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spk14: Ladies and gentlemen, thank you for standing by and welcome to the Boston Scientific Q1 2019 earnings call. At this time, participants are on a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require offline assistance, you may depress star then zero. As a reminder, today's call has been recorded. I will now turn the call over to your host, Susan Lisa. Please go ahead.
spk01: Thank you, Kevin. Good morning, everyone. 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 Q1 2019 results, which included reconciliations of the non-GAP measures used in the release. We 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. The duration of this morning's call will be approximately an hour. Mike will provide strategic and revenue highlights of Q1 2019. Dan will review the financials for the quarter and then provide Q2 2019 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, operational revenue excludes the impact of foreign currency fluctuations and organic revenue further excludes the impact including Nextera, Claret and Augmentics in the relevant periods for which there are no prior period related net sales. Also 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 loan expected use, our financial performance including sales, margins, earnings and other Q2 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 10K and subsequent 10Q files 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.
spk02: Thank you, Suzy. Good morning, everyone. BOSA Scientific continues to grow above market, improve our profitability and invest for the long term to address unmet patient needs and deliver differentiated financial performance. In the first quarter, our team delivered .8% operational revenue growth and .3% organic growth with another quarter of balance across our businesses and geographic regions. In addition, we leveraged our first quarter revenue growth to deliver 7% adjusted EPS growth to 35 cents within our guidance range despite a one cent charge related to the mesh market withdrawal while generating 437 million in adjusted free cash flow. We have high visibility to high single digit organic growth for 2019 even with recent unforeseen regulatory headwinds this year related to pachypaxel, transvaginal mesh and sterilization in men's health. While we work diligently to offset these issues, the cumulative effect makes delivering on a high end or beating our original full year 19 revenue guidance of 7 to .5% organic growth a lower probability. As a result, we're lowering the top end of our growth guidance range by 50 basis points and our full year 2019 operational revenue growth guidance is now 8 to 9% and organic revenue growth guidance is now 7 to 8. We're pulling up the bottom of our full year adjusted EPS guidance from a range of $1.53 to $1.58 to a range of $1.54 to $1.58 which represents a 10 to 13% year on year growth excluding the benefit of the 2018 IRS settlements. With this 2019 growth outlook, we're excited for the rest of the year and our plans to build upon our global strengths and drive sustainable long term revenue gains, double digit EPS growth and to continue our momentum in 2020 and beyond. Although we're proud of our results this quarter, we're disappointed that our first quarter operational growth of 7.8 and organic of 6.3 were 70 basis points below our guidance range or approximately 15 million shortfall with 5 million of that related to the mesh. I'll briefly address where we had some revenue softness in the quarter versus our plans as well as our plans to accelerate growth from here. First, although our PI business had strong growth this quarter at 11% organic, we did feel the impact of the PaxoTexas concerns particularly in the second half of the first quarter after the release of the FDA's advisory letter. While the alluvia launch in Japan remains on track, we do expect slower adoption of alluvia to persist in the US and Europe in second quarter and potentially throughout the second half. The June FDA advisory committee panel meeting will be a key next data point and will continue our dialogue with FDA and alluvia's unique design characteristics which include controlled local release of low dose PaxoTaxel from a safe and proven polymer as well as clinical superiority data. However, we are assuming ongoing headwinds and cut in half our alluvia revenue expectations for 19 to reflect the current landscape. In Euro PH, we plan to overcome some of the recent headwinds. We delivered a decent quarter for our urology public health business at 14% operational and 5% organic growth despite two unanticipated events. In first quarter, we were impacted by an unexpected Illinois state mandated shutdown of a third party sterilizer used for men's health product lines. Fortunately, the US situation has been resolved and we did receive FDA approval late March to conduct sterilization of these products at our own Hinnos facilities. We do expect softness and global supply during the second quarter and we will return to full supply by the end of the second quarter. Regarding transvaginal mesh for organ prolapse, last week's news will result in a full year 19 negative impact of $30 million to global revenue and a two cent charge to adjust the DPS. A portion of this was booked in first quarter including the $5 million sales reserve and related inventory write-offs for nearly a penny impact to adjust the DPS. The mesh market with raw represents a 30 basis point drag to both first quarter and full year 19 organic growth. And lastly, we did see some softness in our US SCS business versus our internal plans. Global Neuromod delivers strong quarter with 12% organic growth and we believe SCS remains a very strong and under-penetrated market in the second half of this year. We're excited to release new clinical data on WaveRider and launch additional enhancements to both SCS and DDS platforms. But I'll provide some additional highlights in the quarter and our full 19 outlook. So recently we delivered strong and balanced operational growth with Asia-Pac up 10, Europe up 8 and the US up 7. Emerging markets revenue grew 22% operationally, led once again by strong China growth. We also delivered balanced organic growth across all our businesses, 7% in both med surge and cardiovascular, 6% in rhythm and neuro. Turning to some of the businesses, we delivered 8% organic growth in endoscopy, which is broad-based and fueled by infection prevention performance as well as excellent results in our billiard portfolio driven by the Axio stent and the recent launch of Spyglass Digital 2. In addition, the quarter reflects strong early launch results from our rise gel, a key component of our endoluminal surgery portfolio, and our new Jaguar Revolution guide wire. And for the balance of the year, we expect continued strength in endoscopy sales due to the ongoing ramp of these new product launches as well as the OrcaPod single-use valve. Importantly, we remain on track for a year and 2019 launch of our Exalt-D single-use duodenoscope, which is used in ERCP procedures. We believe the Exalt-D can help meet a significant unmet need for hospitals and patients. In two weeks ago, the US FDA issued a safety communication regarding scope reprocessing. Preliminary results of the FDA report indicated higher than expected levels of contamination, up to .4% of samples tested positive for organisms of high concern, such as E. coli and multidrug resistant pathogens. The FDA also stated that there continues to be a need for improvement of the safety of reprocessed duodenoscopes and noted that in addition to its March 18 warning letters to reusable scope manufacturers, the