LivaNova PLC

Good day ladies and gentlemen and welcome to the Levernova PLC third quarter 2021 earnings conference call. My name is Lydia and I'm your operator today. As a reminder this conference call is being recorded. I would now like to introduce your host for today's conference Mr Matthew Dodds, Levernova's Senior Vice President of Corporate Development. Please go ahead sir.

Thank you, Lydia, and welcome to our conference call and webcast discussing Leiva Novus financial results for the third quarter of 2021. Joining me on today's call are Damian McDonald, our Chief Executive Officer, Alex Schwartzberg, our Chief Financial Officer, and Lindsay Little, our Senior Director of Investor Relations. Before we begin, I would like to remind you that discussions during this call will include forward-looking statements. Factors that can cause actual results to differ materially are discussed in the company's most recent filings and documents furnished to the SEC, including today's press release that is available on our website. We do not undertake to update any forward-looking statement. Also, the discussions will include certain non-GAAP financial measures with respect to our performance, including but not limited to sales results, which will all be stated on a constant currency basis. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release, which is available on our website. We have also posted a presentation to our website that summarizes the points of today's call. This presentation is complimentary to the other call materials and should be used as an enhanced communication tool. You can find the presentation and press release in the investor section of our website under news events and presentations at investor.livanova.com. With that, I will now turn the call over to Damian. Thank you, Matt.

And thank you, everyone, for joining our third quarter 2021 earnings call. I'll start off by discussing our third quarter sales results, then review our strategic portfolio initiatives. After my comments, Alex will provide you with additional details on our results and increased guidance. Then I'll wrap up with closing comments before moving on to Q&A. We're encouraged by the third quarter results where, excluding heart valves, we experienced sequential sales growth, operating margin expansion, and adjusted free cash flow generation, while navigating a more challenging environment impacted by COVID-19 related headwinds. Due to the impact of the pandemic on our prior year results, today's commentary will also include certain comparisons to 2019. We believe this will provide helpful context for the underlying trajectory of our business. Additionally, there are comparisons that are reflected on slide 12 of our earnings presentation. Turning to our core growth drivers, epilepsy and ACS. Epilepsy sales increased 15% globally versus the third quarter of 2020, with double digit growth across all three regions. Additionally, epilepsy sales for the quarter were in line with 2019 levels. These results reflect improved global market dynamics resulting from increased hospital access and patient willingness to return to clinics versus the prior year period. US epilepsy sales increased 11% versus the third quarter of 2020 and were in line with the third quarter of 2019 levels. Total implants grew in the high single digits versus the prior year but remained below 2019 levels. Similar to prior quarter trends, total implant growth was driven by replacements, which continue to benefit from a catch-up in procedures deferred in 2020. Additionally, while sales were down 3% sequentially primarily due to the Delta variant surge, we saw an improvement in leading indicators for patient volumes during October. Our progress in US epilepsy continues to be supported by our go-to-market initiative, which currently encompasses 12 dedicated teams. These teams now account for approximately 19% of US sales and implants, up from 17% in Q2 on a same account basis. They continue to deliver sales and implant growth that is trending above the baseline business compared to the third quarters of 2020 and 2019. Epilepsy sales in Europe grew 16% versus prior year, led by the UK and Italy. We achieved growth of 47% in the rest of world region, led by strong recovery in China, Taiwan, and Saudi Arabia. Europe and the rest of world in aggregate were in line with the third quarter 2019 results. We continue to expect global epilepsy sales to grow 25 to 30% for the full year. Our forecast includes sequential growth in new implants in the US as patients and their caregivers return to in-person physician visits. In addition, We anticipate a continued tailwind in replacement implants related to our backlog created in 2020 that has continued into this year. ACS sales were $15 million in the quarter, an increase of 23% from the third quarter of 2020, and sequential growth of 16%. Growth was driven by the continued adoption of LifeSpark and an increase in procedure volumes, particularly in respiratory distress. Given our performance in the first nine months of the year, We now anticipate ACS to grow over 30% in 2021. Turning now to DTD, sales in the third quarter were $2 million and for the first nine months of 2021 were $6 million. For the full year, we now anticipate DTD sales of approximately $10 million from a combination of the recover study and replacement implants for CMS eligible patients. While we remain encouraged by the progress of patients consenting into the RECOVER study, impacts related to the COVID Delta variant created some delay in implants during the quarter. Due to these delays, it is now more likely that we will achieve 250 unipolar patients implanted in early Q1 of 2022. In addition, since we are currently skewing unipolar, we anticipate achievement of this milestone will occur ahead of the bipolar cohort As a reminder, we can submit the data from the unipolar and bipolar cohorts separately for transition to the post-longitudinal study or the registry. We still anticipate a transition to registry to occur in late 2022 or early 2023. In heart failure, the Anthem HFREF pivotal trial continues to advance after reaching a key milestone of 300 patients enrolled in April. Once these patients are followed for nine months and the 400th patient is enrolled, independent statisticians will review the data set. If all five criteria have been met, including safety, a trend towards primary endpoint, and success in the three functional endpoints, we may submit the functional data to the FDA. If we do not meet all the criteria, independent statisticians will take another look at the data after the 500th patient is enrolled. We continue to expect the independent statisticians to start analyzing the data in the first half of 2022. Moving to OSA, our Osprey trial has commenced and we are activating all 20 selected sites with several already screening patients. We remain on track to implant our first patient this quarter and still assume submission for FDA approval in mid 2024. For the cardiopulmonary business, sales were $123 million in the quarter an increase of 15% versus the third quarter of 2020. Oxygenated sales increased in the high teens globally, with growth across all three regions, driven by improvement in cardiac surgery volumes. Heart-lung machine sales increased over 25% with growth across all three regions, with particular strength in the US. Additionally, cardiopulmonary sales for the quarter were 2% above 2019 levels. HeartValves was divested on June 1 of this year, and HeartValves sales for the third quarter of 2020 were $21 million. And with that, I'll turn it over to Alex.

