Boston Scientific Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Boston Scientific Fourth Quarter 2019 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 2019 results, which included reconciliations of the non-GAAP measures used in the release. We've 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. Duration of this morning's call will be approximately one hour. Mike will provide strategic and revenue highlights of Q4-19, Dan will review the financials for the quarter, and then provide Q1-20 and full year 2020 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, VertiFlex, and BTG in the relevant periods for which there are no prior period-related net sales, as well as the divestiture of the bees business. On this call, all references to sales and revenue, unless otherwise specified, are organic. 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 2020 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 these 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.

Good morning. Thank you, Suzie. Good morning, everyone. Fossil Scientific finished up a strong 2019 as we've significantly strengthened our portfolio and capabilities for the future by delivering strong revenue and EPS growth. Consistent with the preliminary results we announced on January 14th, we delivered 14.1% operational revenue growth and 7.3% organic revenue growth for the fourth quarter of 19. This represents excellent growth, yet was below our organic revenue guidance of 8 to 9% due primarily to our U.S. high voltage and U.S. EP businesses. Importantly, operational growth outside of U.S. in both CRM and EP were solid, as were worldwide results in five of our other divisions, which all grew at or above market in three-posted double-digit growth, interventional cardiology, urology, public health, and endoscopy. With today's results, we disclosed adjusted EPS of 46 cents in Q4, exceeding the high end of guidance due largely to a 3-cent tax benefit. For the full year of 2019, we delivered 11.1% operational revenue growth 7.3% organic revenue, a 60 basis point improvement in profitability to 26.1, an adjusted EPS of $1.58, which is up 13% over the prior year, which is also normalized for the 7 cent tax settlement benefit in 2018. We delivered these results while also generating approximately $2 billion in adjusted pre-cash flow. Our 2019 financials continue a five-year trend of excellent 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, further increase our organic growth profile, and deliver top tier sales and EPS growth results over the next five years. Boston Scientific brings a combination of long-term consistent above-market revenue growth, margin expansion, targeted double-digit adjusted EPS growth, and a greatly improved ability to deploy our strong free cash flow. And that is what we believe positions Boston Scientific to continue to drive compelling shareholder value. We're excited about our plans to build upon our momentum in 2020 and beyond. We're targeting 2020 operational revenue growth of 10% to 12%, which includes approximately 350 basis points of growth from the Veriflex and BTG acquisitions. resulting in full year 2020 organic revenue growth guidance of 6.5% to 8.5%. Similar to the trend in 2019, given the ramp in timing of 2020 product introductions, acquisitions that will turn organic in the second half, as well as an expected negative first half impact in China procedure growth from coronavirus, we expect to see organic revenue accelerate in the second half of 2020 in comparison to the first half of the year. by approximately 200 basis points. We're guiding to adjusted EPS of $1.74 to $1.79, representing 10% to 13% adjusted earnings growth, which includes a 4% to 5% of accretion from the BTG acquisition, as well as approximately $2.3 billion in adjusted pre-cash flow. I'll now provide some highlights of our fourth quarter and 90 results, along with our thoughts on 2020 outlook. Our revenue growth in this quarter was broad-based across businesses and regions, led most notably this quarter by 13% operational revenue growth in the U.S., 12% in Asia-Pac, and 10% in Europe and Middle East Africa. Emerging markets had another outstanding quarter, growing operational revenue 16% in the quarter and 19% for the full year, and now represents 12% of total company sales. So turning to each business, our MedServe segment represents 31% of our revenue mix in 2019 and continues to deliver excellent results. with sales growth of 11% in the fourth quarter and 9% for the full year. Endo sales grew 10% in the quarter and 9% for the full year, with fourth quarter sales led by double-digit growth in our biliary franchise and infection prevention franchises. Endo sales also are expected to decelerate slightly in first quarter 2020, where we're targeting a full-year growth acceleration in endo. Given the breadth and strength of our category-leading portfolio, as well as more significant contributions from the Exalt-D single-use scope launch in second quarter and beyond. I'm also pleased to announce that Exalt-D received CE mark in late January. We begin a limited launch later this quarter. Our endo business is also advancing additional pipeline opportunities, including the resolution ultra-hemostasis