Q2 2020 Boston Scientific Corp Earnings Call
[music].
[noise], ladies gentlemen, thank you for standing by welcome to the Boston Boston Scientific second quarter 2020 earnings Conference call. At this time 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 should require.
Assistance during the call. Please press Star then zero as a reminder, this conference is being recorded I would now like to turn the conference over to your host Susan Lisa. Please go ahead.
Thank you guys and good morning, everyone. Thanks for joining me on today's call.
Chief Executive Officer, MDM, Brennan Executive Vice President and Chief Financial Officer, We issued a press release earlier. This morning announcing our Q2 2020 results, which included reconciliations of non-GAAP measures used in the release.
I'm going to copy of that release as well as reconciliations on a non-GAAP measures used in today's call to the Investor Relations section of our website under the heading financial financial than filings.
None of this morning's call the approximately one hour micro focus his comments on Q2 performance includes inclusive of the impact of the cobot 19 pandemic as well as catalyst for recovery by business, Dan will review the financials for the quarter and then we'll take your questions. During today's QNX session, Mike and Dan will be joins our chief Medical officer sector in Meredith.
Dr. Kim Dang.
And again 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 acquisitions, including Virtus lags and BTG in the relevant period for which there are no prior period related net sales as well as the divestiture of the global Embolic microspheres portfolio.
And the enter uterine health franchise on this call all references to sales and revenue unless otherwise specified our organic.
Finally average daily sales or adss normalizes sales growth for difference in selling days year over year also 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 word.
Include among other things the impact of the coded 19 pandemic upon the company's operations and financial results statements about our growth and market share new product approvals and launches clinical trials cost savings and growth opportunities our cash flow unexpected used our financial performance, including sales margins and earnings as well as our tax rate R&D spend and other Ics.
Senses July trends provided qualitatively referred to month to date results.
Actual results may differ materially from those discussed in these and any forward looking statements factors that may cause such differences include those described in the risk factor section of our most recent 10-K subsequent 10-Q's 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 has come.
Matt.
Good morning, and like you to everyone for joining us. They also want to express my gratitude to all of our employees at Boston Scientific who are helping serve our customers patients are communities. During the cobot 19 pandemic and living our winning spirit value every day.
The impact to the quarter buyers began to spread globally in first quarter. We took a number of cost related actions as outlined on our first quarter earnings call in the face of significant uncertainty to protect our employees and also to ensure the strength of Boston scientific.
Importantly, with a consistent monthly improvement in sales trends, we have accordingly, and as our reduced employee work schedule. We're accelerating key investments are properly probably increasing variable spending capex and we're quickly ramping up manufacturing production to pretty cobot levels throughout most of our plant network.
We're also establishing new and stronger capabilities and virtual position physician education remote clinical support and digital sales enablement to partner with our customers on this path recovery.
We absolutely appreciate the agility of our global team and we absolutely believe that we will emerge from the pandemic a stronger company.
I'll now provide detailed highlights on performance in second quarter 20, including average daily sales trends for the month of June.
I won't give specific July results, but it's encouraging to see that across all of our businesses July trends are continuing to improve nicely from June levels.
For the second quarter of 2020 total company sales declined 23% on an operational basis.
On a regional basis Asia Pac declined 14 in second quarter, but importantly delivered growth of plus 2% in China for the quarter.
In addition for the month of June China, Australia, New Zealand in Korea, all delivered year over year growth Europe Middle East Africa declined 26% in the second quarter, yet importantly, six countries returned to growth versus prior year in the month of June.
Finally, while revenue in the US drop the most in April down 55% to US is also seeing the sharpest recovery declining 12% in June on an EPS basis, and 28% in second quarter, both versus the prior year period.
Total company sales declined 29% on inorganic basis as trends evolve throughout the quarter that were in line with the previous outlook, we provided in our first quarter call.
April sales declines.
Was the trough with monthly sequential improvement in May and again in June so.
Specifically a worldwide organic revenue was down 47% in April.
24% in May and down 17% in June on an average daily sales basis.
Operationally interventional medicine contributed 320 basis points to sales versus prior year inverter Flex contributed 20 basis points before those sales when organic in June.
In addition, spec pharma sales of $68 million in the quarter was ahead of forecast and contributed 260 basis points to total company sales.
Adjusted operating income of approximately 250 million represents a 12.6% adjusted operating margin roughly half the rate of 25 and a half in second quarter 19.
Adjusted EPS for second quarter was eight cents, which was a 78% decline versus.
Second quarter 2019.
Much of the shortfall occurred at the gross margin level, given lower volumes, which Dan will detail further.
Now I'll turn the outlook for the rest of the year, while July housing and flare ups of cobot related challenges in certain regions. We're very encouraged by the strengthening trends we've seen in July onest those in June.
From a regional or perspective, we see various sales results based on the different phases of recovery with Asia Pac having to recover the most followed by the US and then Europe.
All told there is no change to the 2020 outlook. We gave on our late Q1 earnings call. We estimate that Q3 revenue will likely decline year over year bold improved sequentially versus second quarter may we aim to return to organic growth in fourth quarter.
