Q4 2019 Earnings Call
[noise], ladies and gentleman. Thank you for standing by welcome to the Boston Scientific fourth quarter 2019 earnings Conference call.
I am all participants are in listen only mode. Later, we will conduct a question and answer session instructions will be given at that time, if you shouldn't require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded I would now like turn the conference over to your host Susie Lisa. Please go ahead.
Good morning, everyone and thanks for joining with me on today's call, Mike Mahoney, Chairman and Chief Executive Officer, and Dan Brennan Executive Vice President and Chief Financial Officer, We issued a press release earlier. This morning announcing our Q4 2019 results which include reconciliations of non-GAAP measures you tend to really we've posted a copy indefinitely.
Non-GAAP measures used in today's call the Investor Relations section of our website under the heading financials and violence duration. This morning's call. The approximately one hour Mike will provide strategic in revenue highlights of Q4 19, Dan will review the financials for the quarter and then provide Q1 20 and full year 2020 guidance and then we'll take your questions.
During today's today's session, Mike and Dan joined our Chief Medical Officer sector and Dr. Ken.
Before I begin I'd like to remind everyone that on the call operational revenue excludes the impact of foreign currency fluctuation and organic revenue further excludes the impact of certain acquisition, including Nextera clarity augmenix burn to flex and BCG and the relevant period for which there are no prior period related net sales as.
Well the divestiture of the base business.
Call all references to sales and revenue unless otherwise specified our organic.
Of note. This call contains forward looking statements within the meaning of federal Securities laws, which may be identified by words like anticipate expect believe estimate and other similar words. They include among other things statements about our growth and marketshare and new product approvals and launches clinical trial cost savings in both opportunities our cash flow unexpected you.
Our financial performance, including sales margins earnings and other Q1, and full year 2020 guidance as well as our tax rate R&D spend and other expenses actual results may differ materially from those discussed in the forward looking statements factors that may cause such differences, including those described in the risk factor section of our most recent TNK and subsequent 10-Q filed.
The FCC. These statements speak only as of today's date, and we disclaim any intention or obligation to update at this point I'll turn it over to Mike for his comments.
Good morning, Thank you Susan and good morning, everyone.
Scientific finished off a strong 2019, as we significantly strengthen our portfolio and capabilities for the future, while delivering strong revenue and EPS growth.
Consistent with upon Londonderry results, we announced on January 14, we delivered 14.1% operational revenue growth and 7.3% organic revenue growth for the fourth quarter of 19.
This represents excellent growth yet was below our organic revenue guidance of 8% to 9% due primarily to our us high voltage in us businesses.
Importantly, operational growth outside of us both CRM NDP were solid as were worldwide result in five of our the divisions, which all grew at or above market and three posted double digit growth interventional cardiology, neurology public health and industry.
With today's results, we disclose adjusted EPS of 46 cents in Q4.
Exceeding the high enough guidance due largely to a three set tax benefit.
For the full year 2019, we delivered 11.1% operational revenue growth, 7.3% organic revenue.
60 basis point improvement in profitability to 26.1, and adjusted EPS of $1.58, which is up 13% over the prior year, which is also normalized for the seven cents tax settlement benefit in 2018.
We delivered results, while also generating approximately $2 billion and adjusted free cash flow.
2019 financials continue a five year trend of excellent results and provide solid evidence that our strategy a category leadership in key markets and portfolio diversification into higher growth adjacent sees continued to deliver differentiated results.
Our goal is to continue to execute against our strategic plan objectives further increase organic growth profile and delivered top tier sales EPS growth results over the next five years.
Boston Scientific brings a combination of long term consistent above market revenue growth margin expansion targeted double digit adjusted EPS growth and the greatly improved ability to deploy a strong future free cash flow and Thats, what we believe position Boston scientific to continue to drive compelling shareholder value.
We're excited about our plans to build upon our momentum in 2020 and beyond we're targeting in 2020 operational revenue growth of 10% to 12%, which includes approximately 350 basis points of growth from the reflects and BTG acquisitions, resulting in full year 2020 organic revenue growth guidance of six and a half day that percent.
Similar to the trend in 2019, given the ramp and timing of 2020 product introductions acquisitions that will turn organic in second half as well as expected negative first half impact in China procedure growth krona virus, we expect to see organic revenue accelerate in the second half.
20.
Paris into the first half of the year by approximately 200 basis points.
Regarding to adjusted EPS of $1.74 $1.79, representing 10% to 13% adjusted earnings growth, which includes a four to five cents of accretion from the BTG acquisition.
As well as approximately 2.3 billion adjusted free cash flow.
I'll now provide some highlights of our fourth quarter and Nike results, along with our thoughts on 2020 outlook.
Our revenue growth in this quarter was broad based across businesses and regions, but most notably this quarter by 13% operational revenue growth in the U.S 12 in Asia Pac and 10 in Europe Middle East Africa.
Emerging markets had another outstanding quarter growing operation revenues, 16% in the quarter.
And 19% for full year and now represents 12% of total company sales so turning to each business our mid sort of segment represents 31% of our revenue mix for 19.
And continues to deliver excellent results with sales growth of 11% in the fourth quarter and 9% for the full year.
And our sales grew 10% in the quarter and nine for the full year with fourth quarter sales led by double digit growth and our go area franchise and infection prevention franchise.
And the sales also are expected to decelerate slightly in first quarter 2020, where we're targeting a full year growth acceleration in endo, given the breadth strength of our category leading portfolio as well as more significant contributions from these all the single use scope launch in second quarter beyond.
