Boston Scientific Corporation

Thanks, Mike. Thanks, Larry. Thinking about 20% growth over a sustained number of years of the LRP as conservative just says something about just how impactful Watchman has been as a therapy and I think will continue to be. As we mentioned earlier with Robbie's question, even the currently indicated population is way underpenetrated, and that's why we aren't very comfortable in that 20% growth. over the long-range plan. But I think, you know, to answer your questions about some of the studies that are coming up, let me talk, you know, about them first closure. So that's trial that is going to be reported on AHA. I don't think it's a particularly good read-through for CHAMP. It's a very different European population, a very different primary endpoint, a shorter follow-up. You know, we continue to think that other trials, like PROG-17 and OPTION, honestly give us, you know, really confidence in what we hope that Champion will show. I think in terms of Olon AF and a trial called Ocean that will be reported out at AHA, you know, both of those, first off, if Ocean is confirmatory of Olon AF, that's great news, right, saying that low-risk patients undergoing AF ablation may no longer need stroke prevention. And I want to, you know, remind you all, right, that up until now, except for very select populations, AF ablation was only really indicated as a way of managing patients with significant symptoms from their AF. And so, this supports the continued growth of FARA pulse as patients seek AF ablation in order to come off their blood thinners. But, and this is important, the patients who are currently getting concomitant FARA watch procedures, are not the low-risk patients who were studied in the loan AF. And we have not seen any material impact to concomitant following the publication of a loan. And again, sort of taking all of this together, you know, the significantly under-penetrated currently indicated population, the prospect of indication expansion with trial-like champion, the continued growth in ablation for AF, We remain really comfortable with the projection of 20% annualized growth over our LRP. All right.

Thank you so much. The next question comes from Rick Wise with Stifel. Please go ahead.

Good morning, Mike. Hi, John. I'd like to focus on the very impressive margin performance. John, you kept saying strong drop through to margins from the revenue outperformance. Got it. But I was hoping you'd sort of give us a little more color. I mean, your gross margins, which I know you don't guide to specifically, almost back now to pre-COVID levels. Help us think through as we try to model looking ahead, where do we go from here on the margin front? How big a driver of your operating margin goals is gross margin. And just help us understand maybe with a little more color the drivers from here. It just feels like, given the revenue strength and what we saw this quarter, that your 50 basis point annual improvement could prove conservative, he said optimistically. Thank you.

Thanks so much, Rick. Appreciate the question. And, yeah, pleased with the performance in the quarter and our expectation to expand operating margins 100 basis points on the year, overcoming the tariff impact of approximately $100 million that we've sized for the year. In the quarter, as I mentioned, saw very – strong gross margin tailwind from Mix. We spent some time talking in Q&A about Watchman, the 35% growth there. EP continuing to perform very well for us. Nice Mix benefit there. Mike mentioned in his remarks how well our agent, Drug-Coded Coronary Balloon, is performing. So Mix really driving the gross margin performance that we saw in the quarter, and we're now expecting the gross margin has slightly improved year over year despite that $100 million tariff headwind. So then as we head into next year, you know, we're rolling up our annual operating plan process now and we'll provide more detail as we typically do when we have our Q4 call at the start of next year. But broadly, as we mentioned at our investor day, do expect to expand operating margin each year, every year. targeted roughly 50 basis points a year. Within the pieces there, we'd expect to, with gross margin, we'd expect that mix will continue to be a tailwind for us. We will see annualization of tariffs in 2026, so that will be a further headwind based off of our expectations today. You know, expect us to continue to drive leverage through SG&A. And then R&D, you know, we've got that – roughly between 9% and 10%. I think that's a nice level of investment at the high end of our peer set. So I think that's a good place for us to live moving forward. So again, I appreciate the question, Rick. Love the momentum of the business and the financial performance while reinvesting back into the business for growth. And as always, we'll provide much more detail when we get to our Q4 call at the start of next year.

Thanks, Jeff. The next question comes from David Roman with Goldman Sachs. Please go ahead.