Despite the procedure volume impact from Cobot 19, our businesses remained strong with a compelling global pipeline and several ongoing launches and recent approvals that are helping lead our recovery as well as the overall favorable mix of our business in terms of high acuity mix and outpatient site of care.
Recall that a binary split of elective emergence as that clearly reflect clinical practice that we have seen and expect to continue to see a higher rate of recapture of deferred procedures. Given the majority of the conditions retreat have a relatively high level of acuity and thus generally cappy deferred for extended periods.
I'll now provide some additional commentary and our business units.
Starting with urology public health sales declined 32% organically in the quarter with June NDS down 12% versus prior year and July trends are continuing to improve versus June.
Stone and prostate health franchises leather recovery and thus far we've seen a faster than expected recovery at our prosthetic urology and look forward franchise.
We continue to believe Euro ph, we'll have one of the faster potential recovery curves. In addition, we recently received positive guidance from the United Kingdom National Institute of Health and care Excellence called Nice for resumed recommended as their minimally invasive treatment for BPH, given the products effectiveness and significant cost savings.
Turning to Endo Endo second quarter sales declined 26% in June was down 10 versus prior year Adss.
This improvement trend continues into July as our business has a favorable mix, both relatively high acuity and outpatient side of service.
Trends in the quarter were led by resilience in the year ASCP procedures for the pancreas and bile ducts, such as total removal and tumor biopsies, which typically cannot be deferred more than four to six weeks.
We also saw nice recovery and upper endo procedures as well as Colonoscopies.
Our result launch was slowed due to cope with impacts in the second quarter. However, we are seeing increasing interest in exalt, the as recovery improves and the current pandemic emphasized the need for infection prevention.
In addition, CMS granted the transitional pass through payment for single use endoscopes, including the result, the which went into effect on July Onest and will facilitate Medicare patient access to this important technology in the outpatient setting.
So thats scope in the franchise is called Spyglass discover is created specifically for the surgeon call point and enables a single stage approach to treating bile ducts. It's also in limited market release in both Europe and the us with a full launch planned in the second after 20.
We believe that our therapeutic imaging portfolio of single use scopes represents a multibillion dollar market opportunity over time, we've accelerated investment to enable our strategy of launching one single use scope per year.
Turning to CRM second quarter sales declined 29% with both high and low voltage franchises down Similarly in June.
With average daily sales declined 20%.
In July trends have continued to accelerate in May we saw the release of two positive late breakers at HRS as both upper tier end and untouched studies continue to support growth of our SSD franchise.
Demonstrating the S&P system should be considered as a first line therapy for a broad group of ITD indicated patients.
In addition, we're excited to be launched our Lux Dx implantable cardiac monitor which is offer which offers a seamless patient interface and back end monitoring as well as the ability of your program remotely and have event detection settings adjusted without in person visit.
Electrophysiologist sales in the quarter were down 39% as this franchise has a high higher deferrable mix than CRM.
Any trends did improve fall within the quarter to down 20% in June on Ats and are improving further in July.
We have several new important product launches in Europe in the second half a 20 and we're in the limited market release of polar Rex, which is the second generation single shot cryo ablation catheter and we expect growth to accelerate in Europe as a move to full launch and second half 20.
We also recently received approval for stable play, which is our novel.
Novel, four cents in therapeutic catheter with direct access.
In the US we're encouraged by early launch feedback on direct sense, which monitors the effective RF energy delivery via changes in local impedance around the catheter tip after approval in mid April.
Turning to Neuromodulation second quarter organic revenue declined 43% and operational revenue declined 40, reflecting a higher rate of differ ability for spinal cord stimulation and deep brain stimulation procedures. As a reminder, neuromod sales declined 84% in April however, the business is returning very quickly within 11.
Present decline in June on an EPS basis versus past year and continued improvement in July.
We have received this by leveraging our digital competencies to maintain connectivity with patients and physicians as well as benefiting from side of service given the majority of all SCS trial procedures occur in the office or assay setting.
Turn to Flex is also enjoyed a nice recovery and then DBS the differentiation of our precise PC and gebbia directional systems continued to drive market penetration in June monthly sales exceeded pre cobot multi level seen in first quarter of this year.
And interventional cardiology second quarter sales declined 29%.
In June average daily sales declined 24% with all three franchises improving sequentially from May in those trends have continued into July.
With coronary therapies, we received approval for multiple new product launches across our major markets, including synergy XT and a 48 Miller millimeter version of the device also to enhancements to our road later, our atherectomy platform enhancements and PCIA guidance.
In favour, we continue to roll are accurate neo to use trial implant for limited market release in Europe, and the second half.
Lotus edge continues to see strong utilization within existing accounts, while new account openings and geographic expansion did slow and second quarter due to coated impacts and a slowdown in physician training.
June and July results with Lotus edge are encouraging and we continue to enroll reprise for and we expect to get back to our regular cadence of account openings in the us and continue our launch in Japan in second half a 20.
Turning to watchman, we've seen consistent improvements as the April trough, and importantly, an accelerated recovery throughout the quarter and into July.