I'm also pleased announced that exulting you receive CE Mark in late January we've given the limited launch later this quarter.
Our other business is also advancing additional pipeline opportunities, including the resolution Ultra hemostasis clip and the next generation lost our therapeutic imaging portfolio call. The Spike last discover which is a single use surgical scope.
We continue to believe our therapy imaging portfolio represents a differentiated opportunity at 20.
An incremental 2 billion market opportunity by 2024.
Turning to your on public Health. This franchise also continues excellent performance growing organic still 12% in the quarter and 8% for the full year 2019.
With 15% for your operational growth and that's despite a 170 basis point headwind than mesh withdrawal.
Fourth quarter strength was led by double digit growth in our single use lithovue scope cornerstone resume minimally invasive therapy for BPH and almost doubling of space or revenue.
As a reminder, space or Hydrogels diminishes, the risk of local underside undesirable side effects of prostate cancer radiation therapy and continues to resonate in the marketplace and with patients resulted in a 100 million sales in 2018.
In addition to resume system recently obtained expanded commercial coverage was this year, including anthem Blue Cross Blue Shield and segment.
We expect euro public health and delivered double digit revenue growth in 2020, and the continued progress or broad portfolio and globalization efforts.
Turning to global rhythm and neuro sales, which were 1% in the fourth quarter and 3% for the full year and they represent 29% of our total mix in 19.
Neuromodulation delivered fourth quart organic revenue up 8% and operation revenue up 19.
The full year organic sales were up plus seven and operational sales were up 13.
As detailed last month at our Investor update the recent Nands annual meeting we remain very bullish in our comprehensive portfolio and exciting pipeline in both pain and bring modulation.
Neuromod results for the quarter led by doubling sales of our precise DBS system, which offers unique directionality with our Cartesian lead.
The ability to provide precise neural targeting with this lead allows physicians to optimize therapy and help reduce unwanted side effects for patients.
This an addition to the CE Mark approval neural navigator, three which integrates enhance visualization.
With clinical program into simplify and accelerate physician program.
We expect continued strong momentum in DBS in 2020.
Our global spinal cord stimulation sales also improved sequentially third quarter to fourth quarter 19.
For the full year SCS sales were down low single digits, but we believe the SCS market will return to growth in 2020, given low patient penetration rates as well as new product launches and clinical data from our team and industry more broadly.
In SCS weight riders, the only platform approved by the FDA to provide simultaneously paresthesia based and sub perception therapy, we target to different mechanisms of action at the very same time, not alternating them for patients suffering credit crane.
And our Cabo randomized clinical trial three month data presented Nance last month, waybright or combination therapy demonstrated an 88% responder rate, which is one of the highest responder rates reported among other comparable SCS clinical studies.
Also our version Virtus Flex acquisition complements, our RF ablation, and SCS portfolio and pain and represents an important therapy for patients with moderate lumbar sonos.
Artiflex performed well in the quarter and exceeded this full year pro forma 19 sales goal.
60 million.
Turning CRM CRM sales fell 3% in fourth quarter after growing above market in Q1 through Q3.
We ended up 1% for the full year.
The weakness in fourth quarter was caused primarily by mid single digit declines in the U.S ITD revenue, where globalizing the sales declining low single digits.
Fourth quarter patient revenue as expected was down low single digits worldwide.
And we believe the global IC softness in fourth quarter, which largely related to the tough comps, we faced with a global mid single digit growth Cob and fourth quarter 18.
In addition, while we don't have all the fourth quarter inputs, our best estimate as the fourth quarter 19 worldwide CRM market.
Which excludes implantable cardiac monitors elected declined low single digits.
In 2020 willing to do to continue deliver above market growth in DC due to our longevity benefits heart logic heart failure diagnostic and MLS ITD.
In 2020 remain on track to launch like CX, which is our plan on cardiac monitored by mid year, We do expect limited revenue contribution due to the revenue recognition policies over.
Overall, we expect robotic arm revenue to be more in line with the market 2020, potentially flat to down low single digits.
As sales grew 4% in fourth quarter and for the full year, 7% and U.S sales grew 8% in the quarter.
Currently international sales continued to be very strong up 15% in fourth quarter and up 16 for the full year led by the launch of our direct sense catheter in Europe, and Japan as well as continued double digit growth in major markets for our Rhythmia ACX mapping system.
We also continue to enjoy strong response alumina point, which is the next gen. HD mapping algorithm and aluminum is critical areas the hard by utilizing user defined inputs to assist and map interpretation.
We continue to answer our pipeline globally in ERP and we're pleased to announce that we just received CE mark for a pull Rx single shot pulmonary vein isolation technology in Europe.
We look forward to bringing polar acts as the market in Europe as well as beginning enrollment in our us I'd trial.
So overall, we do expect VP sales growth to accelerate in 2020 as we're excited to enter the single shot market, while continue to increase our mapping and navigation footprint and also expanding the launch of our NAV enabled catheter portfolio and adding new features to Rhythmia mapping.
Turning to cardiovascular the segment grew sales in fourth quarter, 19% operationally and 10% organically.
For the full year, 2019 growth was 14% and operational basis, and 9% organic and accounted for 39% of our total company sales.
Peripheral interventions grew 4% in the quarter and 8% for the full year on organic basis, and 34% for the quarter and 19, 19% for the full year operationally.
With BTG Interventional medicine acquisition.
Legacy CPI growth. This growth was driven by strong double digit growth in Asia Pac offset by a slight decline to use sales due to tough comparisons from the us launch of Eluvia as well as the competitors manufacturing issue one year ago.