agency continues to encourage the development of new technology and design features. The Exalt-Model D single-use scope has been designed to address this exact issue by eliminating scope disinfection challenges completely. This platform represents a significant opportunity in 20 and beyond. As mentioned, urology and public health grew 14% operationally and 5% organically in first quarter and reflects an approximate 200 basis point negative impact from mesh sales reserves recorded in first quarter. And Lithuvio led sales in our core stone portfolio and, importantly, the urology acquisitions of Augmentics and Nextera are both executing the plan. Resume results were reinforced by publication of four-year trial data with a low .4% surgical retreatment rate and no newer adverse events noted between years three and four, as well as initiation of a resume-specific TPT code for physician reimbursement on January 1st. As mentioned, we expect software Euro pH revenue in second quarter given the men's cell sterilization impact and the remaining 25 million expected negative revenue impact in Q2 through Q4 through the global removal of mesh products for pelvic organ prolapse. However, we do expect Euro pH revenue growth to be accretive to the company average in second half and full year 19 as core growth remains robust, the men's cell sterilization matters resolved, and recent acquisitions of Nextera and Augmentics anniversary become organic as of May and October respectively. Rhythm and neuro grew 6% in the quarter, led by 12% growth in neuromod, 10 in EP, and 3 in cardiac rhythm management, which are all organic. The 12% neuromodulation revenue growth was driven by continued gains in the U.S. by our WaveRider spinal cord stimulation and Versailles deep brain stimulation platforms. Global S sales were up 7% as WaveRider's unique ability to offer combination waveform therapies, both with paresthesia and sub-perception, continues to resonate with physicians and patients. We look forward to improved growth with upcoming new product enhancements and a presentation of updated one-year real-world data on WaveRider at INS later this quarter. And in DBS, we anticipate continued precise momentum as we roll out the Cartesia Directional Lead in the U.S. and expect MRI labeling in the second half. Global cardiac rhythm management sales grew above market at 3% organic, led by mid-single digit growth in Dfib sales against a double digit comparison, reflecting ongoing uptake of our Resonate platform and its HeartLogic heart failure alert, as well as strong growth of Emblem SICD. Our device replacement cycle is also tracking to expectations, and we're now the number 2 global share player in the high-voltage market. Pacer sales did decline mid-single digits, which is a significant improvement compared to 2018 trends, which were low double digit declines. We anticipate a modest Pacer headwind for full year 2019, and importantly, we aim to more than offset this with continued global presentation of our Dfib portfolio in both CRTD and ICD, resulting in another year of above market worldwide CRM growth. EP sales grew 10% organic in the quarter, led by the Rhythmia HDX mapping and navigation platform, as well as uptake of our DirectSense catheter in Europe and enthusiasm for Rhythmia's LumaPoint software. In the 8th single-shot market, we are excited about the progress made by both our Cryo and our balloon programs. We're working to secure CE marker approval for these technologies and begin U.S. IDE deliverables and discussions with FDA. Last month, we presented a compelling APAMA dataset, Efficient One, demonstrating excellent balloon performance, no adverse events, and attractive procedure times. Turning to the cardiovascular group, they grew 7% organic in first quarter 2019. Peripheral interventions grew 11% organic in the quarter, led by the Alluvia DES launch in the U.S. in double-digit growth in interventional oncology and arterial. We're also excited about the anticipated upcoming FDA approval and launch of the Vici Vinidestent, which comes from the Vinidia acquisition of last August. And despite the pack of taxable headwind, we also expect our PI business will deliver full year 2019 of granite growth that's well accreted to the company's overall growth rate. To update you on the BTG acquisition, we remain on track for mid-year closing, having received shareholder approval in February, and we're excited for the opportunity to expand our PI and interventional oncology portfolio. Last week, BTG reported results for the first 12 months, ended March 31st. Oncology and vascular sales grew 15% to 17% in line with BTG's guidance. Spec pharma sales grew double digits ahead of guidance, and royalty revenue was broadly flat versus the prior year period, reflecting the launch of U.S. generic competition for Cytiga. Our interventional cardiology business grew 6% operationally and 5% organically in the quarter. Growth in Q1 was led by strong structural art results and mid-teens growth in complex PCI products, offset by softness and drug loony stents. We expect overall interventional cardiology growth to accelerate from first quarter on due to strong growth in complex coronary products, easing DES comps, the launch of Promos Elite and U.S. approval of Lotus Edge, and the continued momentum and structural heart with our broader portfolio capabilities and scale. Watchmen had another excellent quarter as we continued to increase utilization and to expand Watchmen's international footprint. We're pleased with the March European launch of Next Gen Watchmen Flex. We also received Japan approval of Watchmen during the quarter. So we remain on track for reimbursement approval and commercial launch in Japan during the third quarter for Watchmen. Our accurate Tavrovalve platform is the fastest growing valve in Europe and delivered nearly 30% growth in the quarter. We plan to begin enrollment in our U.S. IDE for accurate NEO2 around mid-year with similar European launch timing. We also began a controlled commercial launch of Lotus Edge in Europe late in first quarter and also enrolling patients in a Reprieze IV intermediate risk study and also received FD approval last night for Lotus. We will begin a controlled U.S. launch immediately and we believe Lotus Edge is a differentiated valve that will be sought after by physicians and operators, both as a workhorse valve as well as a valve that can be counted on to provide superior outcomes in complex cases, such as heavy calcified negative valves and bicuspid valves. And finally, the Sentinel Cerebral and Balic Protection Device continues to build excellent momentum. We're now in more than 200 accounts with Sentinel where usage rates exceed 60% and we believe that protected Tavrovalve is an emerging standard of care. So the combined strength of Watchmen, Accurate, Lotus Edge and Sentinel position as well to deliver on our guidance for $700 to $725 million in structural art revenue in 2019. To the close, I'd like to share again my enthusiasm for our outlook in 2019 and beyond. We believe that Boston Scientific continues to be uniquely positioned to drive shareholder value due to our long-term growth profile, meaningful opportunity to improve margins, track record of recording double-digit adjusted EPS growth and our improving ability to deploy capital. So we're looking forward to discussing this outlook and our exciting technology pipeline at our Investor Day, which will be June 26 in New York. So I really want to thank again our employees once again for their winning spirit and their ongoing commitment to advancing science for life. And Dan will now provide a detailed review of our financials.