Thank you, Damien. During my portion of the call, I'll share a brief recap of our third quarter results and provide an update to our 2021 guidance. Sales in the quarter were $253 million, an increase of 15% versus the third quarter of 2020. excluding heart valves. Sales increased by 5% in comparison to 2019. Cardiovascular sales were $139 million, an increase of 15% compared to the third quarter of 2020, and 9% compared to the third quarter of 2019. Neuromodulation sales were $113 million, an increase of 15% compared to the third quarter of 2020, and were flat in comparison to the third quarter of 2019. Adjusted gross margin as a percent of net sales in the quarter was 71%, up from 67% in the third quarter of 2020, and up from 70% in the third quarter of 2019. The increase in the margins for both comparative periods were primarily driven by product and geographic mix. Adjusted R&D expense in the third quarter was $37 million compared to $36 million in the third quarter of 2020. R&D as a percent of net sales was 14.8%, which was in line with prior year. Adjusted SG&A expense for the third quarter was $93 million compared to $92 million in the third quarter of 2020. SG&A as a percent of net sales was 36.6%, down from 38.2% in the third quarter of 2020. Adjusted operating income from continuing operations was $48 million, compared to $32 million in the third quarter of last year. Adjusted operating income margin from continuing operations was 19%, compared to the 13% in the third quarter of 2020. This increase was primarily driven by favorable sales results and gross margin improvements. Part of the operating income margin improvement was driven by deferring certain operating expenses into the current quarter. The adjusted effective tax rate in the quarter was 10.5% compared to 4.5% in the third quarter of 2020. The higher tax rate is primarily attributable to geographic income mix. Adjusted diluted EPS from continuing operations in the quarter was 68 cents compared to 38 cents in the third quarter of 2020. Following the equity offering, adjusted diluted weighted average shares outstanding in the quarter were 52.4 million. Our cash balance at September 30th, 2021 was $182 million, down $71 million from cash balance of $253 million at year end 2020. Net debt at quarter end was $123 million versus $505 million at year end 2020. The change in our cash balance and net debt was impacted by the equity offering where we raised $323 million in net proceeds and the retirement of $450 million term loan. In addition, we executed a $125 million secured revolving credit facility that is available for general corporate purposes and remains undrawn. Our adjusted free cash flow for the third quarter of 2021 was $40 million. and was $52 million for the first nine months of 2021. We invested $18 million in capital spending during the first three quarters of the year, which was $11 million lower than the comparative period for 2020. Now, turning to our revised 2021 guidance. As Damian mentioned, based on our performance during the first three quarters of 2021, we're increasing our previously announced full-year guidance. We are now forecasting 2021 sales growth between 8% and 11% and between 15% and 18% when excluding the heartfelt business. This is up from our prior guidance of 5% to 10% and 12% to 17% respectively. Our full-year sales growth guidance assumes a 2% tailwind from exchange rates. We are projecting adjusted diluted earnings per share from continuing operations in the range of $2 to $2.10, up from our prior guidance of $1.75 to $2.05. We assume our adjusted diluted weighted average shares outstanding to be 54.1 million for the fourth quarter of 2021, and $51.5 million for the full year. Adjusted free cash flow from operations is now expected to be between $55 to $75 million, up from our prior guidance of $50 to $70 million. And with that, I'll turn the call back over to Damian. Thanks, Alex.