Interventional medicine business performed in line with expectations growing plus seven pro forma with high single digit growth in interventional oncology, we expect similar a global organic growth trends and pie in the first quarter 2020 with acceleration thereafter on integration and BTG as well as important new product approval such.
As Ranger DCB, which is supported by great New head to head data from that compare trial, which adjusts released last week at Lake.
Interventional cardiology continues to grow nicely above market, delivering 13% organic and operational revenue growth in the quarter for the full year IC organic sales grew 10%, which is a 5500 50 basis point increase versus 18, while operational sales were up 11 for the full year.
We delivered coronary therapies growth of 1% in the fourth quarter and 2% for the full year.
Synergy Mega tried as an important line extension to our market leading synergy buyers are available polymer said platform as its purpose built for large proximal vessels Mega trial will be one is launching in Europe now and is on track for a second half 2020 us launch.
Strong structural ourselves and drove the IC sales of 13% overall in the quarter.
Strong growth across our structural our platform led to achievement of the high end of our 90 revenue guidance of 700 725 million, which is up over 50% versus 18.
Watchman achieved a strongest quarterly growth rates of the year fourth quarter as we continue to focus on four important areas market development in education.
Continued pursuit of clinical evidence to understand the benefits of watchman and broader patient populations, including lower risk patients to be enrolled in the head to head she had been KF study.
Our three product enhancements such as the next Gen Watchman flex, which is expected lots in the U.S in second half of this year and for US and thought lastly, geographic expansion in Japan in other countries.
Turning to TAVR, we continue to be pleased with logs and progress of Lotus edge and remain on track to opened 150 accounts. The first 12 months post approval. We also recently received Lotus edge reimbursement approval in Japan will begin to limited market release over the coming months.
Our Super annual about offering accurate neo grew mid teens in the quarter and we look forward and launch of the next generation accurate Neo two in Europe mid year.
In settlement to deal is cerebral embolic protection devices now and over 600 US hospitals, we estimate has sentinels approaching 20% of the overall us tattered procedural penetration.
We believe definitive evidence focus on the stroke.
Endpoints will continue to elevate sentinel to become the standard of care for all patients and will help influence future clinical guidelines. So that when we look forward to begin enrollment this quarter the protected TAVR randomized clinical trial.
Finally in the mitral field. We are pleased to have entered the clinic in summer and Australia with our Millipedes full annual class yearning for mitral valve repair or targeting enrollment in early feasibility study in the us by the end of 2020.
So with our portfolio of watchman accurate Lotus Sentinel millipede, and we're excited about a structural our capabilities and long term growth prospects and we target combined revenue of 900 million 2 billion in 2020.
Also outside of three reporting segments I detailed fourth quarter BTG spec pharma revenue of 58 million brought full year pro forma sell to $250 million, which is down slightly year over year and also in line with our expectations. So to wrap up we have an extremely exciting future and believe that we're well positioned to continue and strengthen our preferred.
From his track record in 2020 Mg.
And for that I'd like to thank our employees and they're winning spirit and commitment to patients now I'll turn things over to Dan for a detailed reviewer financials. Thanks, Mike fourth quarter consolidated revenue of $2.905 billion represents 13.4% reported revenue growth and reflects an 18 million dollar headwind from foreign exchange.
Slightly less than the $20 million to $25 million headwind expected at the time of guidance on an operational basis revenue growth was 14.1% in the quarter.
Sales from the vertical X and BTG acquisitions, partially offset by the divestiture of our legacy Embolic beads portfolio contributed a net 680 basis points of growth at the high end of our acquisition contribution guidance range of the 680 basis points BTG contributed 610 split between interventional medicine contributing.
380, and specialty pharmaceuticals to 30, the resulting 7.3% organic revenue growth in the quarter was below our organic organic guidance range of 8% to 9% as Mike detail. Despite the Miss we delivered Q4 adjusted earnings per share of 46 cents above our guidance range of 42 to 45 cents reps.
Dissenting, 16% year over year growth and 19% growth excluding the one cents net tax benefit in Q4 2018 earnings were driven by healthy BNL metrics across board as well as an approximate three sent tax benefit higher than expected at the time of our preliminary fourth quarter and full year results announcement.
The tax benefit is related to both discrete tax items within the quarter as well as a lower full year operational tax rate, which I will detail shortly.
Thanks impact on adjusted earnings per share was immaterial as expected the time guidance.
Our full year 2019 consolidated revenue of $10.735 billion grew 9.3% on a reported basis and 11.1% on an operational basis, which includes 380 basis points of growth related to the acquisitions of Nextera correct Augmenix verticals and.
VPG net the divestiture of these portfolio operational growth was in line with our guidance as the contribution from acquisitions was slightly higher than our expectations and organic growth of 7.3% was slightly below our guidance of approximately 7.5%.
Full year 2019, adjusted earnings per share of $1.58 cents represent 8% growth or 13%, excluding the 2018 net tax benefit of seven cents in the base.
Adjusted gross margin for the fourth quarter was 73.1% just above the midpoint of our guidance range and an improvement of 30 basis points over the prior year due to manufacturing improvements favorable FX and mix driven primarily by strong sales in our watchman franchise.
For the full year 2019, adjusted gross margin was 72.4% within our guidance range and represent 10 basis points improvement over 2018, the full year impact of FX. Two adjusted gross margin was a positive 70 basis points inline with our expectations and along with manufacturing improvements was offset.
By price erosion, primarily coronary drug eluting stent and Pacers.