spk03: Thanks, Mike. First quarter consolidated revenue of ,000,000 represents .8% reported revenue growth and .8% growth on an operational basis, which excludes the impact of foreign currency fluctuations. Our reported revenue reflects a $73 million headwind from foreign exchange, slightly unfavorable to the $65 million headwind expected at the time of guidance. Sales from the Nextvera, Claret and Augmentics acquisitions contributed 150 basis points roughly in line with our expectations at the time of guidance, resulting in .3% organic revenue growth for the quarter. This .3% includes a negative 30 basis point impact from the mesh market withdrawal. Q1 adjusted EPS of $0.35 grew 7% over the prior year and was within our guidance range. While there were several puts and takes to the P&L in the quarter, on balance they net to zero, resulting in that $0.35 EPS number. To summarize quickly, we had $0.02 in charges related to the mesh withdrawal and an investment impairment, and they were basically offset by the $0.02 net litigation benefit. While the costs of the make-hole call related to the February bond offering were offset by a lower tax rate. None of these items was included in the Q1 2019 guidance. The FX impact on adjusted earnings per share was immaterial, as expected at the time of guidance. Adjusted gross margin for the quarter was 71.4%, below our guidance range of 72% to 73%. This represents a 90 basis point decline over the prior year, driven by product mix, particularly lighter sales in men's health, neuromodulation, and coronary drug-looming stents, as well as mesh-related inventory reserves and unfavorable manufacturing variances. Adjusted SG&A expenses were $855 million, or .3% of sales in the quarter, down 120 basis points year over year, and outperforming our guidance range of 35 to 36%. The favorable result in SG&A was due to a combination of the operating expense reductions from ongoing optimization initiatives, as well as an approximate net $25 million nonrecurring litigation-related benefit in the quarter, including a portion of the Edwards litigation settlement. Adjusted research and development expenses were $271 million in the first quarter, or .9% of sales at the high end of our range and up slightly year over year due to additional mesh accruals related to the mesh withdrawal. Royalty expense was .6% of sales roughly flat versus the prior year. As a result, Q1 2019 adjusted operating margin of .6% increased 30 basis points year over year, near the midpoint of our guidance range of 25 to 26%. If you normalized for the SG&A benefit from litigation, adjusted operating margin would have been approximately 24.6%, but then normalizing for the 40 basis point negative impact from the mesh withdrawal places us back at the low end of our range. We are reiterating our full year adjusted operating margin guidance of 26 to 26.5%, which represents a 50 to 100 basis point improvement over the 2018 rate of 25.5%. Now I'll move below the line to interest and other expense. Adjusted interest expense for the quarter was $83 million. This is a $22 million increase from Q1 2018 largely due to exercising the make-hold call to retire early, our 2020 notes, given the favorable market conditions for our February public bond offering. Our average interest expense rate was .7% in Q1 2019 compared to .1% in Q1 2018 and reflects the previous public bond offering, which totaled $4.3 billion aggregate principal amount of senior notes, the proceeds from which will in part be used to finance a portion of the proposed BTG acquisition. We remain committed to our BTG delivering goals targeting $1 billion in debt repayment within 18 months post-deal closing and a leverage ratio of 2.5 times debt to EBITDA within two years. Adjusted other expense was $28 million in the quarter and includes a minor investment impairment related to one of our venture holdings. The remainder of adjusted other consists of dilution from our equity method investments and exchange losses related to our hedging program. Our tax rate for the first quarter was .1% on a gap basis and .9% on an adjusted basis, below our guidance range of approximately 11% for the quarter due to a higher than expected benefit from stock compensation accounting in the quarter as well as a reduction in our estimated annual effective tax rate, which I will discuss as part of full year guidance. Adjusted free cash flow for the quarter was $437 million compared to $283 million in Q1 of last year. In the quarter, we used cash primarily to fund the closing of the mill feed acquisition. We continue to expect full year adjusted free cash flow to be $2.2 billion. We believe we're approaching the resolution of mesh litigation with over 95% of all known claims now settled or in the final stages of settlement. Our total legal reserve of which mesh is included was $699 million as of March 31, 2019. In the quarter, the known claim count was essentially flat at $53,000 and we made cash payments of $2 million into the qualified settlement fund and still anticipate full year payments into the fund to total $250 million, which would then resolve all significant existing contingencies. As a reminder, this liability is released from our balance sheet as payments are made out of the qualified settlement fund to plaintiffs. Capital expenditures for the first quarter of 2019 were $63 million and we continue to expect capital expenditures to be in the range of $375 million to $400 million for the year as we build capacity, integrate acquisitions, and position the company for continued growth. We ended Q1 with ,000,000 fully diluted weighted average shares outstanding. I'll now walk through guidance for Q2 and full year 2019. And as a reminder, the guidance I'm providing does not include the proposed BTG acquisition, which is not yet closed. For the full year, we expect 2019 reported revenue to be in the range of approximately 