Thank you. Good morning, everybody. Mike, you referenced this in response to one of the earlier questions, but was hoping you could expand on the dynamics in the business kind of outside EP and Watchman. There's obviously a disproportionate focus on those businesses given how strong a growth contribution they've been. But as we look forward, I think everyone understands that the EP business is going to decelerate given just the size and the competitive landscape there, even with strong market growth. But if you look across the rest of the portfolio, you're seeing good momentum in businesses like neuromodulation and endoscopy. You talked about some of the improvements you're seeing in Silk Road. But maybe help frame for us what are kind of the drivers that support and the growth outlook in the rest of the business and where you think from a product perspective we should be focused?

David, I really appreciate that question. So much of the attention goes to our EP business and it should given that we were a distant number four, now we're a clear number two and have higher aim over the future. But as you said, it's not going to grow as fast as it has given that we're anniversary and comps the size of the business. But we expect to be an outstanding performer in 26 and beyond in our EP business. But I'm really proud of the rest of the divisions. And not every one of our business grows faster than market every quarter. But as a composite, we clearly do. And that's what we indicated our investor day to grow faster than our 9% WAMGR. You know, med surge in the quarter had a healthy 8% growth. Very strong growth with our endoscopy business. We've got a few different alliances and product launches that we're launching in 26. We expect strong endo performance. Euro has had a tougher year. We have high expectations. We talked about exonics in the script. We expect exonics to get stronger in fourth quarter and in 26. And Euro will actually have some easier comps in 26. We expect some acceleration there. And I'm really proud of our Neuromod team. They really clawed back over the years. And now they drove 9%, I think it was 9% growth in the quarter. And we just closed the, or we haven't closed. We signed the NALU acquisition, another great adjacency for us. So we're really, we'll be with NALU, the clear category leader from a portfolio perspective in paying business with a improved and strengthened SCS business, a solid RF business. Relievant has done better than we had planned with that acquisition and now NALU. So similar to Endo and other businesses, we have the widest portfolio in neuromodulation and some unique abilities to work with our customers in that regard. Our ICTX business has transformed itself from a reliant on DES to a high-growth business led by our imaging business, our agent, and complemented with the rest of their portfolio. And as we said on Investor Day, we have our largest investments in the company within ICTX. The most near-term one is our IVL product for PI, which will launch in a limited way at the end of this year. We'll get a full benefit of that in 2026. And the trial for IVL and cardiology is going extremely well. And we look to wrap that up hopefully early in first quarter 26 and launch that early 27. And we have a number of other large investments, some that we talked about in Investor Day. IO continues to do well, growing double digits. Our Venus portfolio grew double digits and they absorbed the, some of the pricing challenges in China. So EP gets the airtime, but the rest of the business continues to do very well. And what's most important is we spend a lot of time on those businesses, constantly feeding them with organic R&D, tuck-in M&A, expanding clinical work so we continue to grow above market as our WAM group continues to grow.

Excellent. I appreciate all the perspective. Thank you.

The next question comes from Travis Steed with Bank of America. Please go ahead. Excuse me, Mr. Steed, is your phone muted accidentally?

Working on a draft.

Yeah. Please go ahead with your question, sir. We'll go to the next question. It comes from Michael Pollard with Wolf Research. Please go ahead.

Hey, good morning. Thank you. I have a question on PFA and persistent. So Farrah Wave got the FDA label for persistent in July. I'm hoping you can confirm Farrah Point is on track for year end 2025. If both of those things are true, are Farrah Point still on track? Like, is this the cocktail to get the penetration of PFA into persistent kicked into a higher gear. You know, I hear about 50% PFA penetration at a high level, but I think that's a much higher rate of pen into paroxysmal or de novo cases and lower into more complex cases, including these persistent patients. So I'm just kind of interested, is 26 the year where persistent really kicks into a higher gear? And if not, what is the cocktail to enable that? Thank you.

