Q3 2019 Earnings Call

Ladies and gentlemen, Thank me standing by welcome to the Boston Scientific Q3, 2019 earnings call now at this time all participants on the listen only mode. Later, we will conduct a question answer session and instructions will be given at that time it'd be sure require often assistance you made the press Star then zero.

As a reminder, today's call is being recorded I would now trying to call over to you host Susie Lisa. Please go ahead.

Thanks, Devin good morning, everyone and thanks for joining US with me on today's call there, Mike Mahoney, Chairman and Chief Executive Officer, and Dan Brennan Executive Vice President and Chief Financial Officer, We issued a press released earlier. This morning announcing our Q3 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 non-GAAP measures used in today's call today Investor Relations section of our website under the heading financials in filing the duration. This morning's call. The approximately one hour Mike will provide strategic and revenue highlights of Q3 19, Standalone d. the financials for the quarter and then provide Q4 19 unfamiliar to us.

Any 19 guidance and then we'll take your questions. During today's queuing. They session. My can Dan will be doing back chief medical officers Doctor in 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 fluctuations and organic revenue further excludes the impact of certain acquisition.

Leading nextera clarity Augmenix, Berta flex and BTG and the relevant periods for which there are no prior period related net sales.

Also note. This call contains forward looking statements within the meaning of federal Securities laws, which maybe identified by words like anticipate expect believe estimate and other similar words. They include among other things statements about our growth and market share of new product approvals and launches clinical trials cost savings and growth opportunities our cash flow unexpected.

Our financial performance, including sales margins earnings and other Q4, and full year 2019 guidance as well that tax rate R&D spend another expensive 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 factor section of our most recent 10-K and subsequent thank you.

Filed with the FCC. 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. A Boston scientific delivered a very strong third quarter, we continue to grow above market and improve profitability. While we also invest for the long term.

Delivered meaningful innovation to address unmet patient needs the third quarter, our team delivered 14.2% operational and 9.3% organic revenue.

With another quarter of strong balance across our businesses and geographic regions. In addition, we delivered adjusted EPS of 39 cents, which is the high end of our guidance range, while generating 526 million in adjusted free cash flow.

We're also narrowed guidance for the full year 2019 organic revenue growth to approximately 7.5% and bringing up the bottom end of our adjusted Dps guidance range to $1.55 to $1.58.

We've also increased our expected contribution from acquisitions from 140 basis points to 360 basis points, resulting in operational revenue growth guidance about 11% to 11% for the full year.

I'll now detailed some key aspects of our third quarter results and thoughts on our Q4 19 prospects all growth rates referred organic sales growth versus the prior year unless otherwise stated.

Men sort of sales accelerated to 10% organic and 14% operational revenue growth endoscopy organic revenue growth of 10% was fueled by the breadth of our portfolio, including multiple launches across several franchises most notably in it's actually prevention therapeutic imaging Bill Aerie and luminal hemostasis product wise.

We're also enjoyed double digit growth across multiple regions and importantly, we remain on track for a year and launch our brings all D single use dudina scope.

And we're encouraged by the FDA communication in September regarding single use technologies.

We continue believe it that our therapeutic imaging portfolio represents a significant opportunity in 2020 and beyond with an incremental 2 billion dollar market opportunity by 2024.

Urology and public health also grew 10% organically and 90% operationally I would say this is particularly impressive as the team offset a 150 basis point headwind to organic growth for the market withdrawal of trends Fastenal match for the treatment of public public organ prolapse.

Double digit growth organic sales in Europe ph was led by strong momentum in our cornerstone, where we are uniquely positioned to treat the broadest range of kidney stone cases, the our innovative lithovue lithotripsy and laser portfolio.

Space or which is a hydrogels temporarily create space between the prostate and organs or restoring a radio therapy for prostate cancer.

Contributed 900 basis points of operational revenue growth and wind organic and in October onest.

Space or continues to deliver excellent results is tracking to 100 million for for full year 19.

In the quarter, Nextera, which offers a unique minimally invasive treatment for BPH also accelerate our growth we continue to engage with insurers physicians and patients to strengthen this exciting platform.

Our rhythm in neuro team grew 4% in the quarter, which we believe represents above market growth in CRM at 2%, while eat P. sales did grow below market, a 7% and neuromodulation sales grew 8%.

I'll start off with Neuromodulation, the Neuromodulation sales results of 8% organic.

And what was it 18% operational growth represents is accelerations versus second quarter, Despite a challenging 23% comp in Q3 2018.

And our Neuromodulation business, we've developed a strong and diversified portfolio and deep brain stimulation and across the continuum of care for pain patients, you're a complimentary platforms and SCS RF inverter flex.

And DBS, our precise platform nearly doubled sales year over year, and it's consistently gaining global market share and now offers patients full body Emerald labeling along with our differentiated turkeys, yes directionally.

And our paint franchise arrests, yes results, which were down low single digits globally showed sequential improvement as we're seeing some modest signs of market stabilization.

We aim to deliver continuing to proven SCS in fourth quarter with the launch of wave rider software enhancements and then into 2020 or with the release of the combo randomized clinical trial data on a wave writer at <unk> at Nance in January .

[noise] their verna flex platform represents an important therapy for patients with them up with moderate lumbar stenosis.

Berta Flex continues to see growing demand and is on track to deliver full year 2019 sales of 60 million.

And overall, we're enjoying strong momentum with our category leadership strategy across our Neuromodulation portfolio.