Adjusted EPS gene expenses were $1.026 billion or 35.3% of sales in Q4 above our guidance range, primarily due to the lower sale, but an improvement of 40 basis points over the prior year period throughout the year, we balanced the need to fund initiatives related to key commercial launches and recent acquisitions without.
Commitments operating expense control and optimization as a result, we were able to achieve our full year 2019 guidance and decrease adjusted SGN expending by 30 basis points year over year to 35.1%.
Adjusted Research and development expenses were $297 million in the fourth quarter or 10.2% of sale, which is down 60 basis points from Q4 2018, primarily due to the timing of certain investments.
We're also gaining traction within our R&D efficiency efforts for the full year 2019, adjusted R&D expenses were $1 billion $138 million or 10.6% of sales compared to 10.7 in 2018 royalty expense was 0.6% of sales in Q4 and the full year 2019.
Which was roughly flat year over year for both periods.
As a result.
Q4, 2019, adjusted operating margin of 27% improved 150 basis points year over year and is within our guidance range of 27% to 28%. We also met our full year 2019, adjusted operating margin commitment with a rate of 26.1% representing an improvement.
60 basis points over the full year 2018.
Ill now move below the line to interest and other expense adjusted interest expense for the quarter was $93 million compared to $62 million in Q4 2018, our average interest rate expense was 6.6% in Q4, 2019 or 3.4%, excluding the bond repurchase costs related to our eurobond.
Offering compared to 3.5% in Q4 of 2018 adjusted other expense for the quarter was $17 million compared to adjusted other income of $4 million a year ago, primarily due to a net gain on certain of our available for sale investments in Q4 2018 in both periods include expenses related.
Through our foreign exchange hedging program.
For the full year 2019, adjusted interest expense and adjusted other expenses were $325 million and $65 million, respectively, resulting in total below the line expenses of $390 million. This is in line with guidance and an increase from 2018, largely due to the acquisition of BTG as well as the.
The whole call exercised in Q1 of 2019 to execute the early retirement of our 2020 notes our tax rate for the fourth quarter was 4.5% on an adjusted basis below our guidance of approximately 11% due to discrete tax benefits within the quarter as well as a lower full year operational tax rate.
Our full year tax rate was 7.3% on an adjusted basis also below our guidance of approximately 9% due to the lower operational tax rate on a GAAP basis, our tax rate for the fourth quarter and full year, including deferred tax benefit of $4.1 billion related to transfer is there certain intellectual property rights among our.
Areas wholly owned subsidiary these track transactions more closely aligned the global economic ownership of our intellectual property rights with our current and future business operations.
We ended Q4 2019, with 1.413 billion and full year 2019, with 1 billion 411.
Billion fully diluted weighted average shares outstanding.
Adjusted free cash flow for the quarter was $638 million compared to $659 million in Q4 2018.
In the quarter, we used cash primarily to pay down $900 million of BTG related debt executing on our plan to achieve a debt leverage ratio of approximately 2.6 times EBITDA by the end of 2020.
As of December 30, Onest 2019, we had cash on hand of $217 million.
Our full year 2019, adjusted free cash flow of $2 billion slower than guidance and down slightly year over year. As a result of the timing of capital expenditures and increased working capital requirements, mainly in inventory to support upcoming new product launches, we continue to target double digit adjusted free cash flow growth for the future and.
Gold for full year 2020, adjusted free cash flow is $2.3 billion, which would represent 15% growth over 2019.
On a GAAP basis, we recorded a net litigation related charge of $223 million in the fourth quarter, primarily related to litigation with channel mid systems. This drove a $129 million sequential increase in our total legal reserve to $697 million as of December 31, 2019.
Which otherwise would have decreased sequentially as we continue to work to fully resolved the mesh litigation.
Over 95% of all known claims are settled or in the final stages of settlement and we expect to pay the remaining $115 million of anticipated payments into the qualified settlement funds in 2020, which will then resolve all significant existing contingencies related to match as a reminder, this liability is released from our balance sheet as payments are made.
Out of the qualified settlement funds to plants.
Capital expenditures for the full year 2019 totaled $461 million above the high end of our range of $375 million to $400 million, primarily due to timing and some pull forward from 2020 and manufacturing capacity in anticipation of certain 2020 product launch.
We expect capital expenditures to be in a range of $450 million to $475 million for 2020, as we continue to build capacity integrate acquisitions and position the company for growth.
I'll now walk through guidance for Q1, and the full year 2020.
Full year, we expect 2020 reported revenue growth to be in a range of approximately 10% to 12%, which corresponds to 6.5% to 8.5% on an organic basis with an approximate 350 basis point contribution from the verdict flex and BTG acquisitions net the divestiture of the beads portfolio.
As a reminder, Virtus flex is included in organic guidance for 2020 as of June and BTG as of August at which time. The divested beads portfolio will also no longer have an operational impact we expect foreign exchange to be a headwind of approximately $30 million to $40 million for the full year 2020, However, as I will detail shortly due to our.
Hedging program, we expect the FX impact to EPS to be neutral for the year.
We expect our adjusted gross margin for the year as a percentage of sales to be approximately 72% for the full year with no FX impact, we do not anticipate material improvement over full year 2019, as manufacturing improvements will be offset by pricing decline, which are expected to be slightly higher than usual due to biannual, Japan price cuts and China.
Tenders. In addition to mix challenges from our new high growth products that are initially dilutive to total company gross margin such as exult, the full Rex and Lotus edge.
We expect full year adjusted EPS gene aim to be in a range of 34.5% to 35%. This assumes up to 60 basis points of improvement over 2019, as we continue to execute on our cost optimized optimization initiatives and also recognize the benefits of programs currently underway full year adjusted R&D is expected to be in a range.
