other -- ICE and other programs. So our focus is to continue to innovate where we're good now with Ultra, replacing that in 2027 and widening the portfolio. And the team is doing a great job of really enhancing the footprint of our mappers. And those mappers are being used more now because when you launch FARAPOINT, you widen the indications of the patients you can serve. And so really the global scaling of our mapper team, and the ongoing improvement of our OPAL Mapping System, combined with the portfolio, combined with a growth market, gives us a lot of confidence in the business.

Excellent. Dr. Stein, anything to add on top?

Yes. I mean I think just to maybe repeat what Mike said with little additional color, right? I think the key is the FARAWAVE platform right now is still, by far and away, the most user friendly, the safest and the best approach that there is for the more straightforward AF ablations. And I think, frankly, where we have seen some competition, it's mostly been in the more complicated procedures. For us, that's we're moving ahead with additional catheters like FARAPOINT allows us to better compete. It's we're getting into the business of AF mapping, so that was our Cortex acquisition, again, allows us to give a completely different way to solve these problems in the more complex procedures. And then also, I think very important to realize, while the catheters themselves are a very big part of the market, there's a lot of other ancillary things that get used. So our transseptal access systems, the market leaders for transseptal access, that will grow at or greater than market. More use of the OPAL Mapping System. And also just a commitment to continue to bring out new better improvements to our catheter platform. So as Mike said, I mean we're already on a third-generation PFA catheter with FARAWAVE while the competitors are still just trying to bring out there first. We will have FARAWAVE Ultra. We've got FARAFLEX that's in its first human use, hope to begin the IDE trial of that imminently. And so it's just this continued cadence of improvements to the catheters, to the mapping system and to the ancillary products that get used during ablation procedures.

Excellent. And just to circle back, just on the U.S. market growth assumption closer to maybe in the lower double digits, closer to 10%. Is that -- there have been some capacity constraints, just a lot of large numbers. Some of the -- I mean our understanding is patient queues are very long and there is work being done by many high-volume centers to build out EP labs that we just hear from a couple yesterday on a physician panel. But any -- just help digging into the U.S. market assumption for 10%-plus growth.

Yes. So in the market, we think the AF is growing faster. We think, as I said, it's closer to upper teens, 20% where FARAPULSE plays.

In the U.S as well?

Yes.

Yes.

And we started that. Because you see increased adoption still in terms of the PFA utilization. You still see, believe it or not, new centers opening with PFA. You have ASCs that will continue to impact more materially as time goes on, and you're getting really kind of the price normalization, I would say. So you're kind of lapping that. But we still feel comfortable with the segment that we're playing in primarily with AF growing, call it, upper teens, close to 20%.

Thank you for clarifying. And just -- and I know our team, we focus on our checks with clinicians trying to hear their forecast or what they're using currently, what they expect to use throughout this year. We tap into these high-volume academic center electrophysiologists and my understanding is that majority of atrial fibrillation cases are done outside of those centers and then maybe community hospitals or soon to be ASCs or in some states ASCs. But any help just thinking about where Boston's or just the FARAPULSE platform share is in that nonacademic center bucket? And is that an area where you guys are having outsized success?

Yes. I mean I'm not going to give an exact share breakdown, but the point that you made, I think, is one that bears repeating. It's a really important one. And that is, the best data is that about 2/3 of AF ablations take place in relatively low-volume centers. And then even if you look at the 1/3 that are in high-volume center, right, that's then a mix between the academic centers and I'm an ex academic, right? And when you're an academic center, you sort of have to use a variety of different tools because you've got to train your fellows in how to use all the available tools. When you get outside of the academic setting, right, then it is very unusual for folks to adopt more than 1 or 2 workhorse platforms. And our experience here is, if you're only going to have 1 or 2 platforms, it is really hard for FARAPULSE not to be 1 of those 1 or 2. So again, not going to give an exact number, but I think you can expect, right, that we've got outsized share when you're looking at low-volume centers and even high-volume centers when you're looking at nonacademic centers. And as you move out to the ASC, again, I think that's an environment where we're going to particularly shine based on safety, based on efficiency and based on just total cost of doing the procedure.

Thank you for that. And just any help thinking about the nonablation catheter piece of the FARAPULSE overall revenue pie, and where you sit at entering 2026 from a market share standpoint? And just, is that where you could see some outsized growth because of you're underrepresented in nonablation catheter technologies?

Yes. I mean, I break it down, I think, by some of the specific technologies. If you look at transseptal access, right, I mean we are, by far, the market leader there. I think our growth there is going to track market, which is a very healthy growth. But since we pretty much are in the market there that you're not going to grow faster. And we certainly have an opportunity to get increased share for the use of mapping with OPAL, with the enhancements that we brought to OPAL. And then as you look further down the line, there's also the opportunity to get into more advanced imaging ancillaries, whether it's things like ICE catheter into cardiac echo or whether it's things like the partnership we announced with Siemens in terms of a 4D ICE product. That's a little bit, again, farther out than '26. But again, come back to your point, it's not just the EP catheter. And I think we do have an opportunity, again, to grow at market or faster than market as you look at a lot of these ancillary products.