Global CRM sales grew 2% and then do you said global sales continue to grow faster than market and we're up low single digits <unk> driven by a resonate platform and replacements wireless I see these sales also continue to grow.

Pacer sales declined low single digits in the quarter, which were consistent with second quarter, but we're wrapping up the limited U.S. market release of our new programs, which should enable and approve implant experience and unique remote service capabilities.

So looking ahead, we remain on track to watch Lux, Dx, which is our implantable cardiac monitor by mid year 2020.

He p. sales group globally, 7%, but importantly, we receive U.S. I'd approval in late September to begin the clinical trial of or pull erect single shot cryo therapy, we plan to initiate enrollment before year end, we're targeting the yearend launch a pull Rx in Europe and excited about to enter this large fast growing single shot market with this next gen.

Hi, all platform.

Shifting now to cardiovascular group sales were up a strong 13% peripheral intervention sales increased 8% led by continued momentum across arterial Venus and interventional oncology platforms. The launch of our Beachy Venus stent is going about very well and global Eluvia results were consistent with our previously a common.

Terry at TCT in September .

On August 19th we closed the BTG transaction and welcome the team to Boston scientific.

Sales of legacy BTG Interventional grew high single digit in third quarter, we're very pleased with the integration process, thus far and expect this business to deliver double digit growth the 2020.

We're focused on adding additional commercial capabilities initiating product registrations in Europe , and Asia, and delivering productivity synergies as previously communicated.

Specialty pharma sales declined in the quarter, largely due to rebates and timing of product expirations, yeah were slightly above our internal plan as CRO fab continues to do well, both clinically and maintaining high market share.

For the third quarter stub period, which is August 19 through September Thirtyth, all and BTG as reported separately for both sales and operating income as we integrate our operating and reportable segments.

Our interventional cardiology business accelerated from 5% in first quarter to 8% in second quarter, and now 15% third quarter.

This represents strong growth across all regions led by structural heart sales across all product lines and excellent growth in coronary therapies up 6% globally.

The diversification of our coronary either therapies business continues to deliver results with mid teens growth across the board and complex PCR products, while our PC guidance business, which is I visit FFR grew in the mid Twentys.

Drug eluding stent sales were down mid single digits, which isn't a proven from first half trends and in Europe . We recently launched synergy Negatron, which is a purpose built a stand for large proximal vessels.

With the mid 2020, U.S. launch targeted Mega trend is an important extension of our market leading synergy platform.

With respect to our DDS business I'd like to comment on some recent concerns regarding the potential impact of the ischemia trial, which is scheduled to be presented the AJ on November 16th.

Yes, we want another results from ischemia until then but we believe the impacts will be highly manageable and all scenarios.

With a potential future dollar impact ranging from slightly positive to negative 40 million.

So I'll leave additional details on this topic for any interest in Q in a where he can provide more detailed commentary about the trial design and physician practice.

So now turning to structural heart, the combined strength of watchman Lotus edge accurate and sent NOL position us very well to deliver toward the high end of our guidance of 700 725 million instructional our revenue in 2019.

Watchman year over year growth accelerated from second quarters rate as a platform continues to build a global momentum with physicians and patients and watch been recently received reimbursement in Japan. We're building out this new therapy with a focus on opening new accounts and physician training.

We continue to enjoy strong demand for next generation watchman flex in Europe .

Enrolling both in the option trial as well as the Asap to.

The U.S. reimbursement outlook for watchman remains very positive with an 8.6% weighted average increase in 2020 in Medicare reimbursement.

So turning to our TAVR business accurate neo sales grew faster than the market in third quarter and their product is now available in 45 countries. We continue to roll in the accurate neo two at each trial in the U.S. with a targeted 2021 launch. We also continue to expect European launch of our next generation accurate valve in mid 2020.

And post the scope one results and prior to the launch of accurate Neo two in Europe , we do estimate that accurate and your growth will likely slow on a percentage basis, but will likely remain accretive to <unk> growth for both IC and BSC overall.

The Lotus edge launch is going extremely well and we're building momentum in both the U.S. and Europe , we remain on past on pace to open 150 accounts in our first 12 months in the U.S.. We're currently in limited market release for the 15th French ice leave Introducer sheath.

We also remain on track to launch in Japan, and 2020 and continue to enroll the reprise for us clinical trial to expand indication to intermediate risk patients.

Finally adoption of the Sentinel cerebral embolic protection devices continues as penetration and account openings expand in the U.S. Europe and other markets.

Settles down 500 accounts globally, we're pleased to announce recently at TCT that in 2020, we will initiate the global protected TAVR randomized clinical trial.

We believe that that's a definitive evidence focus on a stroke endpoint and we'll continue to elevate sentinels become the standard of care for all patients will help influence future clinical guidelines.

So to close I'd like to share my enthusiasm for the outlook of the rest of this year and in 2020 and beyond we believe that Boston scientific continues to be uniquely positioned to drive shareholder value due to our strong long term growth profile meaningful opportunity to improve operating margins track record of delivering double digit adjusted EPS growth in our proven ability.

But to deploy capital I want a really thank our employees once again for the winning spirit and commitment to advancing science for life and Dan will now provide a detailed review of our financials. Thanks, Mike.

Third quarter consolidated revenue of $2.707 billion represents 13.1% reported revenue growth and reflects a 26 million dollar headwind from foreign exchange slightly favorable to the 30 million to 35 million dollar headwind expected at the time of guidance on an operational basis, which excludes the impact of foreign currency fluctuations.