7 to 8%, with -over-year growth of 7 to 8% on an organic basis and an additional 110 basis points contribution from the Nextvera, Clarek, and Augmentx acquisitions. Given our Q1 result and Q2 guidance, which I will discuss shortly, we fully recognize the implied acceleration in second half organic revenue growth to deliver on our full year guidance. There are several significant drivers of this acceleration, including multiple anticipated key product launches, such as Lotus Edge, which we received approval for last night, and Vici in the US, Alluvia and Watchman in Japan, and Exalt D globally. We have continued momentum in our core. We'll have enhanced supply in the men's health and our Sentinel products. We anniversary some of our 2018 acquisitions, which thus turn organic in 2019. We have the April anniversary of the 2018 price cuts in Japan, and also the normalization of selling days in the first half versus the second half of the year also has a meaningful impact. And while we expect foreign exchange to be a 110 to $120 million headwind to revenue for the full year 2019, we continue to expect FX to be neutral to EPS for the year due to our hedging program. There's no change to our expectations for adjusted gross margin as a percentage of sales to be in the range of 72 to 73% for the full year. We expect a positive mix shift as men's health supply stabilizes, SCS and DBS trends improve with new data and products, and coronary DES faces easier comps. In addition, we'll continue to execute in our ongoing standard cost reductions and also expect a positive full year FX impact to adjust the gross margin of 50 basis points. We continue to expect full year adjusted SG&A to be in the range of 34.5 to 35% of sales, a 40 to 90 basis point improvement versus full year 2018, but increasing slightly from Q1 due to the non-recurring litigation benefit in Q1. There's also no change to expectations for full year adjusted R&D spend to be in a range of 10.5 to 11%, and the full year royalty rate to remain at less than 1% of sales for 2019. These target metrics imply a full year 2019 adjusted operating margin in a range of 26 to 26.5%, unchanged from prior guidance, up 50 to 100 basis points versus 2018, consistent with the improvement goals we outlined last September, and positioning us well to deliver on our long term goal of 30% plus adjusted operating margin. We now expect our full year 2019 adjusted tax rate to be approximately 10%. This assumes an operational tax rate of approximately 11% before an approximate 100 basis points of benefit from the accounting standard for stock compensation, of which a significant portion was already recognized in Q1. This compares to our original full year 2019 tax rate guidance of 12% after stock comp. The 200 basis point improvement in our full year adjusted tax rate reflects roughly 100 basis points of benefit from our current year geographic mix of profits, and another 100 basis points of benefit resulting from refined estimates following recently released proposed US Treasury regulations implementing tax reform. We now expect below the line expenses, which include interest payments, dilution from our venture capital portfolio, and costs associated with our hedging program to be approximately $325 to $350 million for the year, a slight increase from prior guidance, primarily due to the earlier than expected refinancing of the 2020 bonds in February to take advantage of favorable market conditions, and a minor investment impairment both recorded in Q1. Note that, along with other relevant aspects of the P&L, we will update our below the line expense guidance after we close the BTG acquisition, as interest expense related to the acquisition is currently excluded from adjusted results. We also expect a fully diluted weighted average share count of approximately ,000,000 shares for Q2 2019 and ,000,000 shares for the full year 2019. As Mike discussed, we are raising the low end of our full year 2019 by increasing adjusted earnings for share guidance to $1.54 and maintaining the high end of $1.58. The go-forward impact of reducing our alluvia forecast by 50% basically offsets the Q2 to Q4 tax rate benefit, minus $0.02 for alluvia plus $0.02 for tax. And we have plans to offset the penny resulting from the lost mesh revenue in Q2 to Q4. This $1.54 to $1.58 range represents 10% to 13% adjusted earnings growth, excluding the 2018 net tax benefit of $0.07 in the base. On a gap basis, we expect EPS to be in a range of $1.09 to $1.13. While there are a lot of moving parts and some noise in the quarter, our trajectory and targets for 2019 remain strong. 7% to 8% organic revenue growth, 50% to 100% basis points of margin expansion, and double digit adjusted earnings for share growth at all points in our guidance range. Now turning to Q2 2019, we expect reported revenue growth to be in a range of approximately 5% to 7%. This represents year over year organic growth in a range of 6% to 7%, with an additional 140 basis point operational growth contribution from Nextera, Claret, and Augmentics. Note that the Nextera acquisition anniversary is in April, and therefore revenue from May and June is included in organic guidance. We expect the foreign exchange impact on Q2 revenue to be a $45 to $50 million headwind. For the second quarter, adjusted earnings per share is expected to be in a range of 37 to 39 cents per share, representing 6 to 12% growth, excluding the Q2 2018 net tax benefit of 6 cents in the base, and we do not expect any adjusted EPS impact from foreign exchange. Gap EPS for the second quarter is expected to be in a range of 23 to 25 cents per share. Please check our investor relations website for Q1 2019 financial and operational highlights, which outlines Q1 results as well as Q2 and full year 2019 guidance, including P&L line item guidance. With that, I'll turn it back over to Suzy, who will moderate the Q&A.