We're building good momentum across a diverse portfolio And taking this into consideration, we've increased our guidance ranges. While we continue to live with the changing market dynamics resulting from the pandemic, we remain focused on delivering improved business performance and delivering on our pipeline commitments. We look forward to sharing additional updates with you at our upcoming Investor Day on December 7th, which will be a virtual event. And with that, Lydia, let's open the line for questions.

Thank you, Damien. If you have a question at this time, please press star followed by one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, please press star followed by two. As we enter the Q&A session, please limit yourself to one question and one follow-up question and then return to the queue if you have any additional follow-ups. Our first question today comes from Rick Wise of Stiefel. Rick, your line is open. Please go ahead.

Good morning, Damian. Hi, everybody. Obviously, there's so much to unpack here. It's like, where do we start? Let's start with Neuromod. Clearly, you continue. It's another quarter of solid execution, as you indicated, Damian. Maybe just you could unpack it a little more. What, if any, impact on this momentum did COVID have, do you think, in the quarter and how's the fourth quarter starting out? We're just hearing so much from so many people. And just related to all that, I know backlog has helped last quarter, second quarter, and I'm guessing this quarter, I think you said. Where are we with that and what's your confidence as you move ahead, not just in the fourth quarter, but into next year on that front?

Well, first of all, good morning, Rick. Thanks for joining us. Yeah, like you say, a lot to unpack. Let's start with, you know, clearly Delta is still having an impact, particularly the U.S., Australia, Japan. To unpick the U.S. a bit, the leading indicators from the U.S. epilepsy business improved significantly in October. You know, I think for us, the important thing is you're right, we're getting a tailwind from end of service. So Total US implants grew at high single digits, and the strongest performance was August and September, so it improved through the quarter. Similar to the last few quarters, the end of service recovered faster than NPIs, and that's a lot to do with the deferred procedure catch-up. So end of service grew over 15% year on year. NPIs declined mid-single digits, so it was an end of service implant business opportunity for us that really helped. In 2021, we expect end of service to grow over 20% and the NPIs to grow in the mid single digits. So I'd say improved conditions in the back half of the quarter into October, end of service definitely helped in the US. In international, which I know is a smaller part of the business, nevertheless, we saw a really significant increase in Canada, China, Saudi Arabia, Taiwan, all really significant growth. And we're really pleased about that. Taiwan was interesting because there was some recent reimbursement changes and our Salesforce investments read through. So really pleased with how the team executed in the rest of the world as well.

Yeah, Rick, it's Matt. So on the backlog, and David highlighted, we're at 900. Remember last quarter, we said we were at 1,000. So we did think we ate a little bit into the rolling backlog. But just given that number, we're not going to capture that in the fourth quarter. We might capture maybe 100 or 200. So this will roll into 2022 as well.

Gotcha. Turning to, I think, a second big topic, the RECOVER trial. You highlight the delay, thinking about it generously, delaying into the first quarter. It seems like a modest delay, but can you just you know, help us feel confident that it's not going to be worse than that in general. And, you know, it's not fair, but I don't care. How did monthly enrollment trends flow through in the third quarter? Was September the weakest? Are you starting to see it reaccelerate and pick up? And the pace that gives you confidence and gives us confidence that a first quarter, you know, will be sufficient to get to where you need to be on the unipolar side?