Revenue growth was 14.2% in the quarter sales from the Clarette Augmenix and vertical ex acquisitions contributed 210 basis points higher than the 180 basis points expected at the time of guidance as a reminder.

The operational contribution from Clarette only represents one month as the acquisition was considered organic as of August Onest. This year.

The acquisition of BTG, which closed within the quarter and was not included in prior guidance contributed an additional 300 basis points to operational growth with two thirds from the international medicine business and the remainder in specialty pharmaceuticals.

Divestiture of our legacy embolic beads portfolio, partially offset acquisition contributions by 10 basis points.

The resulting organic growth of 9.3% in the third quarter exceeded our guidance range of 7.5% to 9%.

With this strong sales performance, we delivered Q3 adjusted earnings per share of 39 cents at the high end of our guidance range of 37 to 39 cents and representing 13% growth versus the prior year.

The FX impact on adjusted earnings per share was immaterial as expected at the time of guidance.

Adjusted gross margin for the third quarter was 72.7% at the midpoint of our guidance range of 72.5% to 73% and flat versus prior year as favorable FX impact and manufacturing improvements were offset by price erosion in coronary drug eluting stents, and Pacers as well as a mix shift within our coronary therapies.

Franchise from D.S. to complex PCI products.

Adjusted X gene and expenses were $949 million or 35.1% of sale in Q3 of 40 basis point improvement year over year due to ongoing operating expense control and optimization initiatives, but just outside our guidance range driven by the acquisition of BTG, which was not included in guidance since the trends.

Action has not closed at the time.

Adjusted Research and development expenses were $297 million in the third quarter.

Or 11% of sales at the high end of our range again, partially driven by BTG expenses, which were not reflected in guidance and relatively flat to Q3 of last year.

Well the expense was 0.6% of sales also roughly flat over prior year.

With solid topline results balanced by the funding of key commercial launches and supporting acquisition related initiatives Q3, 2019, adjusted operating margin achieved the lower end of guidance at 26.1%, increasing 50 basis points year over year.

While immaterial to earnings BTG did create an approximate 10 basis point drag to adjusted operating margin in the quarter.

Now I'll move below the line to interest and other expense adjusted interest expense for the quarter was $83 million and now includes BTG compared to $58 million in Q3 of last year. Our average interest rate was 3.5% in Q3 of 2019 slightly higher than the 3.2% in Q3 of last year.

Adjusted other expense was $11 million in the quarter and primarily includes dilution from our equity method investments and transactional foreign exchange losses, including hedging costs.

Our tax rate for the third quarter was negative 38.7% on a GAAP basis, and 10.3% on an adjusted basis below our guidance of approximately 11% for the quarter as we realize the net benefit from stock compensation accounting.

Adjusted free cash flow for the quarter was $526 million compared to $569 million in Q3 of last year. We now expect full year adjusted free cash flow to be closer to $2.1 billion due to increased working capital requirements, mainly in inventory to support new product launches and overall sales growth.

We continue to work to resolve fully the Mexico litigation with over 95% of all known claims now settled or in the final stages, a settlement, including additional settlements reached during Q3.

Total legal reserve of which measures included was $568 million as of September Thirtyth 2019. This is a decrease of roughly $35 million versus June Thirtyth and includes an additional 25 million dollar reserve for international settlements, There's no change to the U.S. outlook, where the known claim count remains flat.

At 53000 as does the anticipated a mile required for settlement, including these international settlements, we now anticipate payments into qualified settlement bonds to totaled $270 million.

Which will then resolve all significant existing contingencies related to match however, as the legal and administrative processes are taking a bit longer than previously estimated we now expect payment of this $270 million to extend into 2020 with $120 million paid in 2019, and the remaining $150 million to be paid.

In 2020 as a reminder, this liabilities released from a balance sheet as payments are made out of the qualified settlement fun to play this.

Capital expenditures for the third quarter 2019 were 120 million $21 million, we expect capital expenditures to be towards the high end of our guidance range of 375 to 400 million for the year as we build capacity integrate acquisitions and position the company for continued growth.

We ended Q3 with 1.412 billion fully diluted weighted average shares outstanding.

I'll now walk through guidance for Q4, and full year 2019 for the full year, we expect 2019 reported revenue.

Growth to be in a range of approximately 9% to 9.5%.

Inorganic basis, we're narrowing our full year revenue growth guidance to approximately 7.5% and expect the net contribution from acquisitions and divestitures to provide an additional 360 basis points of growth.

Of that 360 basis points, we expect the contribution of approximately 155 basis points from BTG, Interventional medicine, and 70 basis points from BTG specialty Pharmaceuticals, we expect foreign exchange to be a 175 to 180 million dollar headwind to revenue for the full year and we continue to expect FX.

To be neutral to earnings per share for the year due to our currency hedging program.

We now expect our full year adjusted gross margin as a percentage of sales to be in the range of 72.25% to 72.5% for the full year narrowing towards the midpoint of prior 72% to 73% guidance. We will continue to execute on our ongoing standard cost reductions and also expect a positive full year.

FX impact to adjusted gross margin of 60 basis points, which remains partially offset by pricing declines.

We expect full year adjusted SJ to be approximately 35% of sales and down slightly year over year.

There is no change to expectations for full year, adjusted R&D spends to being a range of tenant a half to 11% and full year royalty rate to remain at less than 1% of sales for 2019.