clip and the next generation launch in our therapeutic imaging portfolio called the Spy Class Discover, which is a single-use surgical scope. We continue to believe our therapeutic imaging portfolio represents a differentiated opportunity in 20 and an incremental 2 billion market opportunity by 2024. Turning to Euro and Pebic Health, this franchise also continues its excellent performance, growing organic still 12% in the quarter and 8% for the full year 2019, with 15% full-year operational growth, and that's despite a 170-pages-point headwind from the mesh withdrawal. Fourth quarter strength was led by double-digit growth in our single-use lithovue scope, core stone, resumed minimally invasive therapy for BPH, and almost doubling of space ore revenue. As a reminder, space ore hydrogel diminishes the risk of local undesirable side effects of prostate cancer. Radiation therapy continues to resonate in the marketplace and with patients, resulting in 100 million sales in 2019. In addition, the Resume system recently obtained expanded commercial coverage wins this year, including Anthem, Blue Cross Blue Shield, and Cigna. We expect EuroPublic Health to deliver double-year revenue growth in 2020 and the continued progress of our broad portfolio and globalization efforts. Turning to global rhythm and neurosales, which were 1% in the fourth quarter and 3% for the full year, and they represent 29% of our total mix in 2019. Neuromodulation delivered fourth quarter organic revenue up 8% and operational revenue up 19%. The full year organic sales were up plus 7% and operational sales were up 13%. As detailed last month at our investor update from the recent NAMS annual meeting, we remain very bullish in our comprehensive portfolio and exciting pipeline in both pain and brain modulation. Neuromod results for the quarter were led by doubling in sales of our precise DBS system, which offers unique directionality with our Cartesia lead. The ability to provide precise neural targeting with this lead allows physicians to optimize therapy and help reduce unwanted side effects for patients. This in addition to the CE mark approval of Neural Navigator 3, which integrates enhanced visualization with clinical programming to simplify and accelerate physician program. We expect continued strong momentum in DBS in 2020. Our global spinal cord stimulation sales also improved sequentially from third quarter to fourth quarter in 19. For the full year, SCS sales were down low single digits, but we believe the SCS market will return to growth in 2020, given low patient penetration rates, as well as new product launches and clinical data from our team and industry more broadly. In SCS, Wayrider is the only platform approved by the FDA to provide simultaneously paresthesia-based and sub-perception therapy, which targets two different mechanisms of action at the very same time, not alternating them for patients suffering chronic brain. In our combo randomized clinical trial, three-month data presented in NAMS last month, Waverider combination therapy demonstrated an 88% responder rate, which is one of the highest responder rates reported among other comparable SCS clinical studies. Also, our VertiFlex acquisition complements our RF ablation and SES portfolio in pain and represents an important therapy for patients with moderate lumbar stenosis. Myrtiflex performed well in the quarter and exceeded its full-year pro forma 19 sales goal of $60 million. Turning to CRM, CRM sales fell 3% in the fourth quarter after growing above market in Q1 through Q3, and they ended up 1% for the full year. The weakness in the fourth quarter was caused primarily by mid-single-digit declines in the U.S. ICD revenue with global ICD sales declining low single digits. Fourth quarter pacing revenue, as expected, was down low single digits worldwide. And we believe that global ICD softness in fourth quarter was largely related to the tough comps we faced with a global mid-single digit growth comp in fourth quarter 18. In addition, while we don't have all the fourth quarter inputs, our best estimate is the fourth quarter 19 worldwide CR market which excludes implantable cardiac monitors, electively declined low single digits. In 2020, we'll aim to continue to deliver above-market growth in DFib due to our longevity benefits, heart logic, heart failure diagnostic, and MLS ICD. In 2020, we remain on track to launch LexDX, which is our implantable cardiac monitor by mid-year, but we do expect limited revenue contribution due to revenue recognition policies. Overall, we expect worldwide CRM revenue to be more in line with the market 2020, potentially flat to down low single digits. EP sales grew 4% in the fourth quarter and for the full year, 7%, and US sales grew 8% in the quarter. Importantly, international sales continue to be very strong, up 15% in the fourth quarter and up 16% for the full year, led by the launch of our DirectSense catheter in Europe and Japan, as well as continued double-digit growth in major markets for our Rhythmia HDX mapping system. We also continue to enjoy a stronger response to LumaPoint, which is a next-gen HD mapping algorithm that illuminates critical areas of the heart by utilizing user-defined inputs