spk01: Thanks, Dan. Kevin, let's open it up to questions for the next 30 minutes or so. Please limit yourself to one question and one related follow-up. Kevin, please go ahead.
spk14: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star then one on your touch-on phone. You will hear a tone indicating that you are in queue. You may remove yourself from queue at any time by pressing the pound key. Once again, please press star then one. First question is from the line of Bob Hopkins, Bank of America. Please go ahead.
spk12: Thank you, and good morning. So just one housekeeping item to start. Just to clarify, was there a selling day difference in Q1?
spk03: There was a slight selling day difference. We had it included in our forecast, but there was a slight selling day difference if you look at it. We did mention that as part of the acceleration into the second half because there's a difference there where there's about a day fewer in the first half and a day more in the second half. So it's a reason for the acceleration going first half to second half. But there was one in Q1, but we didn't mention it.
spk12: Okay. Thank you for that. And then more importantly, just on the Q1 growth rate, you know, that was a little lower than your guidance. I think you called out Stents and Men's Health and Neuromod were the kind of the primary culprits, if you will. I'm just wondering if you could give a little more color on these issues and whether or not these issues in packing growth in Q1 are, you know, temporary or lasting. Just a little more color in those three, please.
spk02: Sure. Good morning, Bob. Yeah. So obviously don't take this slight revenue miss in first quarter lately. I think it's the first time we've missed in close to a decade. And we pride ourselves on delivering the commitments and very excited about the future. But, you know, specifically a couple of those comments. One, in interventional cardiology, you're seeing that strong diversification with structural heart and complex coronary growing well. And DES has been soft for us. We do anticipate some improvement in DES as you look at the second half of the year in particular based on improved comps for drug looting Stents, as well as new product portfolio with a product called Elite, as well as really just the ongoing diversification of high growth markets for that basket in cardiology overall. So you obviously have the lowest approval. The second one was packet tax sold. We're seeing, you know, some usage in the U.S., but some IDNs are not using it based on the upcoming panel. So we saw some softness there. We took that revenue down for the full year as highlighted. But to date, the Japan launch is right on track. You mentioned men's health. That issue has been resolved, that supply issue. So we'll be back to full supply, call it in mid-June. So that'll be strong for the second half of the year. And then the other one is spinal cord stem. We did grow nicely, 12 percent neuromod. We do feel like the market was a bit lighter in first quarter than we anticipated. But overall, we see that as a strong growth market going forward, and we continue to take shares. So there were clearly some one-time events in the first quarter. Dan mentioned the selling days impact as well. But we have full confidence in the second quarter guidance and the seven-day organic for the full year. And we'll be stronger company at the end of the year heading into 2020.
spk14: Thank you. Next question is from the line of David Lewis, Maureen Stanley. Please go ahead.
spk13: Good morning. You know, Mike and Dan, I just want to start with the forward outlook here. I think, you know, 2019 guidance is pretty consistent with our view. It's the second quarter. A lot of conversation this morning on second half. But if you think about the second quarter, how risk adjusted is the second quarter? And what factors sort of provide the confidence given alluvia and mesh get a little worse in the second quarter, pretty significant momentum step up just into 2Q. So, one, what is that? What is your confidence in the second quarter? What are factors that drive that? And in 2019 guidance, you know, broadly, is the reflection of the reduction simply alluvia and mesh, or does it also reflect kind of a slower start to the year? And then I did a quick follow-up.
spk02: Yeah, so just on the second one, in terms of the full year guidance, it's simply, I said in the words carefully, if you look at our history, we typically are in the higher end of the range, if not B, on revenue. And, of course, you guys track all that stuff. And so we essentially lowered it to seven to eight because we didn't feel the high end of the guidance or beating the 8.5 was as feasible as it was, you know, four months ago. So that's why we felt it was prudent to reduce the guidance at the top end from seven to eight so we can kind of carry on our tradition. So, and the reasons for that were stated. And we were confident in that second half acceleration, you know, per Bob's earlier question. I think in terms of second quarter, you know, we obviously have some visibility here. It's near the end of April. We spent a lot of time on our second quarter guidance because we don't plan on making this a habit. We plan on continuing a longer streak of hitting our guidance commitments. But specific to second quarter, we do have good momentum across the regions. Our emerging markets are very strong. Dan mentioned there is a little bit of selling day favorability in second quarter as well. But more importantly, the launches. And we finally got FDA approval for Lotus, which we're excited about. Luvia is beginning to sell in Japan. Lexa in Europe, this Vici scent we have for P.I. And we just have very good momentum with Accurate and Sentinel. And as I mentioned, also the DES COPS. So we spent a lot of time on second quarter, as you could imagine, and on the full year guidance even more than normal to ensure that we had the right confidence and conviction. So at the end of the year, you know, we still believe that 78% organic and 8 to 9% operational double the GPS is very good and sets us up for a bright future.
spk14: Thank you. Next question is from the line of Rick Wise, SQL. Please go ahead.