As a result, we expect to achieve 2019 adjusted operating margin in a range of 26% to 26.25% up 50 to 75 basis points versus 2018. This revised range reflects the lower half of our original 26% to 26.5% guidance range due to the impact of close.

BTG in August although BTG contributes operating income, which is largely offset by the incremental interest expense. It has not yet at the company overall rate. So it is dilutive to the total adjusted operating margin by approximately 20 basis points for the year, we remain committed to our group and goals outlined at Investor day with a sustainable goal of 50 to 100 basis.

Points of annual operating margin improvement.

We expect our full year 2019, adjusted tax rate to be approximately 9%. This is based on an operational tax rate of approximately 11% slightly more than 100 basis points.

Of benefit from the accounting standard for stock compensation, and nearly 100 basis points from the discrete tax benefit in Q2, which will not impact our tax rate outlook beyond 2019.

We expect below the line expenses, which include interest payments now inclusive of BTG dilution from our venture capital portfolio and costs associated with our hedging program to be approximately $400 million for the year note that yesterday, we announced the cash tender offer for up to $1 billion of our outstanding debt securities subject to finance.

And conditions and target launching a euro bond offering shortly given attractive rates in European bond markets, we expect to fully diluted weighted average share count of approximately 1.415 billion shares for Q4, 2019, and 1.411 billion shares for full year 2019.

We're raising the low end of our full year 2019, adjusted earnings per share guidance to $1.55 cents and maintaining the high end of $1.58 cents. This represents full year adjusted earnings per share growth of 11% to 13%. Excluding the 2018 net tax benefit of seven cents in the base on a GAAP.

Since we expect EPS to be in a range of 72 to 75 cents.

Now turning to Q4 2019, we expect reported revenue growth to be in a range of approximately 13% to 15%. This represents strong year over year organic revenue growth of 8% to 9% with an approximate net 600 to 680 basis points of operational growth contribution from acquisitions.

Messages of the 600 to Sixeighty, we expect roughly 390 to 430 basis points from BTG Interventional medicine, and 160 to 200 basis points from BTG specialty Pharmaceuticals, we expect the foreign exchange impact on Q4 revenue to be a 20% 25 million dollar headwind.

For the fourth quarter adjusted earnings per share is expected to be in a range of 42 to 45 cents per share representing 10% to 18% growth. Excluding the Q4 2018 net tax benefit of one sent in the base and we do not expect any adjusted EPS impact from foreign exchange GAAP earnings per share for the full.

Fourth quarter is expected to be in a range of 20 to 25 cents per share.

Please check our Investor Relations website for Q3, 2019 financial and operational highlights, which outlines Q3 results as well as Q4 and full year 2019 guidance, including piano line item guidance with that I'll turn it back to Suzy will moderate the QNX. Thanks, Dan Kevin lets open up the question for the next 30 minutes or so.

So in order to enable us to take as many questions a thoughtful please limit yourself to one question and one related follow up Kevin. Please go ahead. Thank you ladies and gentlemen, you wish to ask questions. Please press Star then one of your Touchtone phone you will hear tone any came that you are in Q you may removed himself from queue by depressing the pound key once again for questions. Please press Star then one.

First question from the line of Bob Hopkins Bank of America. Please go ahead.

Great and thank you and good morning, and congrats on a on a great third quarter. Two quick questions for me first I think we all appreciate the the incursion comments you made on the ischemia trial I was wondering if you wouldn't mind just quickly walking us through why you see on me, maybe a $40 million negative case impact if there's no difference between PPI and drug therapy, just kind of.

Walk through the math there if you don't mind. Thank you.

Hey, Bob Good morning.

Morning thought so I'll start with a quick summary, then I'll, let Ian walk you through a with some more color first we'll start off the saying it's important I recognize you know, we certainly have a very long history of clinical evidence in the space.

And innovation demonstrates for the right patients, it's clearly an appropriate and can be life change you know therapy.

And second we do think there's a decent amount of confusion regarding this the study and its impact.

And as I mentioned in the script really the third point, we think the financial impact could be anywhere from a positive impact to a slightly negative impact of up to potentially $40 million based on a 5% to 10% reduction in our revenue related to treatment of these patients with coronary syndromes.

So we and maybe you could just follow along with some color as to why we feel the impacts in that kind of positive to minus 40 range. Thanks, Mike Thanks, Bob.

To elaborate on what Mike just said as you know the population of patients in the ischemia trial as stable patients undergoing Beth.

No those.

Patients that received the vast majority PC Oems in the U.S. any day globally.

Sand tysons undergoing piece there.

In the U.S. and similar outside the U.S.

Donnie patients with announced headwind John or acute Carmen.

Oh and that's the role of those savings is not indisputable that but because of the car trial. It's important to note that he leaves aimia trial, not all patients with stable escaped me hofh disease eligible even to to be enrolled in this study and then there was signal.

And the exclusion offer enrolling people randomized size.

Many of the more complex.

Patients for example was with the low ejection fraction.

Lit nine carmi disease end stage renal disease to common in Bellevue, a heart disease dilated cardiomyopathy previous unstable angina now stable.

Oh, all ineligible for this trial so in older at 28 nine enjoy exclusions from the us gaming.

Stable escape population in this study so the translatability vis a vis data says to the 20 stage or.

In the.

Stable escape population, probably accounts that significantly less and so it is on that basis, but we think that the impact will be a significantly less.

Okay.