to assist in map interpretation. We continue to answer our pipeline globally in EP, and we're pleased to announce that we've just received CE mark for our PolarX single-shot pulmonary vein isolation technology in Europe. We look forward to bringing PolarX to the market in Europe, as well as beginning enrollment in our U.S. IDE trial. So overall, we do expect EP sales growth to accelerate in 2020 as we're excited to enter the single-shot market while continuing to increase our mapping and navigation footprint and also expanding the launch of our nav-enabled catheter portfolio and adding new features to Rhythmia mapping. Turning to cardiovascular, this segment grew sales in fourth quarter 19% operationally and 10% organically. For the full year of 2019, growth is 14% on operational basis and 9% organic, and accounted for 39% of our total company sales. Pertful interventions grew 4% in the quarter and 8% for the full year on organic basis, and 34% for the quarter and 19% for the full year operationally with the BTG interventional medicine acquisition. Legacy PI growth was driven by strong double-digit growth in Asia-Pac, offset by a slight decline in U.S. sales due to tough comparisons from the U.S. launch of Alluvia, as well as a competitor's manufacturing issue one year ago. The interventional medicine business performed in line with expectations, growing plus seven pro forma with high single-digit growth in interventional oncology. We expect similar global organic growth trends in PI in the first quarter of 2020, with acceleration thereafter on the integration of BTG as well as important new product approvals such as Ranger DCB, which is supported by great new head-to-head data from the Compare trial, which was just released last week at Link. Interventional cardiology continues to grow nicely above market, delivering 13% organic and operational revenue growth in the quarter. For the full year, IC organic sales grew 10%, which is a 550 basis point increase versus 18, while operational sales were up 11 for the full year. We delivered coronary therapies growth of 1% in the fourth quarter and 2% for the full year. Synergy Megatron is an important line extension to our market leading Synergy bioabsorbable polymer platform as its purpose built for large proximal vessels. Megatron is launching in Europe now and is on track for a second half 2020 US launch. Strong structural hard sales then drove the IC sales to 13% overall in the quarter. Strong growth across our structural platforms led to achievement of the high end of our 19 revenue guidance of $700 to $725 million, which is up over 50% versus 18. Watchman achieved its strongest quarterly growth rates of the year in fourth quarter as we continue to focus on four important areas, market development and education, continued pursuit of clinical evidence to understand the benefits of Watchman in broader patient populations, including lower risk patients to be enrolled in the head-to-head champion AF study, Number three, product enhancements such as the next-gen Watchman Flex, which is expected to launch in the U.S. in the second half of this year. And fourth and lastly, geographic expansion in Japan and other countries. Turning to TAVR, we continue to be pleased with the launch and progress of Lotus Edge and remain on track to open 150 accounts in the first 12 months post-approval. We also recently received Lotus Edge reimbursement approval in Japan and will begin a limited market release over the coming months. Our superannual valve offering, AccurateNeo, grew mid-teens in the quarter, and we look forward to the launch of the next generation AccurateNeo 2 in Europe mid-year. And Sentinel, which is the only cerebral embolic protection device, is now in over 600 US hospitals. We estimate that Sentinel is approaching 20% of the overall US TAVR procedural penetration. We believe definitive evidence focused on the stroke endpoint will continue to elevate Sentinel to become the standard of care for all patients, and will help influence future clinical guidelines. To that end, we look forward to beginning enrollment this quarter in the collected TAVR randomized clinical trial. Finally, in the mitral field, we are pleased to have entered the clinic in summer in Australia with our millipede full aneuplasty ring for mitral valve repair. We're targeting enrollment in our early feasibility study in the U.S. by the end of 2020. So with our portfolio of Watchman, Accurate Lotus, Sentinel, and millipede, we're excited about our structural art capabilities. and long-term growth prospects. And we target combined revenue of $900 million to $1 billion in 2020. And also, outside of the three reporting segments I detailed, fourth quarter BTG spec farmer revenue of $58 million brought full-year pro forma sales to $250 million, which is down slightly year over year and also in line with our expectations. So to wrap up, we have an extremely exciting future and believe that we're well-positioned to continue and strengthen our performance track record in 2020 and beyond. And for that, I'd like to thank our employees and their winning spirit and commitment to patients. So now I'll turn things over to Dan for a detailed review of our financials. Thanks, Mike.