Boston Scientific Corporation

Good morning and welcome to the Boston Scientific First Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. Please limit yourself to one question and one related follow-up. I would now like to turn the conference over to Susan Lisa, Vice President, Investor Relations. Please go ahead.

Thank you, Andrew. 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 Q1 2021 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 focus his comments on Q1 performance as well as future catalysts and the outlook for our business, including Q2 and fiscal year 2021 guidance. Dan will review the financials for the quarter, provide more details regarding our Q2 and fiscal 21 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 growth excludes the impact of foreign currency fluctuation, and organic revenue growth further excludes acquisitions and divestitures for which there are no comparable period net sales. Relevant acquisitions for organic growth versus 2020 and 2019 include Preventus, which closed March 1, 2020, and VertiFlex and BTG Interventional Medicine. which closed in May and mid-August of 2019, respectively. Divestitures include BTG Specialty Pharmaceuticals, which closed March 1, 2021, and the Global Embolic Microspheres Portfolio and Intrauterine Health Franchise, which were divested in mid-August 2019 and second quarter of 2020, respectively. Guidance excludes the recently announced Luminous Surgical Acquisition and the BTG specialty pharmaceutical businesses, which, as I mentioned, was divested as of March 1, 2021, one month earlier than originally anticipated. For more information, please refer to slide nine of our financial and operating highlights deck, which may be found on our investor relations website. On this call, all references to sales and revenue, unless otherwise specified, are organic. Finally, growth goals of 6% to 8%, excluding COVID, represent comparisons between time periods in which results are not materially impacted by the COVID-19 pandemic. 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, the impact of the COVID-19 pandemic upon the company's operations and financial results, 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, and earnings, as well as our tax rates, R&D spend, and other expenses. Factors that may cause such differences include those described in the risk factor 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?

Thanks, Susie. Thank you, everyone, for joining us today. I'm pleased to report a good start to 2021 with a return to growth versus both 20 and 19. Financial results that exceeded our guidance for both revenue and EPS and multiple significant clinical milestones and continued advancement of our category leadership strategy with new product launches in Tuck and M&A, including Preventus and cardiac diagnostics, and Luminous, which is a leader in laser technology for kidney stones. Total company first quarter operational sales grew 5.6% versus 2020. Organic sales grew 6% versus 20 and 3% versus 19, exceeding expectations as the second half of the quarter came in stronger than anticipated. Procedural recovery and market share gains across many of our businesses and regions. Many of these gains were fueled by new and ongoing product launches, most notably our Ranger DCB, Alluvia DES, Polarex catheter, Lux DX implantable cardiac monitor, and their precise genus deep brain stimulation platform. First quarter adjusted EPS of $0.37 grew 33% versus 20% and 5% versus 19%, which exceeds the high end of guidance by $0.03, primarily due to higher sales performance and spend controls. Adjusted operating margin of 24.3% was in line with our expectations and demonstrates solid progress from 2020. We're really pleased with our pre-cash flow generation of $213 million and adjusted pre-cash flow of $404 million. We believe these better than expected results are indicative of our ability to regain our pre-pandemic six-year track record of excellent performance as we execute against our strategic plan objectives and drive towards ex-COVID financial goals for 68% organic sales growth, continued operating margin expansion, double-digit adjusted EPS growth, and importantly, an improved ability to deploy our healthy free cash flow. We're encouraged by the outlook of the rest of the year, and we're emerging from the headwinds of the pandemic well-positioned, given our category leadership positions, innovative pipeline, commercial execution, enhanced digital capabilities, and ongoing expansion into higher growth markets. And we look forward to highlighting these capabilities with you further at our investor day this year, which will be held on Wednesday, September 22nd. So looking ahead, we continue to expect a steady recovery from the pandemic with less of an impact from COVID-19 in second quarter versus first quarter and more normal procedure levels in second half 21. Given the first quarter outperformance, we're narrowing the range for both full year organic