Boston Scientific Corporation

Good morning and welcome to the Boston Scientific Third Quarter 2021 Earnings 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 2. Please note this event is being recorded. I would now like to turn the conference over to Lauren Tangler, Vice President, Investor Relations. Please go ahead.

Thank you, Andrew. Welcome, 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 Q3 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 Q3 performance as well as future catalysts and the outlook for our business, including Q4 full year 2021 guidance. Dan will review the financials for the quarter, provide more details regarding our Q4 and 2021 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 less than a full period of comparable net sales. Relevant acquisitions for organic growth versus 2020 and 2019 include Preventus, Ferripulse, and Luminous Surgical, which closed in March, August, and September of 2021, respectively, as well as VertiFlex and BTG Interventional Medicines, which closed in May and mid-August of 2019, respectively. Divestitures include BTG Spec Pharma, which closed on March 1, 2021, and the Global Embolic Microspheres Portfolio, an intrauterine health franchise, which were divested in August 2019 and second quarter of 2020, respectively. Guidance includes the recently announced Devorah Medical and Bayless Medical acquisitions, which are expected to close in Q4 21 and Q1 22 respectively. 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 or organic. Finally, growth goals of six to 8% ex-COVID represent comparisons between time periods in which results are not material impacted by the COVID-19 pandemic. A note, this call contains forward-looking statements within the meaning of the federal securities laws, which may be identified by words like anticipate, expect, may, believe, estimate, and other similar words. They include, among other things, the impact of COVID-19 pandemic upon the company's operations and financial results, statements about our growth and market share, new product approvals and launches, acquisitions, 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 comments.

Thanks, Lauren, and thank you, everyone, for joining us today. I'm proud of our global team's execution despite the various challenges presented by the COVID surge in third quarter. The third quarter was impacted by COVID more than we anticipated as the Delta variant surged globally and some elective procedures were deferred. While we aren't satisfied with this quarter's sales results, we delivered on our third quarter EPS and margin targets and we're confident that as global vaccination rates continue to increase and COVID wanes, we are well positioned to achieve our long-term sales goals. We continue to be excited and confident about the opportunities we laid out at our recent investor day. Further enabled by our strategy of category leadership, entry into higher adjacent growth markets, and tuck in M&A. Total company third quarter operational sales grew 10% versus 2020, while organic sales grew 11% versus 20 and 4% versus 2019. Just below our guidance of 12 to 14% versus 2020, as Delta impacted procedure volume globally. Despite the temporary impact of procedure volumes, we saw strength in new product launches, generated robust clinical evidence, and executed broadly across the portfolio. Q3 adjusted EPS of 41 cents grew 10.5% versus 2020 and 4% versus 2019, reaching the high end of our third quarter guidance range of 39 to 41 cents. Adjusted operating margin at 25.6% continues to improve, and was in line with our third quarter expectations. We continue to be pleased with our cash flow with third quarter pre-cash flow generation of $360 million and adjusted pre-cash flow of $525 million. We're updating our fourth quarter and our full year guidance ranges for both sales and EPS, which assumes some level of impact to procedures from COVID and staffing shortages. Compared to 2020, we target fourth quarter 21 organic revenue growth of 12% to 16% and full year growth of 18% to 19%. Compared to 2019, we target fourth quarter 21 organic revenue growth of 4% to 8% and for full year organic revenue growth of 5% to 6% versus 2019. Our fourth quarter adjusted EPS estimate is $0.43 to $0.45. And we're updating a full year adjusted EPS to a revised range of $160 to $1.62. Dan will provide more details on both sales and EPS performance and outlook, including the revenue contribution from our acquisitions this year. I'll now provide additional highlights in Q3 21 results, along with comments on our fourth quarter and 21 outlook. Within the regions on an operational basis, Q3 2020, the U.S. grew 15%, Europe, Middle East, Africa grew 8%, Asia PAC grew 8% and the emerging market sales grew 18%. Operationally, despite the impact from Delta, EMEA delivered solid growth