Yeah, good set of questions there. So it was really the last couple of months we just saw the implant rate slow down and, you know, largely an impact related to Delta patient availability and the clinical staff shortages at some of our clinical sites. If you look at consents, consents actually sequentially increased nearly 25% quarter on quarter. So actually that technical theft was really positive. It really was just the pull through into implants. And so that's why I think a modest delay into early Q1 is, as we described, a modest delay. And it doesn't really affect our transition to registry, we said, and we still commit this late 2022, early 2023, depending on CMS's review timing. So that hasn't changed. We're skewing unipolar. So, you know, the unipolar one will come through earlier. And bipolar, who are sicker patients and just harder to move through the pipeline, that's extended a little bit. But we're really positive about the unipolar.

Yeah, Rick, if you look at our average in August, September, October for implants, and you extrapolate that through the next three months, that's why we're very still confident it's the first half of Q1-22.

Great. That's great. Just last, I'll sneak one last one in. LifeSpark had a brilliant quarter, obviously. And maybe just give us a little more color there. To what degree has this been COVID-related patients? What percent is COVID? And if I'm doing the quick math right, I may not be, Your guidance, while excellent for the year, implies a fourth quarter slowdown. Why would it slow? Is that COVID? Just give us some more perspective. Thanks so much. Great to see the quarter.

I'll take half, and then maybe you can take half. So for COVID, in terms of the procedure volumes, we estimated it was about 45% in the third quarter, Rick. That is up a little bit from the second quarter. Probably not a big surprise. But one thing you should think about is when COVID and Delta kind of got worse in the third quarter, it also does have a negative impact on the business. It's just harder to get into the hospital, and that's critical for the ACS business. So there are pluses and minuses to COVID, but the percentage was 45. And in October, we actually saw it come down a little bit.

And just in terms of growth rate, the Q4 comp is just – more difficult than the Q3 comp, you know, because we were ramping. So that's really the implied growth rate change, but nothing apart from that sequential improvement in revenue.

Great. Thanks again.

Thanks, Rick.

Thank you. The next question of the day comes from Mike Mattson of Needham. Mike, your line is open.

Yeah, good morning. Thanks for taking my questions. I guess I'll start with the cardiopulmonary business. So, you know, you saw pretty strong growth there. I understand you probably had a fairly easy comp, but maybe you could just comment there. The heart-lung machines, oxygenators, both saw good growth. And then, you know, just can you give us an update on the timing of the new heart-lung machine? Is that still consistent with what you said before?

Hi, Mike. It's Alex. So the cardiopulmonary business, this is really just a function of a recovery from sort of the doldrums of COVID last year. We saw strong execution and good performance by our sales teams, both on the consumables front as well as HLM. So we feel pretty good about the quarter. It was a good, strong performance. But again, I think we were benefiting from the tailwinds of last year.

And in terms of the HLM rollout, we're still anticipating, you know, in the second half of next year to start the rollout of the new HLM, first in Europe, then in the U.S.

Okay, got it. And then... I guess I'll ask one on the OSAA trial. So can you maybe just talk a little bit about the design of that trial and the expected timing, again, in terms of enrollment and submission of the FDA?

Sure, Mike. It's Matt. So we're targeting up to 150 patients, two-to-one randomization, six-month follow-up. If we assume about 18 months to enroll, that's how we get to our 2024 FDA approval timeline.

Okay, got it. Thanks. Thanks, Mike.

Thank you. The next question today comes from Adam Nader of Piper Sandler. Adam, your line is open.

Hey, guys. Congrats on the nice quarter here, and thanks for taking the questions. Two for me. I guess the first one is just on the construction of the EPS guidance. You know, given the outperformance and the strength that we saw in Q3, it looks like if I'm doing the math right here, you're assuming a little bit of a step down in adjusted EPS in Q4, even with the raised guidance. So why is that? Is that conservatism, or are there any one-timers to – call out in Q3. And then, you know, secondly, just maybe help us think through OPEX spend heading into next year. You're obviously wiping away heart valve related expenses, but then investing in key growth drivers like Neuromod, ACS, and you have the pivotal trial. So maybe just, you know, touch on that. And then I had one follow-up. Thanks. I add a metallics.