revenue growth and adjusted EPS. So compared to 2020, we're targeting second quarter 21 organic revenue growth of 44% to 48% and full year plus 15% to plus 18%. Compared to 19%, we're targeting second quarter organic revenue growth of 3% to 6% and for the full year growth of 2% to 5%. Our second quarter adjusted EPS estimate is $0.36 to $0.38, and we're updating full year adjusted EPS to a revised range of $1.53 to $1.60. Dan will also give the revenue contribution from Preventus, and we continue to expect second half 21 close for Luminous. So now I'll provide some additional highlights in first quarter 21, along with some commentary on second quarter and the outlook. So regionally in first quarter, on an operational basis versus 20, the U.S. grew 9%, Asia-Pac grew 9%, Middle East-Africa grew 2%, and the emerging market sales grew 13%. Growth in the US was supported by procedural recovery, particularly in March, along with new product launches across the entire portfolio. Europe, Middle East, Africa was driven by new product innovations with particular strength in PI, EP, and endo, as the majority of markets grew in first quarter versus first quarter 19, even as some countries experienced lockdowns and related procedural impacts. In Asia, every market grew in first quarter versus first quarter 20, And going forward in Japan, despite COVID uncertainties, we expect full year growth versus 2019, thanks to the diversified portfolio and new product launches such as Ranger DCB, StablePoint, Watchman Flex, and Lithiview, which is expected later in the year. China sales grew 20% versus 2020 and were flat versus 19, which reflects the negative impact of tender pricing for drug-looting stents and balloons. The rest of the China portfolio saw strong double-digit growth in first quarter versus 19, with particularly notable momentum behind both complex PCI and imaging products, as well as endo, euro, and PI. We continue to expect full-year 21 double-digit growth for China versus both 2020 and 2019. I'll now provide some additional commentary on the business units. Urology and public health continued to expand market share and sales grew organically 9% versus 2020. And first quarter growth is balanced regionally with strength in stone and prostate health. Product highlights include continued momentum with space review hydrogel, which drove double digit growth overall for the space or business. Resume also grew double digits fueled in part by the publication of the compelling five year results, demonstrating resumes durability, with a low 4.4% re-intervention rate for BPH patients. And looking ahead, we're excited to continue to build out our stone portfolio and extend our global footprint with the acquisition of the surgical business of Luminous and its leading laser fiber technology. The deal is expected to close in the second half of the year. For endoscopy, sales grew organically 10% versus 2020, and Endo continues to grow market share globally with double-digit growth in all regions versus 2019. led by strength in key franchises such as pancreatic obiliary, hemostasis, and infection prevention. And thanks to recent launches in our differentiated technologies such as Spyglass DS, Discover, and Axios. Exal-D momentum is gradually improving as we have started to see capacity for hospitals to establish new protocols, hospital access has increased, and the Medicare outpatient pass-through payment. We also continue to target launch of our single-use bronchoscope in the second half of 21 and remain bullish on the long-term opportunity for single-use scopes broadly. In cardiac rhythm management, sales were up 1% organically versus 2020, and we believe that our CRM performance was slightly below the overall market. For the full year of 21, we forecast a slight tailwind from the replacement cycle and anticipate beginning enrollment mid-year in modular ATP. which is our dual-track clinical study for a standalone leadless pacemaker, as well as to provide pacing and anti-tachycardia pacing to emblem SICD patients. Our LUX-DX implantable cardiac monitor launch is gaining U.S. share, given its high-quality ECG signals, arrhythmia algorithm performance, and streamlined back-end monitoring. We closed the Preventus acquisition as of March 1st and are pleased with the Preventus portfolio, which grew mid-20% on a pro forma basis for the full quarter. And despite recent reimbursement challenges of one segment of testing, long-term ECG, we expect plus 20% pro forma growth for Preventus in 21, given its ability to offer all four testing modalities with bodyguardian mini and excellent detection algorithms. We're excited to have such a unique position in the field of cardiac diagnostics and the ability to offer all diagnostic modalities, including ambulatory ECG, LuxDX, ICM, and the heart logic detection alert for heart failure. Electrophysiology sales were up 8% versus 2020. And Polarex, which is our second-generation single-shot cryocatheter, is off to a strong