Of 10% to 10.5% and we expect our royalty rates to remain at less than 1% of sales for 2020.
This implies a full year 2020, adjusted operating margin of approximately 26.7%, which represents 60 basis points improvement over 2019, consistent with our previously outlined goal of 50 to 100 basis points of annual improvement, we continue to make progress towards our long term goal of 30% adjusted operating margin.
We forecast our full year 2020, adjusted tax rate to be approximately 10% consistent with our disclosure in January this assumes an operational tax rate of approximately 11% within approximately 100 basis points of benefit from the accounting standard for stock compensation.
We expect adjusted below the line expenses, which include interest payments dilution from RBC portfolio and costs associated with our hedging program to be approximately $400 million to $425 million for the year and we expect fully diluted weighted average share count of approximately 1.417 billion shares for Q1, 2020 and 1 billion.
421 million shares for full year 2020, as a result, we expect full year 2020 adjusted earnings per share to being a range of $1.74 cents to $1.79 cents, representing 10% to 13% adjusted earnings growth and we expect FX to be neutral for the year if rates hold constant.
On a GAAP basis, we expect earnings per share to be in a range of 95 cents to one dollar.
Now turning to Q1 2020, we anticipate reported revenue growth to be in a range of approximately 10% to 12%, which represent 11% to 13% operational growth and an approximately 600 basis point contribution from refer to flex and BTG acquisitions net the divestiture of the beads portfolio on an organic basis, we believe our.
Business without the impact of the Corona virus would be in a range of 6% to 7.5% growth year over year. However, while we're still in the very early stages of assessing the impact and highly focused on supporting our patients and employees in China. We believe it is prudent to include a potential impacts to our Q1 revenue related to the kroner virus.
Our best estimate at this time is a preliminary 10 million to $40 million potential negative impact to revenue as a result of deferred procedures supply chain and other disruptions. Although it is early the Chinese healthcare system is highly focused on containing the spread of the virus and thus we expect to see a reduction in volume for all number.
Agency medical device procedures as it will not be business as usual in China and February and March This 10 million to $40 million potential negative impact results in Q1, 20 organic growth guidance of 5% to 7%.
Full year organic growth of 6.58, 0.5% contemplates our ability to recapture some of the loss procedure volume in China during the year as well as other offsets throughout the remainder of the year note that given the leap year Q1 and includes an extra selling day over prior year, but this equates to roughly one half of a day sequentially based on.
The weighted average of selling days globally, we expect the foreign exchange impact on Q1 revenue to be an approximate $25 million to $30 million headwind.
For the first quarter adjusted earnings per share is expected to be in a range of 37 cents to 40 cents per share representing six so 15% growth and GAAP earnings per share is expected to be in a range of 16 to 19 cents per share.
Please check our Investor Relations website for Q4, 2019 financial and operational highlights, which outlines Q4 and full year results as well as Q1 and full year 2020 guidance, including Pn outline on guidance, so with that I'll turn it back to moderate to enact thanks, Dan segments over the next question to that 25 minutes yourself.
Thanks, Matt on the spot. Please let me just one question and whether that is Paul and Greg. Please go ahead.
Thank you, ladies and gentlemen, if you'd like to ask your question. Please press. One then zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command if you're using the speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question you mean press. One then zero at this time and one moment. Please for your first question.
Okay.
Thanks.
Good question for Dan.
Your first question comes from the line of Robbie Marcus from JP Morgan. Please go ahead.
Yes.
Robert can you hear us.
I can hear you can you hear me hearing it out we can aggregate hearing right.
[music].
Maybe you could just start with topline guidance for 2020. The range is a little wider than we've seen from you. Historically you have a lot of new product launches into new markets. In 2020, maybe just walk through the rationale for the wider guidance range and any important keyed in tissues to pay attention to.
Sure, Yes, so the full year guidance organic you heard the script there are six staff and half, we think 200 basis points.
Wide ranges and crazy for healthcare size.
So we think that makes sense.
Similar to 1919, we saw a 6.3% organic the first half 8.3% organic second half.
And so we expect a similar trend in 2020 as I mentioned, you'll see second half acceleration.
As mentioned due to the product cadence and we can talk by the various products if you'd like.
As well as the M&A three inorganic and also we expect hopefully we hope that aim for resolution of the potential impact in China as we enter the second quarter. So we'll see second acceleration.
And we expect.
Many of our businesses to grow double digit we expect euro ph in endo as well as you all to accelerate in 2020.
We expect pie to put up a first quarter silver fourth quarter of except Ics expect nice acceleration due to import product launches in pie as well as the integration going to plan and.
And we also given the structural our guidance.
$901 billion, which is a significant.
Increase over 2019, so we're very confident in the product launches that we have across all the divisions and the execution in our aim will be to accelerate organic revenue growth in 20 fashion that we did 19.
Great and maybe just a follow up on CRM add the JP Morgan conference. When you Preannounced you thought that some of the softness in fourth quarter was due to replacements and high power have you been able to dig into that any further and come up with why maybe replacements were softer.
In December versus expectations.
Yes, so we don't have all the market data yet it's still too early to receive.
On a unit volume across the industry.
Similar to what I mentioned before we think primarily the the impacting Q4 was due to our comps we had mid single digit positive comps are competitors had a negative comps.
And.
So we don't see.
We don't believe that we lost market share in defect in fourth quarter, We think we faced tougher comp that our competitors did and also we.