We've also been encouraged by the resilience of watchman, and we're seeing a healthy mix of both rescheduled and new patient procedures.
Last week's approval watchman flex on the back of strong critical flex results in May as an HRS late breaking clinical trial, we look forward to executing a strong us launch of the second half of 20.
And peripheral interventions second quarter organic sales declined 17% and June average daily sales declined nine within improvement continuing into July.
Hi, overall has a mix of deferrable procedures similar to our coronary therapies that business.
And with it I see but with a higher mix of outpatient site of care.
Hi, guys resilience has been led by strong cadence of new product launches and looking ahead. We continue to anticipate a second half launch of Ranger DCP in us and Japan as well as launch of Eluvia DS in China.
And Venus, we launched a new controller fund Ecos system, while we're on track to launched several new products later this year to expand our category leadership position in this underpenetrated market.
Interventional oncology continues to perform very well in the second quarter Theres fears why 90 grew low single digits. Despite the cobot impact and continued to take share.
Additionally, within Io, we're focused on global lies in the portfolio along with launching the new heat FX microwave ablation system and the true select Microcatheter in second half of this year.
So overall the leave you with a few summary messages first we're very excited by the consistent monthly improvement in business trends and importantly, the continued progress into July.
We also have a robust case of new product launches that we expect across the portfolio in the second half of this year, including exult, the polar acts accurate neo to watchman flex and Lux Dx as well as a very healthy pipeline in 2021 and beyond.
Thirdly were also strategically deploying an investment spend to enhance our new launches and digital capabilities and fourth our strong position and compelling and venture portfolio enables us to continue develop further multiple high growth market opportunities.
All of which adds up to two exciting prospects for Boston scientific as an innovative interventional medical device company, well position and compelling markets due to our minimally invasive approach with important benefits for patients and healthcare systems.
You'll also find supplemental information regarding the second quarter trends 2020, new product launches and our financials within our financial and operating highlights tax on page 12 through 14.
In closing I'm very proud of the team of Boston scientific we have a very exciting future. It I'd like to thank our employees for the winning spirit now I'll turn things over to Dan.
Thanks, Mike the focus of my prepared remarks today will be to provide high level Q2 financial results and an update on PNNT trends and our capital structure, we will not be issuing Q3 or full year 2020 guidance at this time, but we will continue to provide as much transparency and disclosure as possible.
Second quarter consolidated revenue of $2.003 billion represents a reported revenue decline of 23.9% driven by the negative impact of the cobot 19 pandemic on elective procedures during the quarter and reflects a $20 million headwind from foreign exchange on an operational basis revenue declined 23.1% in the quarter the.
Net contribution from acquisitions and divestitures offset the declined by 560 basis points, which results in an organic revenue decline of 28.7% for the quarter.
Terrific for reflects sales in April and May contributed 20 basis points as the acquisition is considered organic as of June BTG sales contributed 580 basis points during the quarter and as we approach the one year anniversary of closing the acquisition it will become organic on August 15th.
The divestitures of our legacy embolic beats portfolio in intrauterine health business offset the BTG inverted flex contributions by approximately 40 basis points in the quarter. Despite topline challenges our immediate actions to reduce operating expenses enabled us to deliver Q2 adjusted earnings per share of eight cents.
Adjusted gross margin for the second quarter was 63.1% prior to Cogan, our expectations for adjusted gross margin would have been north of 70%. The Q2 result reflects lower production volumes tied to lower demand lower production results in unabsorbed overhead and therefore unfavorable manufacturing.
This is to provide more detail when plant production falls below 75% a threshold specified within our accounting policies. These negative manufacturing variances hit the PL within the period incurred in this case the second quarter when production is above that threshold any manufacturing variances our capital.
Lies within inventory on the balance sheet and realized over an approximate six month period, which is our average days inventory on hand, Depina impact for these unabsorbed negative variances in Q2 was actually quite significant over $120 million or roughly 600 basis points product mix also played a role.
Given lower sales of up more high margin products, such as watchman and spinal cord simulators.
As the Kobin recovery develops and sales continue to improve production volumes are also increasing back above our threshold and thus these unfavorable variances should decrease and margins will improve in the second half of 2020 looking forward as manufacturing manufacturing capacity improves and exceed 75, but is still below 100%.
Unfavorable variances would be capitalized with an inventory as I mentioned, resulting in a much smaller but lagging negative margin impact as inventories sold although product mix may continue to be a challenge. This smaller headwind from negative manufacturing variances should drive material improvements to adjusted gross margin approaching 70% in the second half of this year.
Second quarter adjusted operating margin was 12.6% down from 21.6% in Q1 of last year. This aligns with expectations outlined in April for our high decremental margin rate on lost revenue, including a sharp decline in adjusted operating margin in Q2 versus Q1, the decline was partially mitigated by temporary spend.
Reductions implemented at the outset of coded as outlined on our Q1 call while many appropriate reductions remain in place at this time, such as limited travel and meetings all offices and manufacturing sites are open and most R&D employees have been able to return to their labs.