Yeah, Mike, I'll take that. And I actually, particularly for de novo persistent, it's already in high gear. You know, we got that approval on the back of the results of our advantage trial, which frankly showed the best long-term outcomes anyone has ever seen in a de novo persistent ablation trial. And, you know, really remarkable long-term freedom from high burden, persistent atrial fibrillation, or from symptomatic atrial fibrillation. And one of the things that I don't know that everyone has appreciated enough to this point is that, you know, if you look at the results of trials like Advantage, as well as some of the real world data now that we've presented at meetings, the redo rates after de novo persistent AF ablation with Farapulse are down into the single digit levels. And so I think I would not agree with the characterization today of de novo persistent as a particularly complicated ablation. The Farrow wave catheter is just exquisitely well suited for this ablation strategy of pulmonary vein isolation plus posterior wall ablation. I think I would agree with your premise when you get to the more complex things like redo procedures, and that's where things like having FarraPoint as an adjunct. We get to things like our FarraFlex catheter that's in first human use clinical trials today, as well as things like the acquisition that we had of the Cortex technology, as Mike mentioned in the script, right, to enable really true precision mapping of AF sources. so that you do have something that you can offer to those, again, single-digit number of patients who are going to have unexplained recurrences after their de novo ablation. But just to come back to it, we really already do see a very high degree of uptake of farrow wave in the de novo persistent population and expect to see that continue.

Thank you.

And the next question comes from Travis Steed with Bank of America. Please go ahead.

Hey, congrats on a good quarter, and I'm finished with the fantasy draft, so I'm back. I wanted to ask about the $30 million back order you called out. I know it's a small amount, but it could add a point of growth to the total company. What businesses did that impact? Was there anywhere where it impacted the most in the quarter, and does that come back in Q4? Sure.

Sure. Thanks for the question. This is a very comprehensive global ERP implementation that we embarked on a few years ago. And this was our implementation at our Krakrod distribution facility, which didn't quite go as planned. But the team is doing a great job and recovering from that. And things certainly look better now than they did 60 days ago. So appreciate our team's hard work in that area. The impact of the quarter was significant. Fairly broad-based. I'd say a little bit trended a bit more to the med-surg and PI businesses. So it was really kind of impacted across many businesses. Less impact on EP and less impact on Watchman and a bit more impact on the other divisions. But the team has made really good progress. We're still not 100% out of the woods on the back order, but we expect that back order to bleed down to acceptable levels by the end of the year.

Great. Thanks a lot. The next question comes from Patrick Wood with Morgan Stanley. Please go ahead.

Awesome. Thanks for taking the question. I'd love to just dig into now that we've given you guys, it's very recent and you're in that situation, you know, PNS, obviously super interesting market, like there's kind of nobody really else there. I know they're very small, the other players. What was it that kind of made you feel like, You know, now is the time. I know you guys have been following them closely for a while, but I'd love any more details on how you guys are feeling expanding there and driving particularly commercial coverage over time. Thanks, guys.

Yeah, as I mentioned, we're excited about the Nalu signing. In terms of timing, like many companies that we end up acquiring, we were a VC investor in Nalu when Keegan Harper and team started this many, many years ago. So we always liked the space of peripheral nerve stem. The NALU team did a really nice job over many years of building up the portfolio, driving the clinical evidence where now they have solid Medicare reimbursement and improving coverage from the commercial payers. So a nice job in terms of clinical evidence, which is driving the reimbursement, and also solid clinical performance and solid sales track record. I think just as importantly, we always look at in our integrations, is it the right time for the business to integrate Nalu? And our Neuromod team with Jim Cassidy has done an amazing job, Ryan Betts and others, with Relievance that we acquired, I don't know, 18 months ago or so, which also is a very unique asset in that pain space and what's driving considerable growth for the company. And so the team proved they can drive the integration successfully And they're ready to take on more. And we had a large VC investment in this business. So it's a perfect puzzle piece to add to our neuromodulation and paint business. Because really, it does offer a highly differentiated portfolio versus our others who primarily compete in spinal cord stem. And this is another new adjacency that we'll add to our WAMGR and accelerate the growth of Neuromod in 26.

Love the color. Thanks so much.

The next question comes from Danielle Antelfi with UBS. Please go ahead.

