Boston Scientific Corporation (BSX) Earnings Call Transcript & Summary

Okay. All right. Good morning, everyone. Welcome to day 3 of the Wells Fargo Healthcare Conference. I'm Larry Biegelsen, the med tech analyst here. And it's my pleasure to host this fireside chat the management team from Boston Scientific. With us, we have Mike Mahoney, Chairman and CEO; and Dr. Ken Stein, Chief Medical Officer. Thanks so much for being here.

Pleasure, Larry. Thanks.

I'd be remiss if I didn't say we also have Lauren Tengler kind of Investor Relations also with us.

So Mike, let's start with the unfortunate cyberattack and hopefully, most people saw the update last night, which was very positive, operations fully restored. Mike, just -- I think people would love to hear from you kind of the status update and the impact. You put out an 8-K earlier this week that said you're unlikely to meet the Q3 and the full year guidance. So how are you thinking about the financial impact and the recovery?

Yes. So certainly, unfortunate event, very proud of what our team has done the past 8 days to secure the IT systems globally to secure distribution to your manufacturing, but it was an 8-day impact where we weren't able to ship or manufacture. So obviously disappointed there, but really impressed with what our team did to recover very, very quickly working around the clock over those 8 days to ensure that and also to ensure the integrity of the system with all our third-party suppliers, hospital connectivity, all the EDI capabilities, so it's all back to normal after that. It's fully restored. I was at our distribution center yesterday, and they're cranking through working very hard and manufacturing is back up and running. So that's all really good news. The unfortunate news with the 8-day impact we did indicate that's unlikely that we met our third quarter and full year guidance. And a big part of it is we just have to sift through what the recapture rate is and that's still what we're working through now. It's -- we obviously lost procedures that day. Some areas or some regions or some businesses would have adequate supply, many didn't. Hospitals were unsure as we were at the time how long it would be. And so some hospitals likely ordered from others during that time, which would be understandable. So it made sense for us to indicate that in our 8-K on the unlikely piece of it, but are very impressed with what our team has done to recover. And now our focus is on working closely with these customers to try to recapture as much as we can. But it's hard to pinpoint that exact dollar amount at this point, but by the October earnings call, October -- whatever 28? We'll certainly be able to give more precise information there.

The impact was broad-based across Boston Scientific...

Around the world, yes.

Any areas impacted more than others, geographies?

No, it was -- all of our plants were shut down. And distribution centers sit down globally.

And I know it's really early, but implications for 2027, you talked about 2% to 4%...

I think the big thing is the whole theme of the business, which will -- we can talk about are unchanged based on the cyberattack. But we just have to get a better handle on your question on the recapture rate and the financial impact. And we'll know a lot more in the next 45 days. So we'll be able to give a better sense. We won't give our official guide in October, we'll probably provide a better framework for '27 at that time.

All right. Let's move on to the business I mean there's a ton of questions I could ask on the cyberattack, but I think there's...

It's back to normal.

It's good to hear. Yes. And sorry, you guys had to go through that. So it's unfortunate.

So I would say in a positive note, maybe it doesn't help -- the industry does help each other out of this one. There's a lot of competitors that we compete with, but we're all kind of under the same cyber risk despite all of our great efforts and investments. And so a lot of companies share best practice to share information. So it's a nice thing to say. So we're very thankful for that.

Yes. Good to hear. So let's touch on WATCHMAN, we'll start with WATCHMAN. I guess the question really is the guidance, I think, implies mid in the U.S., mid- to high single-digit year-over-year decline in the second half. you said you expect the market to decline in '27 by a similar amount. I guess, so the big picture question is what needs to happen for the market to grow again, the LAAC market?