I appreciate you framing that just one other quick follow up Mike over the last couple of months, there's been sort of three things that have caused a little concern about the 2020 outlook you know the BTG growth the the neo data from GTN ischemia and you kind of addressed all of them in your prepared remarks, but I just want to make sure I heard the message right the.

Message on BTG that you're comfortable with high single digits going forward and I just want to make sure on on Neo that you you know despite the data you still expect that product to grow going forward.

Yeah, we think.

The Street worries about these things more than we do because we feel like we manage all of us very effectively as Ian we laid out on the the D.S. piece. This is still an important business for us, but now it's approaching those 7% of our mix urology alone a and B three times bigger than D.S., so given the strong diversification.

Our <unk> in the U.S. has it yet.

So we think that one is clearly been up we think overblown in terms of some of the write ups that we received on the scope one on the the reports I gave in the written script.

We do expect the likelihood that that growth will slow down on a percent basis in 2020, but we're quite confident that will grow above the be ex corporate average as well as the IC corporate average really based on the followership that we have in Europe would that valve current users are very pleased with the performer.

So that Val they continue to use that they continue to increase the utilization and so we'll be anxious to get the second generation Val approved hopefully you know mid 2020 in Europe .

So we feel good about that.

So we feel very confident in the in the full year guidance that we provided the company has a very broad range of diversified portfolio, we continue to advance ourselves and higher growth markets and we have very durable high growth outlook.

And next questions from like David Lewis Morgan Stanley . Please go ahead.

Great. Thanks, so much.

Two questions here, Dan just want to start with you I mean, no guidance into the fourth quarter. After a very strong third quarter reflects some deceleration, but there's some one timers system comparability issues from the third to fourth you can you just help us quantify some of the comparability dynamics from the third in the fourth quarter and how you see your how investors should see kind of underlying business momentum into the fourth quarter.

Sure David Yeah, as we look at a at the at the sequential going from Q3 to Q4, a true the comp gets a little bit easier as you go from a from Q3 Q4, we do have a little bit less of a benefit of days, we talked about we had a benefit of days in the second half versus the first half saw more of that benefit in.

In Q3 than we will in in Q4, so as we look at the 8% to 9% Ah think thats very solid guidance for the fourth quarter. It gets a 7.5% for the full year and that would be a as as Mike alluded to acceleration again this year versus last year.

And feel that's a that's a good place to be for the fourth quarter. We obviously has some good launches as well we have momentum with a with Lotus we have watchman going in Japan.

We have endo, which is kind of bad Ben single digits in the first half back into the double digits urology is going strong a little bit of Oh wait and see on spinal cord stimulation, we did see a bit of stabilization in the quarter, but obviously not to the levels that we've seen in in the past so given the headwinds and Tailwinds. We have we think eightnine as strong guidance for the.

Fourth quarter that gets us to that second half percent for the full year, which is acceleration versus last year.

Okay and you said it was just on the come at the Beach due for a second I think this was being one of the issues that would have delayed integration that business has slowed a bit actually in the third quarter. The number came in much better than we were expecting so has there been sort of stabilization and recovery MPG in the early days of integration.

And at a recent events CEO , Jeff is sort of talked about the ability of taking that business is sort of 50 50 global mix over the next several years, just maybe you Mike you know your.

Recent trends and BTG answered if you just confidence in getting that 50 50 global mix implies some pretty dramatic growth dynamics for BTG.

Next two to three years your confidence that kind of global mixes is achievable here in the near term or intermediate term. Thanks, So much sure and I'm, sorry, I missed that earlier, Bob and your BTG comment. So just on BTG overall I'm very excited finally get this closed it did take three or four months longer than we planned.

We did have some we had did that some commercial turnover during that period, which the team now that is close assuring that up and really beefing up the resources on the commercial side and as I said are focused on product registrations globally to enhance that international mix.

For sure in Europe , and Asia Pac and importantly, we feel very confident with the the cost synergies that we've committed to.

And based on really just early feedback from physicians the combined portfolio in interventional is really kind of what we laid out its it makes sense for interventional radiologist and the interventional oncology space to have these therapeutic.

Capabilities that we have now a trial and why 90 as well as he additional capabilities that we have.

Ecoson Pristina and so for us so the portfolio fix is really kind of a dream for the commercial team and based on that we do feel comfortable that BTG will grow faster than the than the BSC composite in 2020 and beyond and be nicely accretive to the Pi business and we're comfortable with a double digit.

Growth scenario into 2020 and going forward with BTG interventional, So really all systems go there or the team is focused on integration and.

We're pleased that we close the deal.

Next question is from the line of Rick Wise Stifel. Please go ahead.

Hi, good morning.

Let me turn to little bit so for a moment sounds like everything with the launch is on track can you just expand on your comments on the 15 French sheath launch it sounds like you're still in limited launch we've heard from physicians that the smaller she's size really makes a big difference you said it was going to be the fourth quarter.

For a full launch I think where are you aware in the fourth quarter is it happening and it with that launch would we expect to see a step up or an acceleration in lotus utilization into 2020.

Thanks, very much we could see here, yes. They the 15 franchise slave will actually expand the option in terms of how many patients can be traded because we always seeing patients excluded from either a clinical trials or commercial use because they have fearful peripheral Beth.

Large enough for the existing but very functional delivery shape.

So the limited market release is going very well, it's on track and the plans haven't changed stuff or is that we'll have an impact on the ability to too.