Good morning, guys. Thanks so much for taking the question, and congrats on a good quarter. Mike, I also have to admit to you that you were right about the Raiders. So with that, my question is on CRM, and that's been a business where you guys have been growing below the market. You have a competitor that's in a new product cycle, and they're actually – talking about sustainable double-digit growth going forward. You guys have a new product cycle coming. So I'm just curious about how you think about the cadence of growth in that business as we start to get into the launch of some of those new products. Thanks so much.

Yeah, so overall CRM, we're pleased with our performance and our Lux, which is a smaller part of the market, but that continues to do quite well. And we've been investing for a number of years on an entire new platform called Denali. which will really be, there's different stages to that Denali launch that will happen through the tail end of second half of 26 and through the LRP period, which, and Ken can provide more detail, which really is a complete refresh, which we think will improve our core pacemaker defibrillator business. We're also enthusiastic about Empower, our entry into leadless pacemaker market combined with SICD. So, you know, we've been probably growing on a unit basis kind of at market, but on a dollar basis below market because we've had some of the gaps in lead lists which drive a higher ASP. But on a unit basis, we're kind of holding our own through that market, and we're confident that over this LRP period that the CRM business will strengthen versus where it is today and be a larger contributor for us.

Yeah, maybe I'll just add to what Mike said. I mean, again, We certainly do have a gap in not being in the leadless market, excited about eventually being able to bring the Empower device to market. See that as important both as playing in leadless, but also as something that's going to be an enabler for accelerated growth within our SICD franchise. I'd also point to the acquisition of Aleutia. This is an important adjunctive technology. that people are using to prevent complications, in particular, you know, things like postoperative infections or postoperative complications with the pockets for these devices. That's another market that we have not played in previously, and it's one where we have a technology that we really do see as having differentiated advantages over the incumbent. You know, Mike mentioned our, you know, complete refresh of our entire implantable platforms. uh brady high voltage crt and sicd uh that's sort of a generational opportunity uh to really develop you know market leading technology across all of those platforms and i think i'll also highlight where we've gone with uh conduction system pacing uh you know seeing fantastic growth in the use of our conduction system pacing technology for uh for Brady Indications, but also very excited to have a purpose-built ICD lead for doing conduction system pacing in the TACI market that we think would be quite disruptive.

Thank you.

The next question comes from Vijay Kumar with Evercore. Please go ahead.

Hey guys, congratulations on the nice sprint and thank you for taking my question. John, maybe one for you on margins here. When I look at fiscal 25, you had the TAVR recall charters in tariff, despite that we're at 100 basis points of margin expansion rate, but when you look at the cadence I think Q4 is down sequentially, right? Is that the incremental tariff headwind from Q3 to Q4? And how should we think of fiscal 26, right? Is the analyst they had 50 bps of annual OMX, is that still valid for 26?

Yeah, thanks, Vijay, for the question. Yeah, pleased with our expectation for improving margins 100 basis points on the year despite the tariff headwind of roughly $100 million. And as you mentioned, we had the impact of the accurate withdrawal in the second quarter. So, you know, despite that, I think we've done a nice job with finding appropriate offsets in the business, driving strong margin expansion predominantly with the top line performance that we've seen for the year. Again, expecting 15.5% organic revenue growth and reinvesting back into targeted areas of the business to drive growth for the long term. So, yeah, we'll see where we go for the fourth quarter. You know, we manage margins really on an annual basis. So we're a little less focused quarter by quarter, more focused on how we're driving margin performance for the year. And as far as 2026, We're rolling up the plan process now, and we'll provide much more detail there when we get to the Q4 call at the early part of next year. But, you know, you should expect us to expand operating margins and drive meaningful expansion there and deliver leveraged double-digit EPS growth.

Thank you. The next question comes from Chris Pasquale with Nefron Research. Please go ahead.

Thanks. I wanted to ask about agent. Our work suggests that launch is going really well. Product has a chance to be maybe a billion dollar product for you as the indication expands, although it's not getting a ton of attention yet. I'm curious how you're thinking about growth in the interim period before stance reads out. Is there enough room just in ISR to sustain the current momentum, especially with competition maybe coming into the U.S. next year? And while I know you don't promote off-label use, are you starting to see physicians already moving beyond instant retinosis and utilizing the product in NOVA lesions?