Happy I see a loop recorder, yet some competitors include that in there and our sales so in a pure like for like basis. We think we held share and we do think the market to bit softer, though we think the market in 2020, we project our global CRM to be flat to declining low single digit and we expect we obviously aimed to do.
To continue to grow faster in the market like we had for many years DSS, but we think the market growth is probably the zero at a negative two for the full year.
Thank you.
Your next question comes from the line of Bob Hopkins from Bank of America. Please go ahead.
Thank you and good morning.
So first question just wanted to ask about the guidance, you're providing for the first quarter that 5% to 7% in if you use the midpoint of your assumptions on Corona miners, maybe 60% excluding that.
My question is that.
Even excluding the slower China growth in Q1, and it does feel like a deceleration.
From what you've been experiencing over the last couple of quarters.
Given the selling day and an easier comp in the first quarter. So.
What do you assume slows in Q1 relative to the last couple quarters.
Or is this just you guys being conservative.
Sure. Good morning, Bob So again, we're very comfortable and the quarterly guidance, we provide as well as the full year and we aim to accelerate in 20 over 19 organic growth.
Which I think is the most important piece here, we look at first quarter. There is a extra with Dan called half day. When you look at all the global selling days and so for us. So there's a slight benefit there, but as mentioned in the script in a few areas. We do expect to see in first quarter Endo decelerated, a little bit from first from fourth quarter.
As well as pie being soft again in first quarter summer fourth quarter. So those kind of are in line and we also see some some challenges in drug eluding stent with Japan price cuts as well as the overall pricing environment and drug in the sense. So we anticipate that first quarter and we.
What about the CRM market kind of the zero to negative two range.
But importantly, we have some nice mix launches in DDS to support the full year and we expect to see continued complex coronary growth do well and then all the other businesses across.
The company should do extremely well with special hard but in first quarter. The combination of some of those pricing pressures, we're seeing NDS.
Combined with the Croda virus issue that Dan outlined and really moving through that BTG integration.
That was the guidance of the six to seven and a half pre thrown a virus and we estimate impact has mentioned tend to 40 from China, which brings our first quarter guidance down five seven.
Okay, and then maybe is it just sort of an obvious follow up on that what are you assuming endo slows a little bit in Q1, and then also would love to see here your comments on exalt. The in terms of what you're expecting for the year out of that product. Thank you.
Yes, so endo is.
Whatever more predictable businesses I would say in the company very good execution against our plans and it's not a comment for them to have a slightly softer first quarter.
So slightly soft going to be.
Above the PSC average.
And likely above market, so that their definition of soft theres, probably not fair.
But as we see as we look at the full year. They have it nice set of product launches with new hemostasis clip.
Improvements the digital spyglass in the big one the Exult D and we've had our first few cases take place over the past week and they want to.
They are very very encouraging and so you're going to see a.
More of a controlled launch in the first quarter to make sure things are going going well.
The contracting in terms of the capital placements are being organize now and we're very confident and acceleration.
Really each month and exult with a much bigger impact in second quarter in a significant impact in the second half year and then the surgical scope coming so I think we're really on track with exult launch.
And could be more excited about the early results.
Great. Thank you.
Then just to give you little bit of the math on the ranges. So the six to seven and a half is the is the range without.
Corona buyers for Q1 in terms of organic revenue growth just to let you know how we got to the five to seven so the low end to five is basically the midpoint of 6.75, and we took the high end of the risk of tend to 40 for the kroner virus and took that off to get to the five and then saying similarly for the high end of seven it's the seven and a half high end less though.
The low end of the current a virus of 10 million, which brings you to the 7%. So just to give you little bit that math as to how we came to five to seven from the six to seven an app.
So.
Question comes from the line of David Lewis from Morgan Stanley. Please go ahead.
Good morning, just two questions for me again, I want to come back to current of Irish just to sort of set expectations. So by our quick math, China's kind of 5% of the company maybe was appointed growth two to 2019 I appreciate the focus in the first quarter, but taking those numbers. It seems like you're implying for first quarter that that China businesses either.
At 10% growth kind of half, which you grew last year, 20% or maybe slightly declined does that kind of roughly accurate and what's actually in the annual guidance for impact from China, given it drove a point of growth from last year than I had a quick follow up sure I mean, as we talked about at our Investor Day, China was about a 500 million dollar business growing 20% that would imply about a 600.
$1 business in 2020, so rough math $50 million a month.
The 10, and the 40 are simply the impacts our China team. That's obviously very close to the issues in China on the ground. That's how they cited today and so thats why we included that in the Q1 guide for the full year as you saw the six and a half and half we assume that we can get some of those procedural volumes back and that other parts of the company could could kick in.
And keep that six and a half and half percent organic revenue growth range intact, but it's just the ability to react within Q1 with the acute nature of what we see the potential in China. That's why we as one integrated.
Okay. Then you are seeing that impact you have seen that impact here in the early part of January and February.
As you look at China, I mean, everybody season on the news and such so just number procedures for medical device procedures. In Q1 is not going to be what was expected 9100 80 days ago. So certainly.
We are planning to see an impact in that business into Q1.
Okay, and then just for the guidance for the year, just two things me for Dan or for Mike. One obviously talking about second half acceleration, maybe just help us understand the key drivers of that second half acceleration from product perspective, and kind of related to that you too big products from a revenue perspective absolute dollar contribution our augmenix and Lotus, maybe sort of talk to your confidence in those two products and what drew.
That back half acceleration thanks, so much.
Sure we have Oh.
A number of things, we could talk about but just to hit on the biggest the virulence are the biggest growth driver contributors going to be structural heart that 902 billion.
The big impacts there are excited about led by watchman.