So we're still looking at the Delta variant. It kind of continues to impact hospitals and patients' willingness to undergo non-acute procedures. We're also, you know, our sales force is indicating staffing shortages at the hospital level. So, you know, I think we're being cautious in that regard. We're also being cautious in terms of our supply chain risk, especially in kind of our larger ticket items for HLM. So that's kind of the headline on revenues. And so from a cost perspective, I would say freight costs are going up. I think you're hearing that from most of our peers. And then in terms of the phasing of our expenses, so as we saw some of the challenges in the quarter around revenue trends, you know, we kind of deferred some of the expenses in Q3 into the current quarter. So we'll see kind of a little bit of a bounce back in Q4 around OPEX. And still feeling pretty good about our EPS guide and our ability to achieve our target here.

Okay. That's a really helpful color. Appreciate that, Alex. And then I guess just the one other one for me. You know, you touched on, I think, the investor day and the prepared remarks. I was hoping just to get a sneak peek there for early December and in terms of what to expect. Will we get initial 22 P&L guidance? Will we get an update to the LRP? Is it primarily focused on increased visibility on pipeline and pipeline initiatives and commercialization plans? Just, you know, what should we be looking for here in a couple weeks? Thanks so much.

Sure, Adam. It's Matt. So we're going to walk through all the major businesses and the SPIs. They're all going to get separate sessions. We're going to give a long-range plan. We're not going to focus yet on 22. We're going to save that for February. But this will be pretty comprehensive and build off the educational series we've run over the past 12 months.

Sounds great, Matt. Looking forward to it. Thanks.

Cheers, Adam. Thanks.

Our next question today comes from Anthony Patron of Jefferies. Anthony, your line is open. You may proceed with your question.

Thank you, and good morning, everyone. I hope everyone's doing well. Congratulations on a shrunk frontier. A couple on VNS and then one on depression. On the VNS side, certainly year-to-date shrunk traction. You spoke a bit about the backlog sort of contributing here. I'm wondering if you could give us just an update on de novo implants, uh, specifically how those are trended in 3Q and perhaps how they're trending versus 2019 levels. Uh, we're attempting to do some math here, but we're still getting, uh, you know, a look that it's still down relative to the 2019 levels. So just wondering how de novo placements in BNS are trending, and then I'll have a follow up on depression.

Sure, sure, I think it's Matt. So on NPI, it's down about mid-single digits versus the third quarter of 2020. And it did decline sequentially. Versus 2019, you know, that is still trending below. It's down in the 25 to 30% range. And again, similar to what you're hearing from a lot of neuromod companies, you know, it's still not back to normal from what, you know, Alex defined as non-acute procedures. So no surprise the replacements are getting more attention than de novo. But overall, a lot of this is still related to the hospitals and the patient reluctance to come in for a procedure today. So we again, we said we expect the NPI to accelerate into the fourth quarter. The pipeline looks good so far and certainly to 2022. But that is the one area that is still not back to 2019.

Quick follow-up there just on comprehensive epilepsy centers and, you know, just in that context, how the CECs are performing. Are you seeing at those locations just, you know, better traction and pulling backlog through as well as de novo placements? And then real quickly, just on depression here on the push-out to 1Q of 22, you know, is there anything in the way of dropout that has led to some of that push-out And is that a risk? Meaning, again, patient dropout, and so that's causing a delay. Thanks again.

Yeah, just on the first bit, with the go-to-market, so the CEC group is still outperforming the baseline. 3Q21 versus 3Q19, sales are up 20% to 30% in that group versus sort of flat versus 2019 in the baseline. So I think, again, this group is continuing to show traction in that market segment. And I think that is a good sign for continuing to focus on those 12 pods. And we're looking to expand that in 2022. Just on DTD, as I said, consents were up sequentially by nearly 25%. It's just having that pull through into the implant cycle that is taking some time. And again, I think largely related to patient willingness to come into clinics and the staff shortages at some of our clinical sites.

And there is some level of dropout expected. If you look at the public CMS agreement, that's part of the calculation. Our understanding so far is that's not been something to watch out for.

