Boston Scientific Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Boston Scientific Q2 2019 earnings call. Now, at this time, all 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 is being recorded. I will now turn the call over to your host, Susan Lisa. Please go ahead.

Thanks, Kevin. Good morning, everyone, and thank you for joining us. With me on today's call are Mike Mahoney, Chairman and Chief Executive Officer of and Dan Brennan, Executive Vice President and Chief Financial Officer. We issued a press release earlier this morning announcing our Q2 2019 results, which included reconciliations of the non-GAAP measures used in the release. We have posted a copy of that release, as well as reconciliations of the non-GAAP 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 one hour. Mike will provide strategic and revenue highlights of Q2 2019, Dan will review the financials for the quarter and then provide Q3, 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, operational revenue excludes the impact of foreign currency fluctuation, and organic revenue further excludes the impact of certain acquisitions, including Nextera, Claret, Augmentix, and Vertiflex. in the relevant periods for which there are no prior period-related net sales. Also of note, this call contains all of the 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 Q3 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. Mike?

Thank you, Susie. Good morning, everyone. Boston Scientific continues to grow above market, improve profitability, and drive meaningful innovation to address unmet patient needs, as showcased at our recent Investor Day. In the second quarter, our team delivered 6% operational revenue and 6.3% organic growth, with another quarter of strong balance across our businesses and geographic regions. In addition, we delivered adjusted EPS of $0.39, which is at the high end of our guidance range, while generating $406 million in adjusted pre-cash flow. We do have clear line of sight to high single-digit organic growth for 2019, and we reiterate our full-year 19 organic revenue growth guidance of 7 to 8 and adjusted EPS of $1.54 to $1.58. We have increased our expected contribution from acquisitions from 110 basis points to 140, resulting in operational revenue growth guidance of 8 to 9% for the full year. I'll now detail some of the key aspects of our second quarter results and thoughts on our second half 19 prospects. All growth rates refer to organic sales growth versus the prior year, unless mentioned. So we'll start first with MedSurgs. Sales continued on the solid high single-digit performance and increased 7% to 80% organic once you adjust for the one-time mesh recall impact. As endoscopy continues this trend of 8% organic growth quarters, it's fueled by more than a dozen product launches over the past 18 months, such as Spyglass DS2, Jagwire, and Arise Gel. We've also recently launched Arise in a single syringe version to address a broader range of procedure types, including polyps. Infection prevention sales are also very strongly driven by strong kit sales in the U.S., and going forward, we look for continued momentum in all these product lines. as well as Axios and Improved Supply and OrcaPod single-use valves. We do remain on track for a year-end launch of Exalt-D single-use duodenoscope, which is used in ERCP procedures. We're very encouraged by physician enthusiasm for this platform and continue to believe this represents a significant opportunity in 2020 and beyond. Urology and public health grew 15% operationally in the quarter and 6% on an organic basis, despite the two-point organic category withdrawal in customer returns of the mesh treatment of pelvic organ prolapse. This growth was led by mid-teens growth in our CoreStone franchise, with strong single-use urethroscope sales across all regions, and particularly strong emerging markets growth. Spacer hydrogel, also delivered in the quarter, is tracking to $100 million for full year 19, which is above our original deal model, as mentioned at our investor day. We also expect acceleration in Europe pH sales in the second half of the year from continued lithovue and space or strength, the one-year anniversaries of the acquisitions of Nextera in May and Augmentix in October, and new product launches such as the Taktra implant in men's health, where trends have improved, now that we've fixed our sterilization challenges. Rhythm and Neuro grew 3% in the quarter, which we believe represents above-market growth in CRM at 3%, while EP sales grew 9%. Neuromodulation sales were flat year-over-year, but we continued to build momentum, and of note, sequential growth was 7%. While Neuromod's flat year-over-year sales results slowed from first quarters, which were 9%, we did face a 31% comp in second quarter versus our Q1 comp of 17%. So on an operational basis, Neuromod sales were plus 2% year-over-year and reflect excellent brain growth from our precise DBS systems. which offset the weaker spinal cord stimulation results. We continue to see excellent momentum in DBS due to market receptivity to our Cartesia directional lead in the U.S. and Europe, and we anticipate full-body MRI labeling for our precise systems in the second half of 2019 in the U.S. In our pain franchise, VertiFlex closed on June 11th, and we're excited to offer the full continuum of care for patients suffering pain, now with an option focused on those diagnosed with moderate lumbar spinal stenosis. VertiFlex remains on track to generate full-year 19 sales of $60 million. In SES, we continue to see some softness in the overall market, and we face tough costs due to our WaveRider Spinal Cord Stem System launch in the U.S. early last year. While we continue to be optimistic about the long-term 7% to 10% growth potential of this market, we do expect some continued softness in 2019, given the 21% second-half comp. We do expect second-half improvement in SCS post our recent Waverider real-world data presentations at INS, Waverider software enhancements, and initial release of the combo