Sure. I'll touch on it. So in '27, we really don't want to call the market improving until we see it improving kind of based on what's happened this year. And so our aim obviously is for the market overall to improve based on the great clinical evidence of WATCHMAN in general in totality the safety profile, the amount of patients who are unprotected AFib. So we think it's going to be a stronger market, but we don't want to call it until we start seeing that improvement. The last 8 days haven't helped that visibility, but we'll recapture that. So the big efforts we're doing is first as [ MedAffairs ] and education to our implanters, to our referrers to the based on the totality of evidence of CHAMPION because it's a bit -- with those 3 trials that are out at the same time, some kind of conflicting information. So that's a big effort in that area and Ken can talk more about that. Secondly, we're putting a lot more dedicated focus on the WATCHMAN product with our commercial team. Sometimes they had shared responsibilities were allocating more direct allocation of resource to that to deliver that message in the right way at the right level. We've increased our DTP, our direct-to-patient activation quite a bit, because we've seen a benefit of that. And then hopefully, in 2027, based on the CHAMPION data, we'll have a label update. Which will provide some additional support and confidence in the therapy. It's an amazing therapy. Probably family members in this room have had it. It's safe. It protects patients many patients don't want to go -- stay on oral anticoagulation is well proven. And we have a big global opportunity over time if we can unlock that as well. But I don't know, Ken, if you want to add anything?

Yes. I mean really just to put a little more color around what Mike said. I mean, just I don't want to come back right to what the key data point is. And the key data point is no matter who you ask, somewhere between 30% and 40% of high-risk AFib patients in the United States and Western Europe today are left completely unprotected. And there look to be no doubt, but that those patients are better off with some kind of protection against [ stroke ] and WATCHMAN is by far and away the best proved option that there is out there. We just need to do a better job of articulating that, and that's on us. I think the professional society is Sky HRS, released a draft guideline update that we see as a positive, again, reinforces the very high way of evidence now that WATCHMAN provides equivalent stroke protection as compared to oral anticoagulation, reinforces the notion really that every patient who's high risk at AFib needs to have a conversation with their treating physician. Are they patients who can't? Are they patients who won't? Are there patients who shouldn't take long-term anticoagulation, and for those patients, right, they need to have an educated conversation with their physician is watch them the best option for them.

On the label change that you hope comes in '27, what does that look like versus the label today? What would be a good step forward?

Yes. Again, I first just want to reiterate, right? Our view is that the totality of the data and the accumulating data around WATCHMAN do support an update to the label in 2027. And to me, right, the key is what I just said, right, to make it clear that WATCHMAN to be in consideration for every high-risk patient with atrial fibrillation. If they can't, they won't or they shouldn't take long-term oral [indiscernible].

How is that different from today?

I think right today, there's still a lot of confusion I mean the label today is for patients who have an appropriate medical rationale to seek an alternative to long-term anticoagulation. Now -- and I almost feel like I'm playing the [indiscernible] somatics. But I think the issue here is that what that means is not very clear. Both implanting physicians and to referring physicians. And so there's a tendency here, right, that people believe that means right, that this is only second line to therapy that you need to have had a life-threatening bleed on oral and coagulant before we're going to consider you for this. And I think what to us would be a win and to us. So we think it's a win that the therapy deserves would be, again, to clarify know that this ought to be something that every patient needs to consider and that they need to have a discussion with their treating physician. Because again, are they someone who either can't or long term shouldn't be taken drugs over the long term?

Okay. There's a couple of other cross currents in the market, you have a new competitor coming. So I mean, it sounds like it's safe to say that you think at least in '27, you'll grow below market. I'm sure you're not going to say, hey, here's how much share we're going to lose, here's how much below market. But you would imagine you would expect to grow below market. Is that fair?

Yes. With a new product coming out, it's fair to say we grew below market in '27. Our job is to get the market stronger again. That's -- we are very confident in the data of WATCHMAN the safety profile, the comprehensiveness of our support team and the confidence that doctors have with it. New product will come out, we'll take some share. We have 90% share. But our job is to drive the market to be a right again like it used to be and like we aim for it to become. And then we'll also -- we have product reiterations and new platforms coming. So we expect to be the very high, strong leader in this market for a long time, but '27 with a new product coming likely to grow below market.

