Boston Scientific Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Boston Scientific Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. If you should require assistance during the call, please press star, then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Suzy Lisa. Please go ahead.

Thank you, Greg. Good morning, everyone, and thanks for joining us. With me on today's call are Mike Mahoney, Chairman and Chief Executive Officer, and Dan Brennan, Executive Vice President and Chief Financial Officer. We issued a press release earlier this morning announcing our Q4 2018 results, which included reconciliations of the non-GAP measures used in the release. We've posted a copy of that release as well as reconciliations of the non-GAP measures used in today's call to the Investor Relations section of our website under the heading Financials and Filings. Duration of this morning's call will be approximately one hour. Mike will provide strategic and revenue highlights of Q4-18. Dan will review the financials for the quarter and then provide Q1-19 and full year 2019 guidance, and then we'll take your questions. During today's Q&A session, Mike and Dan will be joined by our Chief Medical Officers, Dr. Ian Meredith and Dr. Ken Stein. Before we begin, I'd like to remind everyone that on the call, organic revenue growth is defined as year-over-year growth, excluding the impact of foreign currency fluctuations and sales from the acquisitions of Nextera, Claret, Augmentix, and Semetis in the relevant periods for which there are no prior period-related net sales. Also of note, this call contains forward-looking statements within the meaning of federal securities laws, which may be identified by words like anticipate, expect, believe, estimate, and other similar words. They include, among other things, statements about our growth and market share, new product approvals and launches, clinical trials, cost savings and growth opportunities, our cash flow and expected use, our financial performance, including sales, margins, earnings, and other Q1 and full-year 2019 guidance, as well as our tax rates, R&D spend, and other expenses. Actual results may differ materially from those discussed in the forward-looking statements. Factors that may cause such differences include those described in the risk factors section of our most recent 10-K and subsequent 10-Qs filed with the SEC. These statements speak only as of today's date, and we disclaim any intention or obligation to update them. At this point, I'll turn it over to Mike for his comments.

Thank you, Suzy. Good morning, everyone. Boston Scientific finished up an excellent 2018 where we delivered on our financial commitments and significantly strengthened our portfolio and capabilities for the future. In fourth quarter 18, we delivered 8% operational revenue growth, 7% organic, roughly flat adjusted operating margin, and adjusted EPS of 39 cents, which includes a one cent net tax settlement benefit in the quarter. Our category leadership strategy continues to deliver strong results, and in the fourth quarter, six of our seven businesses grew faster than their underlying markets. These Q4 results echo our performance in 2018 overall, and for the full year, 8% operational revenue growth, 7% organic, a 50 basis point improvement of profitability, an adjusted EPS of $1.47, or 11% adjusted EPS growth to $1.40. when normalized for the $0.07 tax settlement benefit for the year. We delivered these results while also generating $2 billion in free cash flow. 2018 results also extend our track record of excellent performance over the five-year 2014 to 2018 period, where BSC has grown sales at an average rate of 8% operational and 7% organic, improving adjusted operating margin 530 basis points, and leveraged that to drive an average 14% growth in adjusted EPS over the five-year period. And this excludes the net tax benefit in 2018. We believe these five-year results provide solid evidence that our strategy of category leadership in key markets and portfolio diversification into higher growth adjacencies continues to deliver differentiated results. Our goal is to continue to execute against our strategic plan objectives and deliver top-tier sales and EPS growth over the next five years. The combination of long-term consistent above-market revenue growth, operating margin expansion, targeted double-digit EPS growth, and now coupled with the improved ability to deploy our strong free cash flow is what we believe uniquely positions BSC to continue to drive shareholder value. We're excited about our plans to build upon our global momentum in 2019 and beyond. We're targeting 2019 operational revenue growth of 8% to 9.5%, which includes approximately 110 basis points from acquisitions, resulting in organic revenue growth guidance of 7% to 8.5%. We're guiding to adjusted EPS of $1.53 to $1.58, representing a 9% to 13% earnings growth and approximately $2.2 billion in adjusted free cash flow. I'll now provide some highlights on Q4 and ATEM results, along with some thoughts on our 