We continue to balance the impact of lost revenue with strategic investment spend and we remain committed to innovation and developing our long term portfolio and pipeline.
Examples of this investment include additional headcount to support key programs funding for our watchman direct to consumer campaign and strategic R&D priorities, such as single use scopes and therapeutic imaging in the back half of the year. Our goal is for this balance to enable us to increase both investment spending and adjusted operating margin sequentially.
In Q3, and then again in Q4.
Our tax rate for the second quarter was 11.1% on an adjusted basis based on an operational tax rate of 12.4% and an approximate 100 basis point benefit from stock compensation accounting.
Our tax rate may have some favorable variability for the remainder of the year as our geographic mix of profits will depend on the timing and speed of the Kogan recovery.
Adjusted free cash flow for the quarter was $340 million and free cash flow was $203 million.
As of June Thirtyth, we had cash on hand $1.7 billion, primarily the result of our equity offering completed on may 27th, which I will detail shortly.
Capital expenditures for the second quarter were $68 million during the quarter, we limited spend to maintenance support we now expand expect to fund additional investment spend in order to restart certain plant expansions meet capacity needs and drive our value improvement programs, which should result in total capital expenditures of approximately 350 million.
Dollars in 2020.
In Q2, we completed three financial transactions that have increased our access to cash addressed debt covenant risk and reduced both near term debt maturities and net debt leverage as a reminder, the April bank deal amended our bank our debt covenants cleared our 2020 maturities and increased liquidity from $1.8 billion to too.
$6 billion in mid May we completed a $1.7 billion bond offering enabling us to refinance term loans due 2021 at very favorable rates and paydown remaining borrowings on our $2.75 billion revolving credit facility. Lastly, we raised approximately $2 billion in equity in late may the common stock offering.
Resulted in the issuance of 29.4 million shares we ended the second quarter with 1.4 to 4 billion fully diluted weighted average shares outstanding for the purpose of adjusted earnings per share an increase of approximately 10 million shares compared to Q1 as the issuance was completed with just about one month remaining in the quarter.
The mandatory convertible preferred stock was recorded an equity on our balance sheet and the associated 5.5% dividend is presented as a reduction to net income to calculate net income per common share to date. We've used proceeds from this offering to pay down the remaining $750 million of the term loan due April 2021.
The balance will be used for continued investment in the pipeline and long term capabilities of the business, including R&D programs and opportunistic M&A outside of such investments, we expect to maintain approximately $300 million in cash on hand.
We believe these transactions strike the right balance of mitigating risk strengthening our credit profile and enabling enabling us to continue to execute our tuck in M&A strategy in support of category leadership, while managing through the uncertainty of Cobot. These capital structure actions also resulted in many puts and takes to interest expense, which ultimately net to a minor impact.
Coming into the year, we expected adjusted below the line expenses to totaled 400 million to $425 million and now expect to be slightly above that range for the full year 2020.
With respect to our mesh litigation, we continue to make progress towards finalizing all significant existing contingencies and now have less than $90 million left to pay into the qualified settlement funds.
Since March we believe we have taken prudent measures to manage cobot challenges effectively while the duration and scope of the pandemic is still unclear. We continue to believe in the excellent long term fundamentals of our company and we'll manage through these challenges with strategic focus and the winning spirit of our talented global team. Thank you for your time and thank you again to our shareholders are.
Please and the global Finance team. Please check our Investor Relations website for Q2, 2020 financial and operational highlights, which outlines more detailed Q2 results, including the capital actions discussed with that ill turn it back to the will moderate acuity. Thanks, Dan Greg definite questions Pfenex 25 in 30 minutes or so now in order to name.
To take as many as possible season yourself to one question and one related follow that 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. We 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. Please press one zero at this time and one moment. Please for your first question.
Your first question comes from the line of Bob Hopkins from Bank of America. Please go ahead.
Oh, Thank you and good morning can you hear me okay.
Hey, if I want to great. Good morning, so thanks for the detail I really appreciate it first question I guess is happy to hear that July continues to improve over the over June.
On a selling day basis rate I'm. Just curious was July also better in the United States versus you. Despite the cobot flare ups were seeing in the us.
Yes, so as we laid out we've seen and really nice recovery in the U.S.
A fast recovery in the us than than Europe, and really across each business as we've outlined in the script as well as I did you see the the June results by business as well for the whole for the whole quarter, but.
June was a nice acceleration for may and.
We're not quite done with July, but we've seen a very nice acceleration from in July early across the board each business versus June so.
Really nice recovery, so far in the us.
I see the some states that have some flare ups.
So I wish is suspended our guidance, but it appears that the hospital systems are doing a much better job of.
Parallel path in managing coded patients and doing important electra procedures, which patients need and so we've seen that very nice consistent recovery with these sequential improvement.
Okay.
And then thank you for that and then also just I think a lot of people would like to try to get a sense for what percentage of the procedures that are currently being done.
Just trying to get a sense for what's driving the growth do you have any sense as to what percentage roughly of your procedures are sort of rescheduled versus new demand and then regarding the guidance, you're giving for the fourth quarter.