And to be fair, the first time the competitor came to the market, I think investor expectations were for you to lose more share than you did. So you definitely retained more share the first time investors expected? And I put myself in that cap. So congratulations.

Yes. Thank you.

So and then the physician fee is going to be cut again. and you've highlighted that this year as a factor for, I think, negatively impacting stand-alone procedures that 2 proposed cut. Do you think that goes through? And does that have an impact on the stand-alone procedures, which have been declining?

I think Ken can answer as the physician. I think maybe marginally, I think most physicians, when patients are asking and the right candidate for WATCHMAN, they do the right thing. Obviously, you'd like to have more of a tailwind there on physician reimbursement. The hospital reimbursement is quite strong and continues to get strong. So there's a lot of momentum from the hospital to build WATCHMAN programs and AFib programs and concomitant programs, [ add labs ], invest in the team, all that kind of stuff. So marginally, it's not a tailwind for sure, but we typically see that most physicians do the right thing. And whether it's they read that 50% premium, but we typically don't see as the major stumbling block has been this confluence of confusion on data, I would say, and just some of the procedural inefficiencies that we've talked about with concomitant, which has been a boom for us, but also a bit of a lag in terms of productivity.

How important is -- Mike, you talked about getting the market to grow again? How important is that label update to achieving that? Or is it more of the education process around the...

All that stuff. More data comes out, longer-term data on Champion that comes out over time. more real-world evidence comes out. Your mix of concomitant and stand-alone gets better every quarter. That's helpful. New platforms help. So I think it's really the combination of all those things.

And maybe just to add, and again, it helps guideline update. And again, we do see the proposed guideline update from HRS and Sky is positive. I think the bigger unlock then would be went to CMS revisits national coverage determination, which is -- I think by the time that gets finalized, that's not going to be something that has any material impact.

In terms of the data, we had a lot of data come out in the last year ALONE-AF, OCEAN, CLOSURE and obviously, CHAMPION-AF, where -- which data set is having the most impact on the market. I've heard from you, maybe OCEAN and this ablate and wait, which CLOSURE-AF wasn't helpful a week before CHAMPION-AF, which data set? Or is it the totality that's causing the issue?

Yes, I think it's what you just said. It's the totality and it just takes people time to parse how to put all these conflicting pieces of data together. So [ late and weight ] by and large, right, the biggest impact that has -- is on patients who were never watching candidates to begin with, right? The lower chances risk patients. But in that sort of chance to ask 3 category, it's having an impact. Again, closure I just wish we could get people to get behind -- beyond the headline and actually look at the data because, again, that failed its endpoint because the rate of complication was an order of magnitude higher than what we see in the U.S. And it was a trial, right, where the minority of devices were much in flex. But even in spite of that, it convincingly showed equivalence of stroke again, CHAMPION the haters right, worry about the difference in stroke grade. Again, it's something I don't understand because the appropriate comparison isn't to the drugs, the appropriate comparison is what would happen to patients if we're getting nothing. And that's why I just keep coming back to right? I mean the size of that population that's currently left unprotected, that 30% to 40% of high-risk patients, right? I mean that's the patients to deserve some degree of protection. And that's the population that would -- if we unlock it, right, get us back to the level of growth and launch that we aspire to.

Got it. Okay. Let's transition to EP. Obviously, Dr. Stein will stay involved in this conversation, too, as its CMO and trained electrophysiologists. I guess the question is -- well, there's been questions on the market, and I guess let's get that out of the way. We've heard you -- I've heard secondhand. You've talked about maybe pricing having an impact on the market, which has been super robust. The growth how are you thinking about the outlook for the market?