spk15: Good morning. Hi, Mike. I'm trying to Lotus and talk to us a little bit about the Lotus launch from two angles. I think if I remember correctly, there were 60 original pivotal U.S. sites. Is that where you start? Is that what you're targeting? Talk a little bit about, you know, how you're going to address the U.S. market. And I'll just go ahead and ask a separate related question. When might we see some more data on Lotus Edge that, you know, specifically addresses where the technology is now? And last, just on Sentinel, you said you're in 200 accounts. I mean, is this the place you start with Lotus? Again, any color on the launch would be great. Thank you so much.
spk02: Sure. Thanks, Rick. And I'll let Ian jump in on some of the data questions in a few minutes. We're really excited about getting Lotus over the goal line here, you know, with the FDA and the Lotus Edge. You know, Lotus Edge is a terrific platform. We have begun our launch in Europe. And essentially we'll be primarily initially focused on many of the customers that have been involved in our clinical trials. And they have more experience with Lotus, and Lotus Edge is a lower-profile delivery system. So obviously we would spend quite a bit of time with those customers who have been part of the reprieve studies and are part of the current intermediate risk study. And those represent a significant, you know, slice of the TAVR market. So that'll be our focus. And then we'll expand out from there. We want to obviously do this very well. We think this is a unique product. And we want to have great outcomes. And so we'll initiate there, and then we'll expand to the large centers beyond that. And our clinical team and sales force is obviously excited to bring this on. Sentinel is doing very well. You know, quite frankly, our operations and manufacturing team has done a great job of increasing supply. We bought a smaller startup company, and we are significantly increasing the supply capacity, which has really been the limiter so far because the demand of Sentinel is quite high. And so we'll continue to grow Sentinel likely at a faster rate in the second half, given increased supply, and launch it a little bit more outside the U.S. And as we talked about in the past, we have to win with the clinical benefits of our TAVR as a standalone platform with the safety and efficacy of it. And then we have all the other components surrounding Lotus, which are compelling, like the Safari Wire, like Sentinel, and our other products that meet the needs for interventional cardiologists. But really excited about getting Lotus approved. And Ian, if you're on mute, maybe you could provide some views on the upcoming data.
spk07: Thanks very much, Mike, and thanks, Rick, for the question. So as you alluded to, we have the Reprise IV study, which is the intermediate risk study, 896 patients. That trial is now underway in the U.S. And that will provide very important data as to the safety and efficacy of the Lotus Edge platform in intermediate risk patients. That trial should recruit pretty quickly. It's a single-arm study. There is a nested registry within that for 100 patients with bicuspid valve disease. And so we very much look forward to those results. That will probably be mid-next year. As well as that, we have the Respond Edge trial, which will be 200 patients in 16 sites in Europe. That trial is just getting underway. And of course, we have the Reprise III nested registry, which was the U.S. initial experience with Lotus Edge, which is underway and continues to recruit. So we should have towards the end of the year and next year, significant body of data about confirming the safety and efficacy that we've actually seen from the original Lotus Edge 30-day data from the Prese Edge and BIMC trials, of course, which showed, as you know, very good results on low pacemaker rates.
spk14: And next question is from the line of Bruce and Dale, Centros. Let's go ahead.
spk16: Good morning. Thanks for taking the question. I guess for Mike and Ian, you know, I attended the CRT panel meeting in, I think, February or January. And it really didn't, the paclopaxel peripheral vascular arguments really didn't seem to have a coherent, you know, mechanism of action. I was just wondering what your thoughts about that might be. And secondly, you know, is the product family forever tainted, irrespective of the merits of the meta-analysis that really caused this whole thing? And I have a follow-up.
spk07: Mike, are you happy if I take the one?
spk16: Sure.
spk07: Yeah. So thanks, Bruce. So I think it's an important question. It's disappointing to say the least. You know, paclopaxels had a pretty stellar 25-year history since the approval. And as you know from the taxes data, we have an extraordinary body of data there in the coronary circulation, where there were more than 5,000 patients in randomized trials, 36,000 patients in registries. There was never an all-cause mortality signal at five, and even the Sirtax trial after 10 years. So there was from time to time a signal for cardiovascular mortality related to stent thrombosis. But the overall mortality and suggesting a non-cardiac cause just wasn't there. And there doesn't seem to be a plausible explanation. So it is disappointing. But we will work very assiduously alongside the FDA and VIVA and NANSA to make sure that we thoroughly analyze this signal in the available trials. But we still have considerable confidence in paclopaxel as an anti-reisbinotic agent. And I think we should point out that alluvia is in a sense a very differentiated product here. It's a controlled, controlled focal release at a dose 120 that has been used in other DCB products. So we have faith in this and we will work alongside the FDA, NANSA and VIVA to elucidate this.
spk16: And I guess my follow-up's on watchmen. Clearly the product has continued very strong momentum given the guidance. Could you just talk about the commercial factors, either reimbursement or marketing initiatives, you know, just kind of the state of play and what will take to really unlock the potential of what I think is a huge product opportunity?