To take any more patients to be fewer exclusions, probably 5% patients being excluded on vessel size thought the rollout of blood. Its age of course is planned controlled release and and the in the short terms will be determined by training.

Okay.

If I could turn to serve a big picture and looking at 2020 question.

Mike you've addressed.

Obviously some of the key concerns on.

Accurate ischemia and BTG.

But I think theres been a larger discussion and debate about potential 2020 growth headwinds from some of those issues and elsewhere.

No I know you're not ready to provide 2020 guidance today, but maybe you could help us think from a high level. Some of the puts and takes and you know maybe what world.

And your thinking on the positive thought about as you look at 2020.

And you serve emphasize that you think that some of the negatives were concerned about might be a little less challenging them feared thank you.

Sure. Thanks, Rick you clearly not to give a 2020 guidance.

At this point.

I just think there's a lot of very positive thing going on the company you look at the momentum that we have really across each business with the exception. The BP. Each business. We believe grew nicely above market and we had very strong momentum across each region.

Emerging markets growing in that.

On a nearly 20% a very strong above market growth in Europe , which is impressive given that most of our products get approved in Europe prior to getting the U.S. and very strong.

Growth in the U.S. and importantly, since you said high level each quarter, we continue to shift our mix of businesses into faster growth markets. As we've outlined that you know numerous times at various call. So each quarter that profile in terms of our growth potential gets stronger and the team continues to grow above market, while investing for long.

Long term and we have many.

Exciting product launches in 2020 with the exalt scope, which we think will be a really unique platform for us for many years across our structural heart portfolio with watchman flex will be approved.

Ideally the accurate neo two in second half and the strong very strong product cadence you see the for example, neuromodulation.

That business really was solely based on U.S.S., yes, and now that business is very diversified diversified with growth in Europe , and you're seeing tremendous growth out of our DBS platform, which nearly doubled in sales and love that for a full year in 2020. So we have many different.

I would say tailwinds to offset some of these I would say overblown headwinds which were ischemia.

The accurate scope, one as well as it BTG, we're very confident and accurate for the long term, we're very confident BTG and Rds business, although not a key growth driver as important contributor. So I think overall, we're excited about the future I think if you look at our Investor day, a deck, we talked about as acceleration so despite somebody's headway.

And in 19, we expect to grow organically faster than we did in 18 and that would clearly be our goal for 2020 and at our Investor Day, we talked about acceleration.

Organics acceleration in 2021, and 22 versus the previous three years. So we think we have all the tools to do it and we have a lot of comps and her team to deliver.

Next question please.

Please.

And some line of Vijay Kumar Evercore. Please go ahead.

Thanks, guys. Congrats on a really nice friends here, Mike maybe turning to some of the positives to one not which really stood out for US was a interventional cardiology I know you mentioned complex PCI, but that doesn't seem to have chain trends I mean, it's been opinions mid teens pretty consistent so clearly looks like structural heart up.

Really change trajectory here.

So I'm just trying to trying to understand how much of this is maybe possibly an acceleration underlying power market growth versus you know a standalone Boston outperformance I think you mentioned watchman coming in well above so maybe piece of what is Boston. So that's that forces maybe underlying markets rent.

Yeah, so and cardio and the of the value of complex coronary is probably understated across the company and maybe our most important platform in Asia Pac.

Our complex coronary business is growing.

Much faster than BSC composite, we continue to invest quite a bit new portfolio there.

And that business is really quite a bit larger than our D.S. business and so again that was a purpose strategy from Kevin Ballenger, Atlanta space and the team over the years. So they complex coronary we'll continue to be very bright as it gets a significant larger than D.S. and also positions us more uniquely in the Cath lab clinically with doctors and struck.

So hard I think.

We know watchman is doing extremely well watchman continues to accelerate growth.

Continues to deliver strong outcomes improve utilization and we're very excited about the flex progress that we're seeing in Europe , and our ability to take share in that market without second gen product in that come into the U.S. So I think we're excited about a watchman as we head into fourth quarter in 2020, and then our tabby plans are really.

On track, we're very excited where we are with Lotus.

Yeah, I don't think there's a we haven't seen a tremendous change in terms of market growth, but the outcomes with Lotus had been very favorable we think it offers some very compelling differentiation versus our competition and we're really on track with our opening 150 accounts really per our plan and I made comments on accurate before so I think the car.

Nomination of all these things within cardiology are going to lead to a nicely above.

Growth versus the BSX overall average as you look forward to 2020 and truly that strategy of diversification into complex coronary structural heart that's working.

That's helpful. My can Dan maybe one not quick one for you I think I heard you mentioned not BTG.

But 20 basis points does dilutive to margins in it that would imply in a 40 to 50 basis points, if I'm in a dilution in in 2020, and possibly some of that being being offset by synergies is that the right. My them out just to think about margins for next year.

Yes, I think as you look at 2020, well, obviously give you a lot more color as we give guidance here at our next call, but obviously the 175 million in overall synergies as Mike said, we're committed to that over that three year timeframe and the BTG operating margin will continue to improve.

Where it'll be the.

The international medicines piece will be approaching pie and then a eclipsing pie and eclipsing the overall for Boston scientific so to start to be accretive to to Boston scientific overall, and well give you more on the timing on that when we talk about 2020 specifics.

Maybe to go back to follow up on David's question, and BTG, Oh, U.S. I think.