Does that assumption of a return to growth.
Do you assume more rescheduled procedures and happening in Q4 or is that pretty much all new demand by the time, we get to the fourth quarter. Thank you.
Yes.
Certainly by the time to get to the fourth quarter. It would be more more weighted to new demand versus today clearly because we've we've laid out despite that many of our procedures are elective that can't be deferred that long. So I think thats part of the reason you're seeing the.
The improvement in our sequential sales per month.
Which is encouraging and to your first point, we have seen.
Take watchman and Neuromod for example.
Doctors clearly working the backlog of patients and many doctors working extra hours and sometimes weekends, but because of our digital capabilities. We're also able to track new patients into the funnel. So we've seen a strong balance of new patients in the funnel that are working to get procedures done or in process as well as working the backlog so.
It's not as of.
Yes. The June it May June July improvement, it's just been backlog only we have seen a healthy new funnel based on the digital capabilities that we have.
Great. Thank you very much Mike.
Yep.
Your next question comes from the line of David Lewis from Morgan Stanley. Please go ahead.
Good morning, Thanks for taking the question just two for me, Mike just starting with you I think across the spectrum people become concerned about sort of companies with growth oriented pipelines are very heavily weighted to pipeline. So can you just discussed.
During cold here the impact that it had on Proctoring you got multiple new products the impact on sort of new product adoption in sort of as you think about the l. RP over some multi year basis, 6% to 9% heavier views just given what you're seeing a new product adoption changed as it relates to getting back to upper single digit type growth and then at a quick follow up for Dan.
Sure I'd always rather have a stronger pipeline that not cove, it or not covitz I think we fall in that category, we have a very strong pipeline.
Some of our products are the new launches are far less impacted by Covidien some have been somewhat impacted.
So products like.
Flex, which will be limited market release very quickly here in full launch in fourth quarter.
We're quite confident that given the the trick training capabilities for our clinical team the strong clinical data products like a DCB, which we expect to be approved in the second half.
We think will be a pretty seamless launch irrespective of coated products like cryo that we're launching in Europe similar because physicians are very used to that procedure. The procedures that have been the new launch that have been impacted more significantly specifically in second quarter. Although we have seen improvement in the second half in June.
And the full month of July really our products like Lotus and Axalta, SEC, which do require a.
Lotus another level of physician training when you're opening up new centers.
So we have seen some improvement in that very recently, but the current centers are used in a device quite consistently and exult de there clearly was a slowdown in the second quarter of opening centers given the some of the capital equipment that required as well as training, but again, we have seen some improvement there. So overall we.
You have a very strong pipeline.
Some of the launches potentially would have less impact clearly have lessened benefits in the full year 20 than they would have pre co bid, but many of our launches artist clinically.
Intensive in terms of Proctoring and training.
Okay, and just could cross media might be does that make you think any differently that sort of upper single digit growth across sort of the l. RP and then for Dan. Thanks to the commentary on gross margins are manufactured in the second quarter, but as you look beyond the next six months or so Dan is there any reason to believe that.
Future year next year gross margins can't get back to 2019 levels. As you think about cost structure in a post kobin world any reason to believe that sort of 50 to 100 basis points type expansion you can't be achieved on an underlying basis. Thanks. So much.
Yes. The first one the comps are going to be very challenging with 2020, and 21 and so forth for all companies or at least for us, but the underlying premise of Boston scientific growing.
The high end of the peer group and we talk about a 6% to 9% growth rate in the past, but now the comps are bit messed up but given the pipeline that we have the momentum that we have most of our businesses continued to gain share versus their peers.
The expansion into new Jason sees that we have.
We're very comfortable nothing's changed in terms of our outlook on.
The high end of our peer group and then legacy words that 6% to 9% pre this comp issue. So I think the portfolio supports that we're very encouraged by the sequential improvements and the related jalene of our team.
And then David relative to your question, obviously too early just given the uncertainty to start commenting on non 2021 and beyond let me see if I can be helpful relative to the specifics because you started to gross margin and ended at operating margin from a gross margin perspective to the extent that sales get back to a more normal level as we continue to output quarters behind US you leave those admiral.
We'll variance is behind you because they're in the piano in the quarter that they are encouraged so thats. Good news and then it becomes what happens with pricing what happens with our ability to reduce manufacturing costs and what happened to the mix of the business. So thats bus do that would take that back above the 70% that we talk about for the for the back half of this year in terms of our gross margin. So, we'll see where that trends as we head into 2020 want to be.
John and then similarly on the on the Opex sides of the next.
Item on the weight operating margin will have some things we will have to spend some more money digital capabilities as Mike mentioned already seeing some some nice benefits from that I believe will obviously have some some nice.
Well wins relative to travel and meetings and other things we won't spend as much. So as we go through our 2021 annual operating plan process here over the next few months, we'll be looking at that gross margin line in terms of what the components are how that'll play out and also within the Opex lines and that will tell us the trajectory of that operating margin line.
Your next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.
Good morning, Thanks for taking the question one on single use scope one on spec pharma, Mike. So competitor recently got approval for their single use duodenoscopes they plan to price it at a 40% discount.