Yeah, Chris, maybe I'll take that. The fast answer is, yeah, we do see plenty of room for continued growth, even before Stance completes enrollment and reads out. We're pleased now to have TPT and better reimbursement in place. I think, you know, point out, you know, we also, with trials like STANS, see an opportunity to at least double the indicated population as you move beyond instant re-stenosis into small vessel bifurcation disease and some other de novo lesions. We will have some additional data on agent coming out at TCT, data from our agent post-approval study, And I think that'll be helpful as you all do kind of see the sorts of lesions that it is being used for in the real world and see the real world outcomes. In terms of competition, I think getting more data out about the use of drug-coated balloons is good for us and good for Agent. And I think important to point out that, you know, within the use for drug-coated balloons specifically, there's some real fundamental advantages to the use of paclitaxel. as the drug compared to some of the other drugs. So, you know, very comfortable with the position that we have for agent and excited about it as we laid out an investor's day as a long-term growth driver for the company. Thanks, Dr. Stein.

And the last question today will come from Pito Chikring with Deutsche Bank. Please go ahead.

Hey, good morning, guys. Thanks for fitting me in here. A question about the proposed reimbursement for AF ablation and ASCs for next year. What proportion of AF ablations do you think could be moved into the ASCs, and how could the increased capacity using ASCs help fuel additional market growth?

Yeah, I may have to phone in a friend with our IR team here. You know, just more anecdotally, We're certainly seeing some strong interest in the states that don't have the certificate of need. You're seeing some interest in Arizona and Florida, which we think is good, as we talked about before, given the oftentimes long backlog that hospitals have with Farrah Pauls. So, we think this will help with the backlog over time in some of those states. Many states aren't able to do it because of CON needs and so forth. But we certainly think it's going to be an increasing trend in 26, and it will grow more so over the LRP period. And as importantly, I think we're uniquely positioned to win in that market, given the reliability and trust that physicians have in Ferripulse, the COGS profile and gross margin profile that we have for that product, as well as the complementary products that Boston Scientific offers in our, across our cardiovascular portfolio to assist those customers. I did get an answer from my phone in the friends that says, what we estimate is 40% of the AF ablations in the U.S. will not, will not need a certificate of need.

Yeah, are in states that don't require a certificate of need.

But, but maybe I should add something, but even in those states, it will take some time to build out the ASC capabilities. So, right, it's capital deployment. And, you know, it's not going to be a step change like the step change that we saw with the adoption of concomitant. This is going to be more of a slow ramp. But I think really important, just to come back to what Mike said at the end, which is that Farrapulse and our entire ecosystem really is very well suited to enable these procedures to move out into the ASC.

Yeah, so we think there'll be a minimal impact on ASC in 26. But I just think broadly on EP, you know, we're still remarkably early in the PFA journey, given our launch, what, 18 months ago, Ken, or whatever, less than two years ago, I guess.

21-24, yeah.

Yeah. And so the key for us is we continue to drive new account openings around the globe. We still have a lot of work to do with new account openings in the U.S., and particularly in Asia-Pac, And the new account openings help drive penetration. We also have the opportunity to continue to grow deeper with more physicians leveraging Parapulse. And we also have the opportunity with our unique physician with concomitant to train more electrophysiologists to do Watchman. So we still have a number of EPs out there that are not doing LAC procedures. And with the impact of concomitant, we are seeing an uptick. in the number of physicians who want to be trained at LAC. So that ecosystem of still early innings in PFA globally, the momentum of concomitant, the demand from physicians to learn and train on Watchman now to serve that need will continue to help us, which is why the ASCs are important, because we do need the ASCs over time to help with the volume demands that we're seeing across these markets.

Thank you, Mike. Thanks for joining us today. We appreciate your interest in Boston Scientific. If we were unable to get to your question or if you have any follow-ups, please don't hesitate to reach out to the investor relations team. Before you disconnect, Drew will give you all of the pertinent details for replay. Thank you, everyone.

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