Given the strength that we have in the U.S. and that concentration in the U.S., it's going to be difficult in the near term to get to 50 50 split between international markets and the U.S. given that the base that we have in the U.S. and our expectations for double digit growth, but that being the case, Jeff and the team are expanding quite a bit of resources and leveraging our capabilities.

In both Europe , and Asia, particularly in the regulatory capability area to get these new products approved in Europe , and do our sales force that's ready to take them as well as Asia and also we're making investments more strategic long term investments specifically in China with our why 90 and Theres fear portfolio.

Ah ideally build the capability there were liver cancer is really two X the size of the U.S. So it may take some time for us too.

In terms of our revenue mix, where it's more meaningful but we're putting the efforts there we already have commercial teams in place and a big focus area to grow a U.S. or international BTG.

Next question is from Robbie Marcus JP Morgan. Please go ahead.

Thanks, and congrats on a good quarter one of the areas continue to do well and despite some of the underlying market fundamentals is neuromodulation.

I was hoping you could break down you know some of the growth trends if your different business DBS versus final quick stem in any commentary you can add to the market health overall.

Sure. So we're pleased with the overall performance of Neuromodulation in the quarter as I mentioned and these the script really the highlight there for that was our a deep brain stimulation platform precise which is doing extremely well globally, taking quite a bit to share and really Dublin.

Sales to year over year, and we're excited for 20, where we'll have the a full body MRI capability and the.

Directionally.

For the full year and 2020, so we a lot of the optimism in Neuromodulation I think the second highlight there would be or our our business in the pain overall, three essentially a diversified our capabilities there in both SCS.

Berta flex as well as RF and our vertical ex acquisitions really exceeding our deal model and we're really don't the best a company that provide that continuum of care for RF.

Lumbar sonos as with Verde flex or SCS, So I think that positions us more uniquely versus our peers in terms of that full portfolio to address that we've seen great results out of Artiflex great results out of RF on SCS. The result, we believe have improved so it's a positive trend, but clearly not to the market levels that we.

Lumbar sonos as with Verde flex or SCS, So I think that positions us more uniquely versus our peers in terms of that full portfolio to address that we've seen great results out of Artiflex great results out of RF on SCS. The result, we believe have improved so it's a positive trend, but clearly not to the market levels that we.

Thats enjoyed in the past.

We do believe still that are going forward. This will be a mid to high single digit growth market based on historical trends and well have some easier comps next year in SCS I guess, that's good and look forward to [laughter], but we do have some some new software enhancements that will be launching.

In fourth quarter, two our platform as well as the Nands data that I commented on so I think overall the marketplace I still is clearly not to the levels that it was in 2018 in historical or potentially a low negative single digits, but we believe we continue to grow above market in FCS and we're really buoyed and enhanced by.

The depth of the portfolio with Verde Flex RF and our DBS platform, which is really kind of inline with our category leadership strategy and as we go forward in 2020, Oh, we aim to see slightly better overall SCS market.

Trends, which should help and then just Robby I just the last last point on that with all of those things in place and obviously FCS not where we had expected it to be able we're many an expected to be the overall neuromod franchise grew 8% in the quarter. So I think that just really speaks to the diversification within that entire business that it's not just in SCS portfolio that it was able to grow.

Eight in the quarter.

And then a quick follow up here complex PCI over a billion dollar business growing mid teens I just look back for over two years now in double digits, except for one quarter.

<unk> guidance up low Twentys I think you send the script, what what's driving such strong growth and you know how durable can this be.

But.

So just to speak to what potentially would it be driving this the festival, we have an aging population with an increasing burden of risk factors and so the there is a greater proportion of patients who elderly who would be treated by picky Chinese intervention for the obvious benefits the minimally.

And as you get all do you have little calcification anymore.

Disease and there is a great at focused now on cancel and selecting is selection lesions to make sure you're trading right lesion and optimizing the treatment sorry.

The the practice of individual cardiology is really more sophisticated and there's an expectation of better outcomes and you do that pipe PC gardens, and but functional assessment of the lesions at the time and of course changing demographics me dealing with a significant the.

Elderly degenerative disease that that is the reason it continues to grow.

Next question from the line of Matthew Taylor, Yes, Let's go ahead.

Hi, Thanks for taking my question I just wanted to follow up on some of your comments on exalting. It do you see very excited about it and you mentioned the FDA decree earlier. This year can you talk about what that could mean and also any expectations that you have for the upcoming [laughter] panel in November on due out in the scopes [noise].

Yes, so a really in terms of our exult platform in the future products that pulled behind it really on track and no new commentary other than we expect and we're still on track for year end 2019 approval.

Which weve and we've also initiated a proposed market clinical trial, which will start in first quarter 2020, but we expect to see our first revenue.

With exalt or near the ended the year here and we think there'll be a significant growth driver for us in 2020, you know we think the the trends and that the advisory certainly are a tailwind for exalt or that we and kudos to our team for really identify this opportunity and nearly three or four years ago and so we take the.

Timing and the physician excitement and maybe the FDIC supported this are all nice tailwinds for this platform and we think we newly delivered uniquely capable of delivering this based on our results and expertise that we've created with both lithovue in urology and digital Spyglass and Endo. So we have.

The manufacturing and the ops and the supply chain and the R&D capability to deliver this one as well as the future scopes with it so it's one of our more exciting.

Launches in 2020.

Thanks, and just a quick follow up on and comments before on ischemia I was just curious if you could expand on what you think drives the positive results. So what do you think could come out of the trial that could actually drive more spending or or how do you see that as a positive what's the probability of S.