With the new Watchman flex launch will happen to us and the second half of year and Thats doing extremely well in your opinion, we have a number of big clinical trial. So we expect very strong growth on a watchman.
Lotus is doing very well in the market.
Kind of on plan for 150 accounts, so you'll see a full year impact of Lotus and.
We expect to see each quarter greater impact there.
Hi, Rob Summarise valve accurate is doing well grew above the company averaging grew about mid teens forthe fourth quarter, and we expect to see neo to launching in the second half. So basket of structural heart will be big exalt will be a meaningful new incremental revenue driver with stronger.
Second half impact and then in pie I would say, but we're confident in quarterly improvements as we settled in on the BTG integration and you have new products being launched from legacy BTG as well as potentially Ranger and the second half of 2020, which will put our position there and as I mentioned.
Polar X. I will see a nice impact from that.
Particularly in the second half of years, we as we ramp that up and Euro continues to do well with.
As you mentioned.
Our next.
Did over $100 million and is growing very very well as well as nextera, which also.
Doing well and looks tech feiger data shortly and new new reimbursement approvals from Cigna and the cross so there's a really across the portfolio.
There's a number of exciting things thats wide to reinforce Dan's comment. Despite some of the near term issues in China were very comfortable with six snap data half full year range.
Your next question on combined.
Your next question comes from the line of Rick Wise from Stifel. Please go ahead.
Hi, good morning, Mike.
If if we could focus if I can focus on exalt be obviously, you're excited we've had a bunch of indepth dr. conversations lately.
Happily all of them wanting to try adds more interested some very interested but the highlighted usability and sort of comparability to their current reusable technology and they were all seem to uncertain about pricing and cost can you can you talk to us about your confidence that.
Exalt the equals current reasonable technology talk us about pricing and how you're going to go out making the economic case, the docs in the hospitals and maybe last just.
Talk about the manufacturing ramp.
And how that ties into the.
Celleration.
As you move toward full launch thanks, so much.
Thanks, Rick.
So the teams.
As you know this big.
Multiyear program built off of the capabilities, we've learned with Lithovue digital spyglass those capabilities levers for Axalta and you hit the key criteria the number one criteria.
Just to be a blockbuster product, which we think it will be will to be have comparable usability functionality as existing scopes that require the sterilization expensive processes and so that is the spec that the team has been focused on over the past three or four years and so the good news is we've had done a number.
Procedures, we've had a number of key positions around the globe involved with the product for multiple years and we're quite confident in the design elements and the visualization capabilities of the product.
Also I.
I think what's important for this with the FDA approved device and they are capable of is the team will be able to make improvements the platform within each year and so just like we've dealt with digital and with lives of you expect to see probably a once a year enhancements.
Upgrade if you will to the platform and so it's not as if this is a stagnant product in which sometimes you get with the re usable for many years. This is a product that will be able to enhance at least once per year throughout next year period, whether be smaller handles left handed right handed different user features that the competition.
Doesn't have so I think that cadence will allow us to.
Please physicians and the spec is to make it.
As good.
The the manufacturing side.
We have a lot of experience with this we've been investing ahead of that that's one reason why you saw the increasing our capital investments in 19, and 20 is to to manage the volume that we expect so we're comfortable with the the ramp that we have laid out with acceleration in the second quarter and beyond.
On the economics of it.
It's a complicated topic.
We do believe Theres ample room in the existing reimbursements within patient roughly 4000 to 12 to 11500 and outpatient 3000 to call it $5000.
And.
We're also as you know we did receive that day.
Because the breakthrough status.
Which potentially could help with additional potential reimbursement tailwinds in terms of the pricing itself, we have lots of flexibility within our endo business to pricing on its own or potentially look at contracting capabilities leveraging our portfolio across the business there.
Thanks, so much for all that.
Yes.
Your next question comes from the line of VJ Kumar from Evercore ISI. Please go ahead.
Hey, guys. Thanks for taking my question, So Mike maybe.
One follow up on the guidance and then I had one for Dan on the guidance that be comments around the cadence first half versus second half if I recollect last year, you had the days impact in second half.
All the comments on structural heart, but shouldn't structural heart cadence be similar to last year, so the real incremental new products.
Should step up in second half is that the right way to think about right and just on the range itself plastics and happy behalf.
Are you comfortable at the midpoint of the range or.
I appreciate the wider range, just given that Q4 and market factors, but just wanted to get a sense, whether youre comfortable at the midpoint.
Sure.
As Dan VJ, so on the the structural heart piece I think Thats fair that as you look at the Lotus launch that's obviously, a very controlled rollout than we've had and that should gains.
Let them over time as should.
Sentinel, Mike mentioned that neo to comes out in the second half. So I think thats fair relative to structural heart. We obviously will give a specific number within the guidance range of six math half organic for the full year, but again you heard in Mike's commentary that our goal is to accelerate in 2020 off 2019.
Thats helpful. Then and then one on the margins here, Dan I think I heard you mentioned in the China tender into Japan biannual price cut what specifically is the impact from those factors on gross margin.
And on the operating line does it have any impact on the mix just given BTD is coming in.
Because it looks like you're implying 60 basis points margin expansion. Thank you.
Yeah actually on the on that prior question from my Watchman Teen friends here I want to make sure include watchman flex in the U.S. as well because that's a huge launch for for the Washington team has done a fantastic job since inception.
On the on the price impact.
As I look at it.
The summary would be we just have a little bit more price across the enterprise. This year in a couple of those areas as we mentioned the biannual Japan price cut and the China that will not allow the normal manufacturing cost improvements to poke ahead above that and and have gross margin going north. The normal equation is you have your manufacturing cost improvements any pricing and mix.