start in Europe and taking share given its effectiveness and ease of use. StablePoint, our force-sensing therapeutic catheter with direct sense, is also enjoying a good start in both Japan and Europe and has begun enrollment in this US IDE trial called Newton AF. In neuromodulation, organic revenue grew 2% versus 2020, and the first quarter result is an improvement sequentially, despite the challenges of higher rates of spinal cord stem patient cancellations in December that also seeped into January and February due to the COVID surge. As patient reticence waned in March, trends improved significantly and also helped by the ongoing launch of our next-gen Waverider Alpha SCS system. Alpha has driven excitement due to its fast and contour paresthesia-free waveforms with MRI compatibility, which is also supported by our Cognita software solutions that enhance the physician's ability to identify, manage, and maintain SCS patients. In deep brain stimulation, our precise genus platform expands our MRI capabilities in both the rechargeable and non-rechargeable segments with Bluetooth communication capabilities. In interventional cardiology, organic sales grew 7% versus 2020. In every structural heart franchise, Watchman, AccurateNeo2, and Sentinel delivered strong growth. The Watchman franchise accelerated its recovery, growing over 30% versus 2020. with extremely positive physician feedback on Flex device performance and safety, as supported by the Pinnacle Flex IDE study that was published in Circulation during the quarter. Importantly, we completed the conversion to a consignment-based model last quarter, and accounts in the U.S. are now over 90% converted to Flex. We've also seen a step up in implants per center per week versus pre-COVID levels as more physician implanters adopt the Flex technology. And we continue to push for indication expansion as we enroll the champion study and target enrollment completion of the option trial by the end of the year. In TAVR, our Accurate Neo2 launch continues to do quite well in Europe. And we're pleased to announce that we've expanded our risk indication and our Accurate Neo2 IDE trial. The IDE trial now includes all risk categories, including low-risk TAVR patients. We continue to target US approval for all risk indications and market entry in 2024. During the quarter, Sentinel, which is our cerebral embolic protection device, reached a milestone of treating 50,000 patients cumulatively and continues to enroll its protected TAVR randomized trial. Coronary therapies grew to low single digits versus 2020 with global strength in complex PCI and imaging. This helped offset drug gluten extent price weakness in the US and China. We continue to launch new products for complex PCI and are on track to begin enrollment in the second quarter for the agent drug-coated balloon study, which is a first in the U.S. for coronary instant restenosis. And we're pleased that agent has been designated a breakthrough device. Proof of interventions deliver strong performance and continues to gain market share, where the GANX sales up 8% versus first quarter 20. And interventional oncology grew high single digits versus first quarter 20. driven by the achievement of several important milestones for Therosphere. These include the recent PMA approval in hepatic cellular carcinoma, as the positive target study outcomes were featured as a late breaker at the Society for Interventional Radiology. In addition, we were granted a breakthrough device designation for the study of Therosphere in patients suffering from glioblastoma, an aggressive form of brain cancer. Performance in our Venus franchise was led by mid-teens growth in ECOS versus 2020. And in arterial, drug-looting technology is also at a strong quarter, as growth accelerated sequentially thanks to our category leadership strategy to offer both a differentiated DES and a DCB, as well as sectors continuing recovery on multiple data sets, proving the safety and effectiveness of these therapies. The Alluvia DES inpatient add-on payment and the ongoing US launch of Arranger DCV are helping us to drive share gains. I'd also like to highlight two important sustainability accomplishments this quarter. The first is the publication of our performance report and its detailed addendum referencing the global reporting initiative guidelines. And secondly, place an eighth on the Forbes list of America's best employers for diversity in 2021. We remain as committed as ever to global, sustainable, economic, environmental, and social practices. And overall, we're pleased with our early performance for the year and optimistic on the outlook. We continue to drive towards ex-COVID financial goals of 68% organic growth, margin expansion, driving strong cash flow, and double-digit adjusted EPS growth, while living our values with enduring commitment to sustainable business practices. Very grateful for our employees for their winning spirit, and then I'll turn things over to Dan.