I don't think it drives more standing unless we change guidelines, if we could use the with positive to say could the trial actually have a close that Youve result in other words revascularization BYOD the bypass crops, Andrea picky teeny tiny as intervention beat data than just optimize medical therapy.

And the rate considering that as a possibility is that unlike previous trials. There was a dedicated if it here to Tim and that the patients who were enrolled in the studies deed. In fact actually have objective evidence of ischemia and as you know 85 80 to 85 to see to the patients in this study.

In both bomb have moderate to severe objective evidence of ischemia not symptoms that ischemia on functional testing and by doing that you know you that you have the greatest likelihood of showing the benefit of Revascularization and many previous registries and small studies Simpson Jay.

The right.

When you have the will likely that revascularization is a better option than optimized medical therapy and that this is the first trial to actually take that out and despite all of the.

Potential vagaries around the trial if that plays out. It is there is a possibility that or it could be a positive result, because we treat the right.

In the subsidy to two actually test that question.

So that's why I would think that there is a raise into <unk>.

Not so much doom and gloom because.

The burden of ischemia or might save an outcome that is positive.

Next question another comment on the quality of life into a everybody thinks that it's going to be positive on quality of life. Just remember that the Seattle question is school with 80 out of 100 100 basis.

All right vein terrible so the patients were already a very minimal seem to.

Oh I see proceed to the patients had monthly or less frequent angina. So he's going to be hard to show improved quality of life in patients who are having season.

A few times the [noise].

The next year.

[noise] Danica question excuse me a question [laughter], Larry Biegelsen Wells Fargo. Please go ahead.

Hey, guys I don't I thought I heard a joke in the background there Mike about an excuse me a question, but thanks for taking my question and and congrats on a nice quarter I guess I will ask one is can be a question and and then just one follow up on emerging markets in China and I'm. Just curious if you have thoughts on U.S. versus O U.S.

Yes.

Locations for the study if you think there'll be different and second what is your listening to your responses. My last question and what's your what's the base case here. It sounds like you think it's going to be hard to show quality of life benefit, but it sounds like you think there might be.

You know I'm, a hard outcome data or am I, you know a hospitalization for angina et cetera benefit based on what you said on the 80% to 85% of patients having moderate to severe ischemia and I just had one follow up.

Well first to deal with the U.S. supposed to U.S. as you know Larry there's been a significant shift towards the a greater portion of PCR being undertaken in unstable angina in acute coronary syndrome that train has been a global trade arrive at 10 years.

And it ever since the courage trial in 2007, and we've done considerable research over the last few weeks to see whether that that factors.

It is sustained just to look in the U.S., we now have the the in India.

Kathy I registry has shown that trend away from unstable angina and similarly, there is a data from the Sweet Hot registry, the China pace registry another east.

International registries that all point to the time, Trina <unk> percentage point here or there, but overall, we think there'll be a consistent pattern in the response to this trial positive or negative U.S. to all U.S. because overall the proportion of pace the eyes undertaken for and I believe kicked carney seem to.

I'm sorry.

Outside the U.S. with.

Essentially the same is in.

And there is very good date or actually for the published this year from single faces both inside and outside the U.S. showing that the same sort of trends.

The last 10 to 12 period.

That was the first question. The second question you asked was roll on football.

What's your base case assumption kind of on Makena.

Another trial I really feel like the ischemia the.

Level of questions.

So disproportionate to the overall business that the Mega trying to launch in the U.S., well likely had a larger impact and the potential downside scenario that we're talking about with this human trial.

That's right fair enough not Mike Fair enough fair enough just just for my second question just on emerging markets you had a nice quarter. There there's been a little concern about a slowing growth in China. So I guess my question is kinda what are you seeing there Mike.

And any update on the drug eluding stent, you know price cuts in China, any more visibility on timing or magnitude. Thanks for taking my questions guys sure.

Thanks for the not asking me a question on the the emerging markets or you know grew almost 20%. So it continues to do extremely well, it's really a combination of our consistent it's a really the same playbook, we're seeing great growth until that Latin America.

Great growth in China.

And really nice growth and the Ozzy on countries as well as some parts of Europe , but it's really a combination of a couple things. It's the diversification of the portfolio Where's eight years ago. It was drug eluding stent and now you're seeing complex coronary being larger than D. S. In those markets, where those tailwinds that we talked about.

You mentioned the patient population, but as importantly, the portfolio investments that we've made have driven a complex coronary to be very important businesses. There and then you see the diversification of Endo, it's amazing growth with P.I., particularly in Asia.

A great growth or interventional oncology business and they're starting to see the impact of really just the diversification of BSC other than drug Eluting stent, you're seeing very strong growth with watchman in China.

And were excited to bring our structural heart tabby portfolio to many parts of Asia Pac. So it's the diversification of the business the focus that our global President put on it the allocation of resources and really the smart prioritization of which products in which countries make the most sense to invest and and kind of the speed of the teams.

Skewed on the plan so we.

We're confident in the emerging market growth I think in terms of the China D.S. tender.

That you'll see a again there can be some upside or downside there based on how these tenders go but I think overall, we have very strong balanced portfolio in China that continues to grow very well beyond d.. So we hope to win a these tenders, but we have very strong diversified business there.

Great. Thanks, Mike with that we'd like to conclude the call. Thanks for joining us today I. Appreciate your interest before you disconnect. Kevin I'll give you all the pertinent details for the replay [noise].

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