Two exult B I really haven't done any clinical cases, yet, but that's a large discount Mike how are you thinking about your pricing strategy for exult. The and in addition, any update on the launch date for the single use bronchoscope is that the 2021 single use scope approval and add one follow up.
Yes, so on the exult the.
This is this is a.
A complex procedure that.
Physicians use and indeed, the elegant device and so our team spend multiple years, given the experience of spyglass and lithovue to create this and more importantly to create a product that.
Looks in handles like a reusable scope, which requires significant engineering to ensure our team feels very comfortable with the clinical benefits and capabilities of our scope versus the competitive scope.
The pricing I will comment on the pricing you can always bring pricing down if you need to but we feel the pricing matches the.
The clinical benefits and uniqueness of the exalted terms of its features and we're also very recently benefit as you are where with the outpatient additional.
Payment that was received for exult. So we're very early in the launch.
Im always has the option to modify pricing.
Like the pricing is appropriate given the benefits.
We expect physicians a few of the product in terms of the bronchoscope plan for you've actually accelerated investment in that area.
The next plant for a 2021 target launch and that scope.
Different from the Duodenoscopes I would say is less complex.
Engineering to manufacture than the Duodenoscopes, So we're quite confident and the timing of the bronchoscope in 2021.
Thanks, Mike and then of course, there media reports about you sell your spec pharma business, which did not come to the surprise, but it's a profitable business with a relatively high operating margin.
How are you how should we think about dilution potential dilution or ability to offset if you were to sell that business. Thanks for taking the questions.
Yes, so that business continues to perform very well as we've said in the past at.
There's a very excellent leadership team they continue to deliver against the targets, but we wouldn't comment any further on any speculation about selling the assets just like we wouldn't with and the other asset we have within the company.
Understood. Thank you.
Larry.
Your next question comes from the line Robbie Marcus from Jpmorgan. Please go ahead.
Great. Thanks for taking the question I'll ask both mine together is it's a bit longer but.
Looking at core I see in structural heart along with.
Ian in CRM, there there was a bit less of a recovery from April to June and some of those particularly structural heart had some of your most important growth products going forward I was hoping you could just talk about the current dynamics there what's the what that's looking like going forward should we expect a fan.
The recovery allow these patients can be put off forever. As you mentioned a couple times, how should we think about those going forward and should we see that.
Trying to catch up to some of the other performance metrics and then just spend a minute on what youre seeing in the structural heart, new product launches, particularly tapper and watchman and how we should expect those trends to improve going forward. Thanks.
Sure.
Just broadly.
All of them have improved each month.
April May June some of the businesses were down farther in April faster back in June like Neuromonitoring.
But we're encouraged by the overall I see improvement trend April May June and consistent with all our businesses nice improvement in July.
As structural heart.
We had we didn't breakout each month within the product categories, but watchman did have a larger impact and the trough in April but we've seen a very nice consistent recovery as I mentioned in the script throughout second.
Throughout the second quarter.
And also a very nice improvement in July so really encouraged about the the watchman momentum that we're seeing and as I mentioned before the TAVR new openings were impacted more significantly in the second quarter. So we are so we are starting to see the gates opened up a bit more in terms of new account.
Openings with Lotus and we're going to be launching the accurate neo to device in Europe and the second half. So we have seen improvement again and whatever our structural heart portfolio.
Particularly in June and July from the from second quarter.
On the on the portfolio side.
We got some important launches obviously with accurate neo two scheduled launch in Europe in the second half are excited about that Sentinel continues to perform very well and we continue to enroll in the us on our intermediate risk trial with Lotus as well as our us trial with accurate neo too, but obviously the most exciting.
Thing for US is the next generation watchman device.
Which recently it was approved.
Excellent clinical data.
It was our fastest enrolling trial that we've ever had as a company and we'll begin our let me.
Our initial launch very quickly here, we expect to go to a full launch mode in fourth quarter. So kudos to the team for excellent engineering with that.
Cynical team did a great job in the trial.
And we're very bullish on the future of watchman franchise with the second generation, which we expect to be in the market likely a year or potentially more prior to the next generation competitor coming.
Appreciate it thanks.
Your next question comes from the line of Rick Wise from Stifel. Please go ahead.
Hi, Good morning night, Okay. Thanks, just two quick follow up on Boston loves the well done.
We've heard starts.
Concerned.
About the referral.
The slowdown headwind in terms of driving Watson volumes.
And so Justin.
The recovery.
Wow, what's your thought about.
Ken referral.
That's correct.
Thats flex watzman back to recoup those levels do you think as we contemplate the next.
Months post launch.
Or does the big celebrate.
It's celebrates franchise back to more normal growth.
Yes, so on the.
On the.
First question of watchman with the kind of work into backlog or new referrals, and we've got a pretty sophisticated digital ecosystem around watchman, we have therapy awareness reps, who work with physicians to educate them on the benefits of watchman.
And we have various digital channels.
Two also help the physicians and so those capabilities are showing that.
It's more than just working the backlog we have seen new patients entering the system that are getting out watchman procedures.