It will continue to be healthy. I it's been hyper growth, given the conversion of RF to PFA with pricing benefit there and the conversion to PFA has been very rapid in the U.S., like approaching 90% or so now. less so in Europe, less so in Asia Pac for sure. So there's more room to grow on conversion outside the U.S. In the U.S., it's more highly penetrated over time, maybe that additional 10% falls as products get better. So we still think this is going to be a very strong market. Will it grow mid-teens, not clear with a lot of competition out there. There will be a bit more pricing pressure likely and you won't have that adoption curve, but again, I don't think this is a business where electrophysiologists make certain vendor selection. So it's not a price declining in this marketplace. Doctors are still choosing which catheter they want to use. Which Mapper which clinical system they want to use. So the -- it's still a very high preference physician preference item. So I don't think you'll see significant price decay, but likely some pressure on price. So we still think it's going to be a very strong market.

Double digits?

We believe so.

Mike, I guess I want to ask you a big picture question on EP. You've said, I think, that there was a time when you consider getting out of EP, I believe and FARAPULSE was obviously a big success. And your strategy has been category leadership across Boston Scientific, which has served you well. When you came into EP with FARAPULSE, you weren't a category leader. Are there any lessons learned here? And how do you -- what's the path forward for EP.

Lesson learned, if you can find a FARAPULSE, you do it, because we had a crappy EP business -- sorry. We had a bad EP business. And now we have a strong #2 global EP business. So if you could find a diamond in the rough like that, you do it. And then at the same time, since we came from such a lack of girth in our portfolio, our focus 100% is on widening and shrinking that portfolio. And so I wouldn't -- we wouldn't have done it any other way. And now we have a cadence of products that are coming. We all want them faster from our Ultra product, which will be here this time next year to entering the ICE market, which we're not in, to Flex and other things that we want to do. So we want to widen -- clearly want to widen just like many of our peers do, our EP offering, and that's the goal.

And the short-term issue has been your PFA share has eroded faster than you expected. You had a super high share. We estimate maybe now it's about 50%. People are trying to figure out where it troughs, and we see all the competition coming. I guess, are you -- I don't know if you'll share with us where you think if you can remain the leader, where you think it troughs? And how are you thinking about these competitive entrants in light of your pipeline, FARAWAVE Ultra and then FARAFLEX?

Yes. We spent a lot of time on it. So we undercalled the share erosion, as you know, we've talked about that this year. But very proud of what we've built, and we've built that capability globally now. And so when you're really relying on, for the most part, one platform with our OPAL mapping system, which continues to make nice progress. We're confident with that. There's kind of one way to go with that share position. And despite that, most -- more often than not, doctors are still choosing FARAPULSE. And the work it does and the safety profile and the efficiency is very well proven out. So that share will continue to decline a bit until we can widen that portfolio. And that happens -- starts to happen in second half '27 with our Ultra launch, which we think reinforces FARAPULSE as the ideal platform. It will tie our physicians more closely to the OPAL mapping system, providing more capabilities. It's a more efficient mapping and ablation catheter than FARAPULSE is today. And we won't require doctors to use it if they want to use competitive mapping systems. But we think that will accelerate OPA adoption. It will secure the beachhead more for what FARAPULSE has already secured. And then we widen the portfolio with ICE and FLEX.

FARAFLEX. FARAFLEX, you just started the IDE. It's a little -- there are competitive entrants coming before that just from a pure time line standpoint. I guess maybe the question is some of those -- there's excitement in the clinical community on some of those. NANOPULSE is one of those. What's your view on just that kind of that waveform, it's different. And they've been very public, they're a public company about partnering. Is there an opportunity to partner?

It's sure. There's always opportunities to partner with companies. But I think that the key is the market is going to be strong. It may not be as mid-teens, high-teens growth market, but it's going to be strong for a long time. And it's highly competitive, but we have a very, very strong share position and a very robust road map. So we're never going to get back to the growth rates that we saw when we launched FARAPULSE. But at minimum, if you can go back to at market and ideally above market with our product launches, you've got a very accretive growth business.

And when do you think you can get back there? I mean at market?

Well, we're aiming with the Ultra launch to -- and the ICE launch in the second half of '27 to improve our position.