in third quarter across the majority of businesses and countries, with notable strength in PI, EP, and Endo, fueled by new and ongoing product launches like TheraSphere, Polarex, and Axios. We continue to improve our NEO2 performance with strong utilization driving double-digit growth versus both 20 and 2019. Asia-Pac was impacted by pandemic-related lockdowns in parts of the region, though growth in China remained very strong. We're encouraged heading into fourth quarter in 2022 as countries within Asia-Pac are reopening as vaccination rates increase and COVID cases decline. Although Japan was in a state of emergency throughout third quarter, we were able to advance new product launches achieving number one share position with our Ranger drug-coated balloon, as well as launching Polarex in October. China continues to deliver excellent results, and sales grew 14% versus 2020. We continue to see momentum across their portfolio, driven by complex PCI and imaging, as well as new product launches like Alluvia and Axios. Digital tools are also playing a role, enabling virtual physician training and allowing us to expand our reach with differentiated products like Ivis. We continue to expect double-digit full-year 2021 growth from China versus both 2020 and 2019. I'll now provide some additional commentary on the business units. Urology and public health sales grew 7% organically versus 2020, and the luminous acquisition closed in September, which expands the urology portfolio and stone offering to include the Moses Laser, which is complementary to the LithoView single-use flexible ureteroscope in our broad portfolio of disposables that support kidney stone removal. The Prostate Health franchise grew double digits with continued strength in our Resume and Spacer businesses, and we're excited to initiate two trials in this space within the quarter. The Global Saber Clinical Trial, which will examine the effectiveness of SpacerView in reducing late toxicity in patients receiving a stereotactic body radiotherapy treatment for prostate cancer and a vapor trial, which compares resume to dual drug therapy for BPH. Our elective procedures within the pelvic health portfolio were impacted by the third quarter surge in Delta, but historical growth trends have shown a quicker recovery as COVID surges wane. In endoscopy, sales grew 11% organically versus 2020. Our market-leading global endoscopy portfolio continues to benefit from differentiated, innovative technology launches, including Axios, Resolution Ultra hemostasis clip, and single-use scopes. During the quarter, Exalt-B received FDA clearance and is now available in both U.S. and Europe, with physicians pleased with its image quality and suction capabilities. We continue to make progress with Exalt-D, and are launching the 1.5 enhanced EXALT-D design, which features improved physician ergonomics. Additionally, we're pleased to now have approximately 40% of ERCP procedures qualify for additional reimbursement with NTAP approval as of October 1st. In cardiac rhythm management, organic sales were flat versus 2020. SICD sales grew mid-single digits versus Q3 2019. supported by the launch of the enhanced electrode. While core CRM third quarter trends improved over first half 21, across both DFIP and PACER, we believe that growth likely lagged the market. Looking ahead, we anticipate stabilization in our core CRM growth exiting 2021 and into early 2022, supported by SICD and our differentiated HeartLogic offering. Within our diagnostics franchise, our LUX DX implantable cardiac monitor continues to gain share as physicians are pleased with the implant experience, technology, and remote programming capability. Our preventive business remains on track to deliver plus 20% growth for the full year versus 2020 on a pro forma basis, fueled by the broad and differentiated ambulatory ECG portfolio. Electrophysiology organic sales were up 10% versus 2020, driven by strong international sales in both Europe and Japan. International growth is well above market, driven by the innovative portfolio, including Polarex and StablePoint. Polarex was recently approved in Japan, with the first cases occurring in October. In addition, the frozen AF trial completed an enrollment, which represents an important step in bringing Polarex to the U.S. with an expected launch in 2023. We also closed our FairPulse acquisition in third quarter, which is the only commercially available PFA technology, and we are seeing strong early usage in a limited number of launched accounts in Europe. Finally, we announced our acquisition of Bayless Medical, further enabling our strategy of category leadership with a novel approach to left heart access. Within the U.S., the Bayless platform is used in close to 40% of EP ablation procedures on the left side of the heart. Furthermore, it is