So hopefully that trend will continue.
And we're seeing that despite some of the headwinds we're seeing it coated in certain regions. So we're seeing a nice balance of work in the backlog and new patients coming in.
Currently.
With watchman flex.
I can't really comment as to.
The guidance on that one except for this is a product that has done extremely well in Europe. The clinical trial enrolled enrolled very quickly and dr. murders can comment further if you'd like but it offers related the clinical data was very strong and we also think the safety benefits that it provides will encourage that.
The current users, but also potentially more and more users to use of the flex device.
You Didnt come out with the customer you.
On the very nicely not you know the result, threeq at the clinical flex trial excellent safety and efficacy from the Devoss.
Alright stealing capability at 12 months.
And so along with the be patient and physician education that Mike mentioned before we also looking at ways to prove the procedure. It's true more minimally invasive approach with the without the use of transit self Agila Echo and.
And anesthesia, so those levels of improvements and of course, we're continuing to expand the evidence base throughout clinical trial. So the answer too.
Keeping watson.
Advancing is really that full pronged parts the physician patient education procedural improvements.
The device improvements reflects and of course, the evidence generation strategy, which is very sophisticated so we're very confident that way, but the rot full pronged approach to advancing watchman.
Just a quick follow up Mike.
You highlight.
A couple of.
Outpacing.
Initiative.
This franchise.
Okay and focus on the outpatient opportunity.
It.
Maybe talk a little bit about your evolving.
Well the ball, but thinking about getting after the outpacing opportunity.
If you did in May.
Cobot recovering world. Thanks, so much.
Yes, so it's a big part of our business now.
With specialty divisions like on Neuromodulation urology peripheral interventions. So it's a bit makes a big slice of our business today in a pickup in world and now at a coven world you're seeing hospitals.
No not radically, but but shifting more procedures that are possible to an outpatient setting and so we think that makes sense.
Given the fact that wary, primarily interventional medicine company, we think Thats, a long term tailwind and where you want to be positions.
Versus potentially more of a surgically oriented company, we're trying to really disrupt surgical with less invasive approach, especially at our our endo business. So we think long term, it's the right position for the company to be in and many patients prefer the outpatient setting.
At hospitals are shifting as appropriately some of their mix that setting. So we think thats all favorable for Boston and strategically the direction we're headed.
Thanks.
Your next question comes from the line of Vijay Kumar from Evercore ISI. Please go ahead.
Hey, guys. Thanks for taking my question I had.
One that guidance in one big picture on the guidance here.
I think I saw the July Mds that trends average daily.
In Dan. Thank you made some comments around.
Extend level speaking up.
Im just curious.
What part is travel related liquid is coming back when you think about the back half.
Sure just specific to the July run rate now, we just talked qualitatively above that we didn't give a specific number on that just again in keeping with the trend that July trends have improved nicely across each business and region from from June. So we didn't put a number to that on the Opex side I think there's the reality of where we are.
Is that Congresses, and trade shows and travel both internal and external.
Customer facing is obviously returned.
Much more so than than it would have been and nine Q2, but.
The likelihood that for many quarters to calm I think we're not going to see the level of travel that that we would have traveling meetings entertainment that we would have as a company. So I look at that as an opportunity as we go forward for us to to redeploy that spending into.
The spending thats going to help us via a better company in a coven world and a postcode world as Mike as detailed some of the new capabilities and skill sets that that we're developing.
Gotcha, and Mike one Big picture view.
And just remind me on one.
BTG most of the cost synergies were related to either way. So am I correct, where we are on the cost synergies I think on its we are run rate basis, where we are I think that a secondary offering along the same way and had some commentary about open opening up the dollar for tuck in M&A I'm curious.
Have you guys see many opportunities or perhaps.
Talk about bochco itself.
Yes that would be interesting to Boston.
The BJ can take the BTG synergies and Mike and take the next one not we're on track for that we set out in 75 million by year three.
The majority of those kind of three quarters, plus where cost and very little on the on the revenue cycle for able to to beat the the revenue ones, but largely on track with what we said it's time to deal.
Yes, and M&A or whatnot too much to comment on there.
We're always looking for strategic deals that.
Advance our strategy as compelling financials like we always do.
We continue to strengthen our VC portfolio in particular and during that maybe the last three or four months, we've been more active in that area with us some new investments and follow ons to put us in position to potentially look at tuck in opportunities from that VC portfolio.
But we also certainly scan other options. So really no change we continue to look for the right opportunity.
With the REIT strategies, these strategic fit as well as.
Strong financial returns, but I wouldnt comment any further than that.
Thanks, guys.
Your next question comes from the line of Matt Taylor from Yes. Please go ahead.
Hi, Thank you for taking your question.
So I appreciate all the its own.
In July.
More than we've gone from along with other companies and I guess I'm just wondering if you're positivity.
July is.
You think differentially related to your portfolio your products your exposures or are we seeing just the benefit of having more we're hindsight and you think that we're seeing more broad.
Recovery through the month or at the Med Tech space.
Yes, I think it's.