Thanks again.

Our next question comes from Michael Pollack of Baird. Michael, your line is open.

Hey, good morning. Just a handful for me here. Bipolar arm, would you hazard a comment on when you expect to reach 150 milestone in that arm, it sounds like, clearly? later than 1Q22, but I did not hear an updated target. Sorry if I missed it.

No, I don't know whether I said it, but it's somewhere in the first half. As we hit the unipolar, you know, a lot of attention then will kick over into the bipolar group. As I said, they're sicker and harder to move through. And just, again, with this Delta variant surge, it just really changed some of the trajectory there. And as I said, we're much more focused on pulling through the unipolar, given that that's the larger patient pool. It's like 65% of the DTD patients. So getting that one into the registry cycle is our priority.

And tying together the slight delay here on unipolar and bipolar implants, but the maintenance of the flip to registry target late next year, early 23, is it fair to say that embedded in your flip to registry target of late next year, early 23, you had a range of timelines considered for achieving these important 250, 150 milestones? The question is, You have pushed the enrollment timing, but you have maintained the important flip to registry timing. Help us better understand how those two updates work together.

We may have added a little cushion in there. It's probably the short answer.

Yep. Okay. I don't think this has been discussed on this call, or certainly not this call, but, or the last one. The, you know, MCIT seems to be, you know, on the shelf here, and, you know, that was initially thought to be a nice catalyst for reimbursement for this program to the extent it's successful clinically. So, you know, understanding that there's still the clinical update ahead of us, and I don't want to get too far in front. You know, would you be willing to share a few higher level comments on what the, how you envision the path to reimbursement for VNS and heart failure, given the MCIT program seems to be deferred, if not dead?

Yeah, look, it's personally disappointing that that whole program disappeared. or appears to be disappearing. I, candidly, we never had that factored into our model when we started the whole program. MSIT came along after we committed to the program. So we continue to believe that there'll be a pathway, you know, starting with the max and then building data. You know, a big part of our study was to make sure we were going to generate, you know, important data in the, you know, not only the functional model, milestones but also the primary endpoints. A big part of the program was also breaking it up and having this embedded study so that we could have this conversation with the Macs in pieces. So it's a headwind, but as I said, we had never factored that into our initial model. Thank you so much. Cheers, Mike.

Our next question comes from Scott Bardo of Berenberg. Scott, your line is open. Hi, Scott, your line is now open.

Sorry, apologies, guys. I was on mute. Hi, guys. Thanks for taking my questions. Yeah, so first question, please, Alex. I wonder if you kind of give... some view on the EBIT margin, just the EBIT margin this year for leaving over. I think if I'm right, your guidance implies something like a 14% margin. So I wonder if you could confirm that, please. And linked to that, obviously, we've had a bit of lower operating costs this quarter, which I think you're highlighting into the, you know, a bit of reversion into the falls. Can you give us a flavor, actually, now that heart valves is out of the business? how operating costs are likely to trend next year. Are they likely to be up, stable, or below this year's OPEX level? Just some sense there would be helpful. Second question, please. Hey, well, go ahead, Alex, and I'll come back with a follow-up. Thank you.

Sure. So you're right. The margin, we're forecasting it at 14% to 15%. That's our goal. In terms of our margin this quarter, obviously somewhat inflated. I talked about deferring some of the expenses into the current quarter. We saw some sales softness earlier in the quarter, and so we pulled back on some investments. As you know, we typically start to invest ahead of 2022 in the second half of this year, so you know, we looked at some discretionary expenses and decided to defer them into Q4.

And in terms of, you know, guidance, I mean, we'll do that in February, but we will give, you know, a long-range view at the investor day in a few weeks' time.

Okay. Thanks, guys. And maybe second question just, please, on VMS. Thanks for giving the disclosure on new patient ads going around 5%. Am I right in saying that new patient ads is really the best leading indicator to the longer-term growth of Neuromod? And I wonder if you could then give some sense of where we are on that metric versus 2019. Are we still down on 2019 new patients? If you could just quantify that or give some sense of that would be helpful.