2019 outlook. In Q4, 8% operational and 7% organic revenue growth continued to be broad-based across our businesses and regions, led most notably this quarter by 9% operational growth in Europe, Mideast Africa, as well as 7% operational growth in both the U.S. and Asia Pac. Latin America and overall emerging markets had outstanding quarters, growing operational revenue 28% and 27% respectively. The MedSurg businesses now are 31% of our revenue mix, and they continue to deliver. MedSurg grew 8.9% operationally and 6.2% organically in Q4, and for the full year, sales were up 9.3% operational and 8.2% organic. In Endo, we posted 6.6% operational and organic in Q4, and our hemostasis franchise continues to grow double digits, and infection prevention and pathology also continue to be very strong. Endo delivered 8.3% operational and organic N18, and we expect continued strength in our global endo business in 2019. Endo has a very rich pipeline, and we're launching four new products, including OrcaPod single-use valves, Arise gel for endoluminal surgery, and SpyGlass DS2 with a broader portfolio of solutions for pancreatic biliary procedures. We also remain on schedule for a Q4 launch of our single-use duodenoscope EXALT-D, which represents this exciting new phase of our strategy in the therapeutic imaging market. Our uro and pelvic health franchise also continues excellent performance, growing Q4 12% operationally and 5.6% organic. LithiView, our single-use digital ureteroscope, helps drive double-digit growth in our CoreStone franchise. Full year 18 Euro pH organic sales grew 8.1 with an additional 250 basis points from M&A for operational growth of 10.6. And importantly, the integration work for our tuck-in acquisitions in Nextera, Augmentix, and Envision are all tracking as planned. The resume system for the minimally invasive treatment for BPH had its CPT code take effect January 1st of this year, and we just recently published very compelling four-year data on durability of symptom relief with a very low 4.4% rate of surgical retreatment and no new adverse events noted between years three and four. The October acquisition of Augmentix and the SpaceWare hydrogel, which is used to diminish the side effect risk from prostate cancer radiation, is off to a strong start as we continue to expand market presence and awareness. Turning to global rhythm and neuro, operational and organic sales grew 6.6% in Q4 and 7.6% for the full year. Neuromodulation operational and organic revenue growth grew an impressive 18.9% in Q4 and 22.5% for the year on the continued strength of our portfolio and global commercial execution. We remain very positive on the outlook of the NeuroBot business in 2019 due to the continued strength at the underlying markets and our innovative portfolio. In spinal cord stimulation, Waverider is the only platform approved by the FDA to simultaneously provide paresthesia-based and sub-perception therapy, targeting two different mechanisms of action at the same time for patients suffering chronic pain. This is translating to excellent real-world results. With 312 patients at the last follow-up, 28% were pain-free, which is a zero pain score, and 67% had minimal pain, scores of two or less. We also look forward to Waverider randomized clinical trial data from the combo study in the second half of 19. Also in DBS, we're excited that we recently received key FDA approvals for our VERCISE platform in primary cell and Cartesia directional leads. And VERCISE is now offered in both primary cell and rechargeable systems. CRM grew both operational and organic sales 1.7% in the quarter, and 2.1% for the full year. Q4 growth reflects above-market mid-single-digit growth in DFIB, offset by high single-digit declines in pacing. Our portfolio in DFIB continues to drive share gains due to the continued rollout of our Resonate platform with a HeartLogic Heart Failure Alert, multi-point pacing, and best-in-class longevity with Enduralife battery technology. Also, Emblem SICD also continues to perform very well and grew double digits globally for the full year. And overall, we see continued strength in our DFID results in 19, albeit against tougher comps and some improvement in pacing trends. In EP, we grew sales 8% in the fourth quarter and for the full year, 10.9% operational and organic on the strength of our Rhythmia HDX mapping platform. We continue to enhance our catheter pipeline globally, And importantly, our two single-shot platforms, Criterion and APAMA, are on track to launch in Europe by the end of this year, as well as begin enrollment in their IDEs for U.S. approval. Our cardiovascular group in Q4 grew 8.6% operationally and 7.7% organically. For the full year 18, growth was 7.4% on an operational basis and 6% organic. PI grew 11.2% in the quarter and 9.2% for the full year, operational and organic. The U.S. launch of Alluvia was a driver of the double-digit growth in the quarter. We also grew double digits in Ranger, DCB, and interventional oncology. Regionally, Asia Pac was a standout in the quarter with mid-teens growth in the region. 