And the net of those three normally has gross margin increasing this year the pricing is a little bit higher with the with China and Japan.
And potentially some acceleration on the on the DS front, there as Mike mentioned, so that really just all netted out where margin gross margin should be in that approximately 72% range. We said that's not a surprise to us as what we've been saying all along for the last two years is that gross margin, which has paid a lot of build over the last five or six years.
Would slow in terms of its ability to contribute to operating margin improvement and NSG inane R&D would pick up that slack you saw that in 2019 and you should see the same thing in 2020.
Thanks, guys.
[music].
Your next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.
Good morning, Thanks for taking the questions guys.
One on.
Complex PCI one on Neuromodulation. So your complex PCI business continues to do really well.
But that's a business we don't have a lot of visibility on so my question for you might do Dan is it's how are you feeling about the sustainability of growth in that business in 2020, and what are the drivers and I had one follow up.
Sure.
Business as we mentioned that is larger than DCF and continues to do very well.
Around the globe.
It's really maybe our most important business in Asia Pac. So thats strategically is a very big business for us.
Requires.
More clinical orientation, which is also helpful and more in our sweet spot and also is under less pricing pressure I would say compared to drug Eluting stent. So the innovation there is really important and you see.
Big focus on our Ivas and related platform as well as Wolverine and may be and can touch on some other key products, but it's really.
A key cadence of new products that we have as well as a big focus on complex.
PCIA training that we have around the globe and how our portfolio matches that.
I think you've hit most of its Mark I think the thing I'd say, Larry that's most important is the population designing and so the burden of disease disappearing laser and so we're seeing more patients with more complex.
Right right more on Morbidities, let's suitable for surgery. So just the she is demographic changes actually driving the burden of.
Complex cardiac disease and lifetime, so requires more complex interventions.
That's helpful and just a neuromodulation.
Mike You gave a lot of helpful color on a different businesses for 2020, but I wasn't sure if I heard.
Your expectations for Neuromodulation for 2020 relative to 2019.
How do you see that business in 2020 relative to 2019 on an organic basis. Thanks for taking the questions guys.
Sure Yes.
We are hopeful.
And for that business I would say to accelerate versus 19, if you look at.
19, our SCS business was slow.
A market was slow when we had extremely difficult comps the prior year and so we would expect our global SCS business to improve.
Over 19 in 2020, and also you heard at Nance as well as detailed on some of the scrip some of the clinical benefits, we have with that portfolio. So I think truly an account basis annex expectations for the market to improve somewhat we would expect fed to improve and then DBS. We just have a lot of really good momentum.
Excellent.
Share taken is taking place in Europe in in the us and you'll see some additional clinical studies being presented.
With that platform and we touched on some of the product differentiation. There. So then you have heard flex, which will go organic in the second half of the year. So we think.
Broadly speaking.
Neuro model of grow faster than 20 than 19.
Thanks for taking the questions guys.
Your next question comes from a line of Josh Jennings from Cowen. Please go ahead.
Hi, good morning.
Thanks, and just two questions first on China I understand then.
Nice details around the one two potential headwind, but can you help us get little bit more grim and.
Any any help just in terms of your exposure in China by business unit.
It's cardiovascular English cardiology, most exposed or is it more broad based and then on the second question just watchman flex.
Many comments today just on being a driver can you can you help us understand.
The boost that you'll get some watchman flex launches that premium pricing or their accounts out there that are waiting for Washington flex to get over the hump to just started watchman program or is it just deeper penetration the current accounts as watchman flex a little opened up in a more procedures in two different risk categories patients. Thanks.
During the questions.
Sure Josh I can start on the first one I think Mike and I can take the second one the good news we do have as you mentioned, a very well diversified portfolio in our China business is not reliant on one particular business within the mix, but as our team reflects on all of what's going on there it's pretty clear that vast majority of the health health care we saw.
Sources in China are focused on diagnosing treating and preventing the spread of the grown of Iris and that all other procedures are at risk of being delayed so as we look at it we don't save one particular division or another and that tend to 40 contemplates the whole market basket of Boston scientific business and the impact that we could see here in the first quarter.
Yes, and watchman flex.
Or.
Dr. Stein can comment on that as well, but I think in terms of what we've seen in Europe, it's been more of a share taking.
Capability that we have in Europe and in the US we haven't seen centers not opening because we don't have watchman flex. We don't think it's going to drive. This are they new center openings that we wouldn't already received with current watchman I think it side. They can speak to be the safety profile the confidence that physicians have with.
Flex, which will give them more confidence to continue to increase our utilization rates, which are so our key metric for watchman broadly as utilization rates.
We'll continue to open similar to more centers in the US we're expanding in Japan are expanding in other countries, but in the US is all about turning on a continuing to ramp up utilization, which we're seeing or we believe watch flex will further enhance that the on just add to that aside the.
Okay drive is to utilization there.
Our awareness with driving that through education strategies.
Direct to patient Drake to physician education strategy is highly effective.
Then procedural enhancements actually increased utilization in what's been places us substantial procedural enhancement in terms of being so simple to use easier to recapture.
The physician immediately recognized the some of the valuable procedural enhancements in the third possible.
Increasing utilization is building evidence and I think the effectively OLED announced the champion trial might Ditto Act versus.
Watchman flex trial helps to build the awareness.
And therefore the utilization.
I think things will be very positive.
Great with that we'd like to conclude the call. Thanks for joining us today. We appreciate your interest in the FX if we disconnect Greg.
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