Great. One last question on the EP business, well WATCHMAN is right there, too. But just on concomitant and just in that dynamic of the non-high-volume academic centers having 1 or 2 systems, I mean how big of a deal is it to have WATCHMAN and -- in terms of helping you secure that #1 or 2 kind of spot in these nonacademic centers that are performing AFib ablation cases and WATCHMAN procedure, seems pretty big?

Yes. I mean I think FARAPULSE is good enough to stand on its own. I think even if you didn't have WATCHMAN, you'd be really hard pressed not to have that as 1 of your 1 or 2 systems. But absolutely, right? The opportunity to do concomitant, the fact that WATCHMAN is, again, by far, the market leader for left atrial appendage closure and the opportunities that we have, right, to, again, build a moat around concomitant with things like developing a specific sheath to support concomitant workflow with some of the imaging things that we're doing to help support a concomitant workflow, that absolutely strengthens our position.

Great. Well, we've a big milestone for WATCHMAN is coming up this month, at the end of the month at ACC with the CHAMPION trial results being presented. Is there any way -- or hoping you could just -- you guys could paint the kind of best case scenario and the next base case scenario with results? I know you can't share the results, but just in terms of fully -- with opening that, the quadrupling of that patient opportunity or TAM, what do clinicians need to see?

Yes, so have the meeting a month from now.

That's right. I mean, I think just for everyone to recognize, right, there are 2 primary endpoints to the trial. One is an efficacy endpoint, right? And the goal here is to show that WATCHMAN is noninferior or in other words, it provides comparable protection against stroke to latest generation of blood thinners. And the other would be a bleeding end point where the goal would really be to prove that WATCHMAN is superior in terms of safety over -- preventing clinically important bleeding over the long run. And both are important endpoints. I don't know that one is more important than the other. But I would say if we do happen to hit both endpoints, right, that then changes WATCHMAN from really being something that's restricted to patients who really can't take blood thinners over the long term and opens it up as a first-line choice and really, I think, gets to much more of what [indiscernible] sort of shared decision-making. It becomes a patient-physician discussion, do you want do pills, do you want to have an invasive procedure? And I think the other thing to -- important to be aware of is there is this play between OPTION and CHAMPION. And when you think about that kind of decision-making that I was talking about, again, what's -- if we hit both endpoints, right, and it becomes sort of a patient's decision which way do you want to go, I think it's a lot easier to make that decision of which way you want to go if you're going to have an ablation at the same time. It changes it from the why to the why not. And so we knock wood, hopefully, we will hit those end points, and I think everyone's going to know in a couple of weeks.

Excellent. Looking forward to that presentation. There have been some concerns around data sets that have been presented in 2025, the OCEAN-AF and CLOSURE-AF that maybe on the margins, that TAM expansion, going over 5 million patients to 20 million patients indicated if WATCHMAN can move to first line contracts a little bit. I mean, maybe we can start with if you have any thoughts? I know you've reviewed this for us before, I think publicly, but lower risk patients in OCEAN, it seems like, and maybe [ non-motoring ] candidates in CLOSURE potentially from a high level, but maybe you could provide some more details around your thoughts...

It's exactly what you said, right? So there's a bunch of data that came out. Let me deal with CLOSURE first. right? CLOSURE was a German trial of very high-risk patients that used a very large variety of different devices for left atrial appendage closure, including early generation WATCHMAN, including early generations of some of the competitive products that were out there. I think the headline on that was it was a negative trial, that the blood thinners did better. I think when you peek under the hood on that, this actually -- we found it relatively encouraging because it didn't fail because it didn't provide adequate stroke protection. CLOSURE is actually the first very high-risk patient population where you could prove that even with these legacy devices, left atrial appendage closure provided comparable stroke protection to best available blood thinners. It lost on operative complications. And our view on that is that if that trial had been done with WATCHMAN FLX, they would not have had the degree of complications that they saw in the trial. So again, even the OCEAN -- I'm sorry, even though CLOSURE headline negative for the field, when you peek under the hood, we actually see a lot of positives in that trial. The other one that you mentioned is this trial called OCEAN. And there were 2 trials. There was OCEAN, there was trial also out of Korea called ALONE-AF, both of which showed, again, very convincingly for the very first time that AF ablation, in and of itself, reduces the risk of stroke. But these were trials of relatively low-risk patients to begin with. So again, just for the noncardiologists here, right, not everyone with AFib is at risk of stroke, not everyone with Afib needs any kind of treatment to prevent stroke. We look at a scoring system. It's called CHADS VASc, right? And typically, you think of people, CHADS VASc score of 0 or 1 is very low risk, 2 is kind of moderate risk, 3 or higher is high risk. And 3 and higher are really the patients who are candidates for WATCHMAN today, right? The vast bulk of patients in those 2 trials had scores of 1 or 2. And so I think we really haven't seen any material impact since those trials were published in terms of referrals in for concomitant the WATCHMAN plus ablation. And I think it's just really good news for ablation in general because it does provide a reason now for patients to have ablation that goes beyond just relief of symptoms.