randomized clinical trial data. Global cardiac rhythm management sales grew 3% and was led by mid-single-digit growth in DFID sales, driven by a Resonate platform and its HeartLogic heart failure alert, as well as strong emblem SICD sales. Our replacement cycle tailwind also remains on track, and Pacer sales declined low single digits, which is an improvement from recent quarters, but we continue to anticipate a modest Pacer headwind for the full year of 2019. EP sales did grow 9% in the quarter, which was led by Goodwill and directions in Europe, RISME HDX mapping and navigation platform, and LumaPoint software, which was fully launched in the second quarter. As we highlighted and Joe did at our investor day, we remain optimistic about the future for our EP franchise, particularly for the AFib single-shot market in our two platforms with this therapeutic approach. We expect approval for our cryo-based system, PolarX in Europe, year N19, with Luminize, our RF-based balloon platform, following the first half of 20. Shifting now to cardiovascular, the group sales were up 8% in the quarter, Peripheral intervention sales increased 8% in the quarter as well, led by the launches of our Vichy Venus stent in the U.S. and Alluvia DES in Japan, as well as excellent regional growth in interventional oncology, particularly in Asia. Post the June Paclitaxel FDA panel, physicians continue to order Alluvia in line with our commentary and investor day. We do expect within the next few weeks an updated summary and guidance document from the FDA. Illuvia remains well-positioned if the guidance continues to recommend drug-looting technologies only for patients at a high risk of restenosis, which does represent 40% to 60% of the market. And Illuvia has the potential to achieve higher share in this segment, given its performance in these patient types. For example, in the imperial trial, 12-month data, which demonstrated half the rate at TLR compared with the silver PTX, 40% of patients in the alluvia arm had severe calcium, which is 4x the rate of severe calcium in the global pivotal trials of the two leading DCBs. In addition, nearly one-third of the patients had total vessel occlusions in the alluvia imperial study, which is a much higher rate than in the DCB studies. Last month, we announced the proposed investiture of our bland and drug-loaded bead business to Varian Medical Systems in conjunction with the proposed BTG acquisitions. We continue to make progress towards closing BTG in August and look forward to the opportunity to expand our peripheral and interventional cardiology portfolio and continue to execute our category leadership strategy. Our interventional cardiology business accelerated from first quarter's 5% growth to 8% organic and 10% operational in the second quarter. There was strong growth across all regions, led by structural hard sales and mid-teens growth in complex PCI products, which is partially offset by DES. WATCHMAN grew sales ahead of plan and is now in 600 accounts in the U.S. as this important therapy provides patients with atrial fibrillation an alternative to lifelong oral anticoagulants. We successfully launched our national direct-to-patient TB campaign in late March and are encouraged by the early results. WATCHMAN FLEX transitioned from limited market release to full launch in Europe and physicians are very pleased by the 95% plus rates of implant success in SEAL and no device embolization. We're targeting a mid-2020 launch in the U.S. for FLEX. We also remain on track to launch WATCHMAN in Japan in third quarter with reimbursements and continue to advance the clinical evidence surrounding WATCHMAN as we begin enrollment in the option trial in atrial fibrillation patients post-ablation. Accurate TAVR evaluable meta continues the second quarter with 30% growth and is now available in over 40 countries. And importantly, the US IDE for Accurate Neo2 was initiated and we recently began enrollment of the 600 patient study in the second quarter. Unfortunately in Europe, we now do expect a mid 2020 launch for Accurate Neo2 as we have chosen to revise our approach and consolidate our regulatory submissions with fewer notified bodies due to challenges in the regulatory environment with the shift to European medical device regulation, or known as MDR. The Lotus Edge control launches is going extremely well. Positive physician feedback highlights the benefit of complete control and drama-free topper. We are in pace to open the 150 accounts in the first 12 months that we cited in Investor Day, and we're very confident that our launch approach will position both Lotus Edge and our entire structural art portfolio for long-term leadership in this substantial market. We see a significant opportunity in the high-risk labeling we have today, and we're actively enrolling for our US Reprise IV clinical trial to expand the indication to intermediate-risk patients. And finally, the Sentinel Cerebral Embolic Protection Device continues to enjoy strong growth rates as supply scales up. We're now in over 400 accounts globally, and we believe that protected TAVR with Sentinel is the emerging standard of care, and we expect momentum to continue as we launch new accounts and we anniversary the Sentinel acquisition this month. So the combined strength of Watchman, Accurate, Lotus Edge, and Sentinel position as well deliver on our guidance for 700 to 725 million in structural art revenue in 19. So to close, once again I'd like to share again my enthusiasm for our outlook in 2019 and beyond. And as conveyed at our investor day, we believe that Boston Scientific continues to be uniquely positioned to drive shareholder value due to our differentiated long-term growth profile, meaningful opportunity to improve operating margins, and track record of delivering double-digit adjusted EPS growth, while also improving our ability to deploy capital. I want to thank our employees once again for their winning spirit and commitment to advancing science for life. So Dan will now provide a detailed review of our financials.