spk02: Sure. Yeah, just again, just to reinforce Ian's point, we think alluvia is a superior platform and we think it's different than the class. And so we're making the case on that. And obviously we're supporting the industry in the whole paclopaxel theme with the upcoming panel. But we're very, you know, we spend a lot on this platform. We feel like it's a unique device for all the characteristics that Ian says. We'll be pushing our point in that regard. On watchmen, it continues to do extremely well. In the U.S., we're increasing utilization rates. It's less about opening up new centers now in the U.S. because so many have been opened up. It's more about increasing utilization. It's driving great outcomes. It's increasing physician awareness through our digital efforts and through working with the watchman coordinators at the hospitals. And so we're continuing to see watchman utilization expand, you know, with our commercial organization, our clinical organization. And then in Europe, you're seeing Watchman Flex be launched, which we're really excited about to gain chair. Not as big a market in Europe, but also a lot of progress in China. And we're really excited about the launch, which will impact the second half in Japan. And Ken, do you want to maybe speak to some of the clinical efforts with Watchman to expand the market, the option trial?
spk04: Yeah, thanks, Mike. That's, I think that's important to mention, Bruce. You know, it's tough, what unlocks it? I think the next step, right, that unlocks it is indication expansion. And so we are launching a trial called OPTION. It's a 1600 patient randomized trial at roughly 100 centers globally. And the trial is in patients following atrial fibrillation ablation who have indications for stroke prevention and will be randomized to Watchman or NOAC. And this would change the indication that this would be the first trial where Watchman would be used in patients who are explicitly candidates for either an oral anticoagulant or the Watchman device. Thanks, Bruce.
spk14: Next question is from the line of Jason Mills, Canocort Genoty. Please go ahead.
spk10: Hi, Mike. Thanks for taking the question. With respect to the organic growth profile you laid out and the acceleration that you're anticipating through the end of the year, the tenets of that premise seem like they would continue into the first half of next year. And I can appreciate that you're not ready to give guidance for next year yet. But as we digest that coupled with the metrics you laid out with respect to BTG, I assume your expectations for the organic growth that BTG will generate haven't changed given their strong results recently. So it seems like it's setting up that this could accelerate further in the first half of next year. And what I'm getting at is as we look at a forward 15 to 18 months, can you give us any color? Were you willing to give us any color as it relates to just beyond the end of this year? Because it seems like it could accelerate further.
spk02: I want to give first quarter 20 and second quarter 20 guidance, but he will not let me at this point, especially after our little miss here on sales in the first quarter. Dan laid out in his script clearly why we are confident in the second half momentum through the product launches that he rattled off, the anniversary of the M&A activities. Another significant opportunity for us in the second half is Japan. Japan will return to strong growth in the second half because of new product launches and less pricing cuts than we've experienced in the past. And supply challenges are significantly better for some of those key products. And Dan also mentioned the selling days. That's the second half acceleration. And then I'm not going to comment really much beyond that. In 2020, what you will see is a full year benefit in 2020 of many of these different product launches that are happening kind of at different quarters throughout the year in 19. But our goal will continue to be a top tier revenue grower in the future to deliver double the EPS growth. And we are excited about BTG. They put up really nice results, very consistent with our thesis when we acquired the company. So we look forward to closing that likely in the late June, July timeframe.
spk14: And next question is from the line of Larry Beegelson. Wells Fargo. Please go ahead.
spk11: Hey, guys. Thanks for taking the question. I'll ask both of mine up front. On Alluvia, I can understand the 50% cut implied in the guidance. And hopefully the panel will go well. But the question I have, I guess, is if things don't go as well as expected, what's your ability to offset a further reduction in Alluvia if things don't go well? And then just secondly, I heard your comment on SES and your business in the market, but you are the second company to report a meaningful deceleration in SES growth. So could you just put a little bit more meat on the bone kind of around what's going on in the market and why you're confident that we won't see a further deceleration in SES, which you kindly gave in the slides today, you know, grew about 7% year over year in Q1. Thanks for taking the questions, guys.
spk02: Yeah, so Alluvia is an important growth driver for PI. And we clearly aren't giving up on it because we think it's a uniquely good product that helps patients. And we're seeing many customers in the U.S. continue to use it, some have not, but many are. And in Japan, we're launching essentially right now. So we're in optimistic but also smart. That's why you saw us take down the guidance for Alluvia in terms of that impact. But there's also many growth drivers within PI business on its own. For example, this new BT Stem will be launching likely in the second quarter once it's FTE approved and the full impact of BTG and all the synergies that come with that, both revenue and cost. So we clearly want Alluvia to do very well. But there's many growth drivers within PI and across the company that give us confidence for the second half guidance that we, or full year guidance that we gave as well as the outlook for 2020. And the second question is on SES. It was a bit softer than we anticipated in the first quarter. You know, this has traditionally been a strong double-digit growth market, and we believe that will be the case. All the first quarter was a bit softer. So we haven't seen any thematic reasons why SES should be a bit softer this quarter, given the unmet patient demand that we see out there. You know, one potential possibility where there's kind of fewer large product launches from BSE and our competitors over the past six months. I think you're going to see a ramping up of that clearly from us on the second half of this year with new enhancements to WaveRider and some more clinical data. So we don't really have a great response, other than we feel like it's a long-term, at minimum, high single-digit growth, but more likely double-digit growth market, given the unmet patient need. And importantly, there's just a lot of innovation in the space, which I think will continue to excite patients to want to act.
spk14: Thank you. And next question is from the line of Vijay Kumar, Evercore. Please go ahead.
spk08: Hey, guys. Thanks for taking my question. So, Mike, let me just, you know, on Larry's question. If I think about the first half versus second half, right, is, I guess, the aerogenics improves, the sterilization plan closer. Do we know what the impact of that in Q1 was? And I guess specifically if the ad-com goes bad, is there a chance that, you know, maybe Illulia needs to be cut again for the back half?