2019 will really be an exciting year for PI as we're launching multiple new products, and also integrating both Veneti and BTG post-closure. We continue to see strong physician interest in alluvia due to its compelling imperial trial data that was presented at TCT. Recall the imperial study demonstrated that patients treated with the alluvia stent experienced half the rate of target lesion revascularization at 12 months versus comparator, the silver PTX stent, and an 88.5% patency rate. Significantly, there were no patient deaths in either arm of the study at 12 months. We believe this is very relevant considering the recent questions generated by the Katsanos meta-analysis regarding the use of paclitaxel on peripheral balloons and stents. We believe the FDA's recent letter stating that the benefits of paclitaxel-coated devices outweigh the risks, as well as compelling patient-level data sets from BSX and others at the LINC conference and ISIT symposium. will serve to reassure physicians and their patients regarding the safety and efficacy of our DCB and DES platforms. We're also preparing for the upcoming U.S. launch of our VC venous stent, which will be the first unlabeled venous stent in the U.S. market. We remain on target to close the proposed BTG acquisition in the first half of 2019. With BTG, we look forward to enhanced category leadership positions in interventional oncology, arterial, and venous therapies. Interventional cardiology continues to grow above market, delivering 7.5% operational revenue growth and 6.1% organic in the quarter. For the full year, IC revenue grew 6.6% operational and 4.5% organic. IC growth was led worldwide by continuous strength in the structural heart with Watchman, Accurate, and Sentinel, and double-digit growth in both our complex PCI and PCI guidance portfolios, and this more-than-offset continued weakness in the drug-eluting stent market. 2018 structural art revenue exceeded our guidance of $475 million for the year on outperformance across the franchises. We target continued strong Watchman growth in 2019 via increasing utilization with existing customers as well as geographic expansion where Japan anticipates a Q3 launch and China represents a significant growth opportunity. In the U.S., Watchman recently received an increase in its primary DRG reimbursement starting last October. We're also pleased that WATCHMAN was just recently included in the new AFib guidelines update, recommending percutaneous LAAO therapy as a class 2B therapy for patients with AFib. At increased risk of stroke, we have contraindications to long-term anticoagulation. Turning to the WATCHMAN pipeline, we expect a limited market release of the next-gen WATCHMAN Flex in Europe in the first half of this year. We also continue to invest in WATCHMAN clinical evidence to support and expand the market. including the recent FLEX-IDE, the ASAP2 study, and the new OPTION trial. The OPTION trial will begin enrollment in the second half of this year and is a head-to-head study of WATCHMAN versus NOACs in patients following AFib ablation. Study endpoints target non-inferiority on stroke rates and systemic embolism with additional superiority endpoint in long-term bleeding. We're also really pleased with our accurate TAVR valve performance in 2018. and look forward to launching in France with the recent reimbursement approval. We're targeting the launch of the next generation Accurate Neo2 in Europe in the second half of 2019, and we expect to begin enrollment in our US IDE around mid-year. Our cerebral embolic protection device Sentinel delivered as planned in Q4 on the back of continued market adoption of protected tatter, and aided by the recently granted new tech add-on payment. Turning to our Lotus Edge TAVR platform, we'll begin a limited release in March in Europe, and in the U.S., pending FDA approval, we anticipate initiating a controlled launch in early Q2. We recently began enrolling the Lotus Reprise 4 study in intermediate-risk patients and plan to complete enrollment for this year. Finally, in structural art, we recently closed on the acquisition of Millipede, a company that's developing an innovative mitral repair platform to treat patients with severe mitral regurgitations. So now with our portfolio of Watchmen, Accurate, Lotus, and Sentinel, and Iris, we're excited about our structural art capabilities and long-term growth prospects. For 2019, we target structural art revenue of $700 to $725 million, which represents approximately 50% growth. So to wrap up, we truly have a very exciting future and believe that we're well-positioned to continue and strengthen our performance track record in 2019, 20, and beyond. And for that, I'd really like to thank our employees and their winning spirit and commitment to patience. Finally, I'd like to announce that our 2019 Investor Day will be held on June 26 in New York, so please look for additional details to follow in the coming months. Now I'll turn things over to Dan for a detailed review of our financials.