Yeah, so we are still down versus 2019. I think this is where Matt was trying to indicate that that's been the lag in terms of the shift as the markets have started opening up. It's improving. So sequentially we've seen improvement and we're predicting a sequential improvement in Q4. But that's the one that we're maniacally focused on. The teams are heavily focused on NPIs because you're right, the long, long-term performance view of the business is related to those DRE patients and de novo. And, you know, depending on how you cut the model, there's sort of 800,000 to 1.2 million DRE patients in the U.S. alone. You know, we believe that long-term growth is important to driving a business because obviously that leads to replacements. Given that our, you know, our average age is in the late 20s, we are implanting patients three to four times in their life. And so being very focused on MPIs, being focused on pediatrics is a key aspect of our lifetime value of a patient. We also know that there's a significant benefit to their quality of life by impacting and implanting them earlier too. So from a patient point of view, we believe it's beneficial in terms of their cognitive development and, you know, the hospitalisations, and every time you get hospitalised, you know, there's a significant number of complications. So that is our primary focus.

Very clear, and thanks. Just last follow-up on Neuromod, then, if I may, Damien, and correct me if I'm wrong, please, but it's my understanding that you've canned the development of your next generation Neuromod platform, Iris, and I think that means then we won't, I've had a new platform here for about four or five years or so. I guess the question is, does that matter in terms of re-accelerating new patient additions? And perhaps then, what is the plan for new platforms for Neuromod? When is that likely now?

Yeah, so more depth on that in the Investor Day in a few weeks' time. It'll be about three years between iterations, not five. Our focus has been much more on how to think about patient connectivity and the app development. There were early aspects of what we were looking at with the original Iris where we were talking about Bluetooth. Significantly, we took a step back when we started looking at security and making sure we had a really stable platform. So while we were doing that, we shifted our focus more, as I said, to these patient apps. We'll talk more about this in a few weeks, but I'm actually pleased with what I think we can do here and how we can engage with patients and clinicians ultimately. But that's the work we're doing, and we'll talk about that in a few weeks.

Thanks, guys.

Cheers, Scott.

Thank you. And our final question today comes from Matt Taylor of UBS. Matt, your line is open.

Hi, good morning. Excuse me. Thanks for taking the questions. I just had two, I think. One was to follow up on heart failure. I just wanted to know if you thought you could actually have a pathway to get reimbursement with, I guess, the shorter term endpoints, the functional endpoints, 90 days versus The two-year follow-up with, you know, heart failure, hospitalization, et cetera?

Yeah, so that's the expectation. There already is a CPT code for VNS, and if you look at a couple of other competitors that are already out, you know, they are getting reversed. It's just not as easy as with an MSIT.

Yeah, but can you do it with the functional versus the primary? And the answer is yes. Yes, yes.

Okay. And, you know, the COVID stuff has really impacted hospitalization, like we saw with cardiomems. Do you think that could have an impact on the endpoint here, and how would you deal with that?

So the trial design, you know, it's an embedded trial, as Damian mentioned. The first look, you know, we have to hit on five different endpoints. It's safety, which we have a lot of data on on BMS. It's a trend in the primary endpoint of hospitalization mortality. You don't have to hit it, just a trend. And then we have to hit the quality of life, six-minute walk, and the left ventricular ejection fraction. If we hit all five of those, then we can do a full assessment of the data and submit to the FDA. If we miss on one of those five or we don't quite get there, we will just keep going the External independent statisticians will just tell us to enroll another hundred patients, then we can look again. So we do have, you know, kind of a long runway in this trial. We're going up, we have up to a thousand patients. So, you know, we're not sort of boxed in on a set number that's coming up close. If in fact COVID had some impact on that primary endpoint of hospitalization and mortality, which again, we don't know, we're completely blinded. But if it did, we still have a lot more patients to enroll, hopefully during a non-COVID period.

Got it. Okay, great. Thanks for all that, Colin, man. I really appreciate it. Thanks, guys.

Cheers, man.

We have no further questions in the queue, so I'll hand back to Damian McDonald for closing remarks.

Thanks, Lydia. And thank you, everyone, for joining today's call. On behalf of the entire team, we appreciate your support and interest in Livanova. And again, we look forward to speaking to you at our Investor Day on December 7. Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for joining.