used in left atrial appendage closure and mitral valve intervention. We expect to close this acquisition in first quarter 2022. In neuromodulation, organic revenue grew 2% versus 2020, as underlying procedure volumes was impacted by the delta surge throughout much of the quarter. Within our pain management franchise, we continue to see excitement for our WaveRider Alpha SES system and differentiated FAST algorithm, as well as our Cognita digital solutions. Within deep brain stimulation, the majority of our accounts have transitioned to precise genus, and we continue to drive new account openings as physicians are pleased with the integrated platform and personalized therapy. And last week we received approval for our essential tremor indication, and they're excited to begin a limited launch in fourth quarter 2021, which will expand our addressable market by $2 billion. In interventional cardiology, organic sales grew 26% versus 2020, which includes a 1200 basis point tailwind related to the Watchman consignment sales return reserve taken in third quarter 20. Our Watchman franchise had another strong quarter of double digit growth as physicians continue to be pleased with the next generation flex performance and differentiated clinical data. This positive sentiment has been further supported by ongoing real world clinical evidence presented to HRS demonstrating high rates of effective LAA closure and low rates of complications post-procedure. We continue to innovate and are launching our fixed curve sheet offering greater deployment control and ability to reach an expanded range of anatomies. We also anticipate enabling our U.S. label to include DAPT to support physician and patient choice in patient implant care by year end. In TAVR, AccurateNeo2 continues to do well with physicians pleased with its clinical performance and ease of use backed by strong real-world clinical data resulting in approximately 20% market share in open accounts. Momentum continues with Sentinel, our cerebral embolic protection device, which is exceeding 20% share in the U.S. where it's utilized. Coronary therapies grew 8% versus 2020 as the China DES tender impact begins to annualize and our portfolio mix shift into higher growth markets continues to strengthen. We continue to see excellent growth in complex PCI and imaging, being driven by RotaPro and Ivis. We also just received FDA clearance for Avigo2, our next generation guidance platform. Purple Interventions consistently delivers with organic sales up 8% versus Q3 2020. TheraSphere was a standout once again and grew double digits in the quarter with continued momentum for the positive EPOC trial, a first of its kind where TheraSphere was studied as second line therapy with their primary endpoint of progression-free survival in patients with MCRC was met. Additionally, we've begun patient enrollment in the Mandarin trial, an important first step for bringing HCC treatment to China patients. In arterial, our drug alluvium portfolio continues to perform well, growing double digits for 2020 with positive late-breaking clinical data presented at VIVA earlier this month. Alluvia, our drug loony stun, exhibited superiority in the imminent trial, compared to bare metal stents, and two-year data from the Ranger 2 trial demonstrated continued high rates of primary patency and significant reduction in reinterventions with our Ranger DCB. In Venus, we continued to push forward with our first patient enrolled in a high P-throat trial. We also had late-breaking clinical data from the knockout PE registry presented at Viva, confirming the safety and efficacy of ECOS. Building our strategy of category leadership, we announced our acquisition of Devorah Medical and the Wolf thrombectomy platform, which is an innovative technology designed to rapidly capture and extract blood clots in arterial and venous systems while minimizing blood loss. We look forward to closing this acquisition in fourth quarter 21. More broadly, we're furthering our commitments to sustainability, and I'm proud to report that Boston Scientific is joining the United Nations Race to Zero campaign, And since 2017, we've reduced the BSC carbon footprint by 50% and are on track to meet our goal to be carbon neutral and all manufacturing and key distribution sites by 2030. We're building on this foundation to establish ambitious science-based targets to set us on a path to net zero emissions across our entire value chain. We are bullish about the future outlook of Boston Scientific. At our recent investor day, we detailed our LRP plans for growth of 68% growth, operating margin expansion to 50 basis points or more each year, and double-digit adjusted EPS growth. I'd like to extend a big thank you to our employees for their contributions and winning spirit. Sorry. And I'll now turn things over to Dan.