I appreciate that breakdown. Your team has been -- shared -- helped investors think through just the timing of a benefit from positive CHAMPION results and guideline changes, reimbursement decisions, coverage. But it's hard to imagine that positive data won't at least push some patients into the queue within the current indication. How are you guys thinking about that? Or how should investors and analysts think about that dynamic coming out of the ACC in the scenario where WATCHMAN does hit both primary endpoints?

Yes. So should the trial be positive. Again, I think there's an immediate impact in just reinforcing the current indication, but it will take time for the label to change, will take time for consensus statements or guidelines to reflect the new data and will certainly take time in the U.S. for CMS to revise the national coverage decision. And that's why I think we've been pretty consistent in all of our conversations around this to say, this is why, assuming a positive CHAMPION, we see that as sustaining the 20% market growth in left atrial appendage closure this year and over our long-range plan.

Thank you. I wanted to touch on the Penumbra acquisition. I think it was a little bit of a bigger swing than in years past, but not huge for -- and obviously, you guys had the capacity, but may have surprised some. Penumbra has been having success as a stand-alone. Maybe just review how Penumbra can get even better under Boston's roof and really the rationale for that acquisition?

Yes. I mentioned when we announced it, with our performance and our ongoing commitment to the high performance and their results, you saw the fourth quarter results. You have 2 very strong companies combining together. Culturally, we spend a lot of time with them. They're an excellent company. And so I think we can help each other. And the key will be to retain their commercial team, run them as a stand-alone business under our Cardiovascular Group, just like we do our WATCHMAN business, our ICTx business, our CRM and EP business. So it will be under Joe Fitzgerald. Actually Penumbra eventually post closing will go under our ICTx PI vascular business. But we'll really retain like we do all of our companies, Global Business Unit President, retain their commercial team. And where we can benefit each other is Penumbra is clearly less scaled outside the U.S. than we are. We have a very large business in Europe, Middle East, Africa, all over Asia Pac. They are underscaled there, just given the market size and their focus has been more -- not totally, but more on the U.S. So we have significant capabilities outside the U.S. Also, their business has a variety of stakeholders with the vascular surgeon, interventional radiologists, interventional cardiologists. We have excellent relationships across those groups, across our businesses. So there'll be some accounts where they may not be in, maybe their competitor is in, but we have strong relationships there. So I think we'll be able to help Penumbra out in that way also in the supply chain area as we continue to globalize them. We're a big footprint in Costa Rica. They're building the plant in Costa Rica. So I think on the whole supply chain side. So the benefits to Penumbra will be the supply chain side outside the U.S. and helping them with accounts where they may be less strong given the relationships Boston has. For Boston, it helps us in many ways. I just saw a couple of cases last week. One case didn't require -- both [ knee ] cases. One case did not need anything other than the Penumbra case, other case required balloon stent and guidewire. And they actually pulled a competitive product. So in that case, in the future, hopefully, that balloon stent guidewire will be Boston Scientific that will complement the Penumbra case. So the -- really the -- we have different portfolio. We -- there are spaces that we didn't play in, neurovascular and VT. And so the combination of the category leadership portfolio we have across interventional cardiology and vascular, combined with Penumbra is just a beautiful solution for customers and for our category leadership strategy. So we think there's a lot of synergies in the portfolio given the uniqueness of what they have in neurovascular, which we don't play in, and also in thrombectomy.

Great. And then any updates just in terms of expectations for getting through the regulators and closing?

We'll see. We're in the heat of that now.

Okay. And I think the filings came out, and it seems like the time to kind of interaction to close was -- or not close, but acquisition offer was relatively condensed. But my understanding is you've been following many companies over the years, and you had some fairly detailed knowledge of Penumbra's portfolio and capabilities. But any comments just on that filing and some of the timing that was shared publicly?

I just think both sides see the strategic fit, which is your first question. So if you're Penumbra, you want to have a great company, you want to grow and thrive in a company that has a similar culture and that's Boston Scientific. For Boston Scientific, we also wanted to add that capability. It's long been an area that we want to get into in neurovascular and thrombectomy with the market leader. And so I think, obviously, you may have read the proxy or not, we knew the company well, they knew us well. We gave them a compelling offer. And we know how to integrate this right to make sure that both companies remain stronger post acquisition.

All right. Well, we're running down to the end of the half hour here. Thank you guys so much for taking all the questions and giving the answers. Great to see you in person and have a good rest of the day with your meetings.

Thank you for having us.