spk02: Well, we gave guidance assuming, you know, bad things. So, you know, we gave what we felt very conservative. We built in our model very conservative growth for Illulia based on the Pact of Taxile panel. So it wouldn't be a response for us to do otherwise. So, as I mentioned, we are seeing that the launch in Japan, we're seeing customers use it today, but we've assumed far less than planned Illulia sales in our second quarter and full year guidance.
spk00: Thank you.
spk03: And we're not going to quantify the specifics of the sterilization issue in Men's Health in the quarter.
spk14: Thank you. Next question is from Matt Taylor, UBS. Please go ahead.
spk06: Hi. Thanks for taking the question. I just wanted to follow up on the earlier question on the Lotus launch and it's sort of a two-part thing, but I wanted to understand how we should think about the pace of launch in Europe and the U.S. And you did hit the timelines for the timing of launch in each region. I just wanted to make sure that you were still sort of on track with where you thought you'd be in the beginning of the year. And then can you characterize how the Sentinel supply could improve through the year? It sounds like where you can sell at, you're seeing good uptake.
spk02: Yeah, so consistent with previous comments on Lotus, we're selling our Accurate Valve extremely well in Europe and we're also selling Lotus. You're going to see that NYX likely be higher with the Accurate Valve versus Lotus in Europe, given the momentum that we have there, but there are many customers who want Lotus in Europe. So build a sell in both places, but in terms of a mix, which like they won't break out, it will be quite a bit higher in the U.S. versus Europe. And so that's why this FDA's approval is important for us. It's kind of on schedule per our commitments, but you'll see greater weighting in the U.S. And Sentinel is simply just that ops team has done a great job of enhancing supply because we've been more limited in our ability to open up new centers. And so as this quarter goes on and second half will be open up new centers and supply them with it, and then we'll be able to expand it more in Europe and other countries, which quite frankly haven't had the benefit of using it, given some supply capacity. So it's not as our ops team did nothing wrong. They simply bought a small company and now they're significantly increasing the capacity for it.
spk14: Thank you. Next question is from the line of Chris Pasquale Guggenheim. Please go ahead. Okay, that question dropped. Next question is from the line of Danielle Entafey. One more please. Danielle Entafey, SBB Lyric. Please go ahead.
spk09: Hey, guys. Good morning. Thanks so much for taking the question. Just a quick question, follow up on some of the TAVR conversation we've been having. Can you talk about what you're seeing now that you've relaunched Lotus from a pricing perspective in Europe and what you expect to see in the U.S.? So now you're going from a two-player market to a three-player market, potentially into a four-player market here in the U.S. So we'd just love to get your high-level thoughts and any color you can give on how you plan to price Lotus Edge here in the U.S. relative to some of your competitors. Thanks so much.
spk02: Yeah, you know, we're probably not going to give as much as you want on the question. I think in the U.S. we're very confident in the capabilities of a Lotus Valve. This is not a low-tier segment offering. And so you'll see Lotus priced at competitive rates with a market in the U.S.
spk09: And in Europe, just a follow-up on that. So is it priced competitively in Europe as well or is it priced at a discount?
spk02: Well, we won't provide much thought there. We offer, now with Lotus, we offer two different valves in Europe. And so they're both uniquely good. And it provides us some contracting capabilities along with Sentinel, which are helpful. But at the end of the day, the valve does need to stand alone in terms of its clinical efficacy, safety, and the benefits. You know, doctors typically aren't going to choose a Taddy valve just because it costs less money. And so we're delivering very good outcomes with Accurate. You've seen a lot of the clinical data there and also Lotus. So pricing obviously is important, but it's not a... It's a different environment to drug-looting stands.
spk14: Thank you. Next question is from the line of Matthew O'Brien, Piper Jackery. Please go ahead.
spk05: Good morning. Thanks for taking the questions. Two of them real quick here. You know, in the past you said in the cavern market you thought you could get the 20% share. Then you kind of backed off that with the Lotus withdrawal. And then now you have Sentinel, which is pretty differentiated. So as you think about where your share can go over time with this triple threat now, would you like to revisit, you know, where you think the share can get to and specifically do you think you can get to 20%? And then the second question is just on Rangers. We think about the launch next year with all the -a-Paxil commentary. Just how should we think about that launch now? Should we dial back our expectations for it? Thanks so much.
spk02: Yeah, Ranger is a smaller revenue contributor historically in Europe. And Ranger will, I think the panel will certainly have an influence on the potential for Ranger. But again, I think, you know, our PI business is blessed with many growth drivers across the board and then also with BTG closing. And we wouldn't comment on share. You know, right now we basically get zero in the U.S. So it's all upside. And so, you know, with the indication expansions and we've seen clinical data and the size of this market and the uniqueness of Lotus and our breadth of commercial coverage, we feel like we can do a nice job in this area. But we're not going to provide a share goal publicly.
spk01: All right. With that, we'd like to conclude the call. Thanks for joining us today. We appreciate your interest in VSAX. Before you disconnect, Kevin will give you all the pertinent details for the replay.
spk14: Thank you. Ladies and gentlemen, this conference call will be available for replay. And that's starting today at 1030 a.m. Eastern time. And we'll run through May 8th, midnight. You may dial the AT&T Executive Playback Service by dialing -475-6701 with the access code 465-105. International calls may dial area code -365-3844 with the access code 465-105. Now that does conclude your conference. We do thank you for joining. You may now disconnect.
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