And we obviously didn't provide the numbers we have seen improvement in July versus June.
I think it's likely a combination of many of our procedures can't be deferred forever like we've commented in the first quarter calls I think thats playing out.
Many hospitals.
And patients are aware that they need to have procedures done and hospitals are doing a really nice job managing coated to the best they can and continuing to do a successful safe elective procedures.
And so I think is really a combination those too and so I think a portfolio mix helps.
The outpatient care setting helps and hospitals and patients D. these procedures in there.
Finding a way to co exist, but there are impacts you know when you have Florida.
In Texas have flare ups like us.
There is still doing procedures, but it does does have some impact so thats why weve continued to suspend guidance because its.
It's not all perfect out there to hospitals are struggling you're seeing flare ups and so that's why we're very optimistic but we're also remain cautious given that.
Okay.
One follow up in the supplemental presentation in the prepared commentary you talked about being able to resume normal pace of account openings for Lotus and restarting a lot of your clinical trial activities that also seems.
Encouraging and I guess I was hoping to get some color on how you're able to do.
The cobot flare ups because that does not apply in the face a bit but seems like you're optimistic you'll be returning to more normal base here.
Dr. Meritas can comment on that I can comment on that so we're seeing signs of a proof recruitment in the reprise bullet trial now that the intermediate Bruce study of Lucius Page. We're also seeing steady improvement in the accurate.
The randomized trial, because it depends on the senses adaptability that Mike mentioned.
I mentioned before are they able to.
Position the.
Patients to be free.
Any exposure to covert how theyre actually.
[music].
How theyre actually conveying that information to benefit to patients.
So those two trials are doing very well, we're seeing continued improvement in the Sentinel recruitment.
For the Embolic protection, which is a very good sign so I think it varies from say to Santa but overall the date is.
They have that we are.
Generally improving the recruitment need today studies and I think it's up the level of digital supported remote monitoring other activities that way.
Doing to help these centers.
Continue they recruitment, but it's a standby syndicate.
Decision, making process.
Okay, great. Thank you very much guys for them.
Okay.
Your next question comes from the line of Joann went from Citibank. Please go ahead.
Good morning, everybody.
Yeah, we're in the sake of.
The current world, but I want to spend a minute.
Good World I have to look forward.
Is there anything that you see that's happening today that changes the fundamentals of Boston My intent back fundamentally whether its revenue growth operating margins over the balance sheet needs and I'm going ask my second question at the same time 2021, your chock full of new product launches as you think about those mortgages is there anything.
It makes you more excited or less excited or change the way you think about lumpiness products and training physicians. Thank you.
Yes, so I Joanne I think the opposing open world.
Try to remember I think what that would be like but the post coated world as a where my mascara.
And really just kind of repeat some of the trends I have I think the fact that we are interventional medicine company that.
It's always enabling.
Less length of stay in a hospital and all the new adjacent Cds that are being created through interventional medicine and look at what's happened interventional cardiology, how we're expanding it inner vessel.
Im sorry, interventional cardiology interventional oncology.
The patients we adjacent says we haven't endoscopy.
I think the factor Interventional Medicine company and we can continue to find Natalie grow share in court current businesses, but these new adjacent sees that we continued to enter so thats. The long term strategy I don't think that changes in a post cobot world and we continue to develop our global footprint.
China continues to perform very well for us and.
We continue to layer on that strategy. So we don't see that strategy and our portfolio mix changing.
Post coded because as working pre co bid and that pipeline. We have is very strong.
In terms of.
Launching new products I think the big common theme will see with most companies is just the acceleration of digital you know what's happening with tele health with physicians.
The acceptance of digital training.
As it is certainly accelerated the past 90 days, whether be remote proctoring remote service support remote clinical support.
So I think the capabilities all wrapped around digital.
We will enhance product offerings potentially.
Make it less less expensive.
And in many cases, you need a clinical sales people involved in the procedure, which we're fine with but I think wrapping these digital tools and enablement, providing remote service capabilities remote proctoring.
Our new capabilities that have been accelerated because of it.
And then I think you and just.
Obviously, we spent a lot of time in the moment managing within a kobin world, obviously weathering the storm I think pretty well, but we obviously spend a ton of time as well looking at that postcode world and fundamentally.
What we look at is doing what we've done so well over the last six or seven years, which is growing revenue faster than our peers, expanding operating margins and delivering strong earnings per share growth. So no change to that end in the background here, we're working on that and although focused on Q3 in Q4.
Be confident that we're also focused on 21 and beyond.
Great, but that we'd like to conclude the call. Thanks for joining US today. We appreciate your interest and a free disconnect. Greg can you. Please give the pertinent details for the replay.
Thank you ladies and gentlemen, this conference will be available for replay after 12 30 eastern time today through August 12.
You may access the 18 T. executive replay system at anytime by dialing 1866 to six 710 for one and entering the access code 71944 Fivenine.
His numbers once again, our 186 620 710 for one with the access code 71944, Fivenine that does conclude your conference for today. Thank you for your participation and for using 18 to teleconference. You may now disconnect.
[noise].
We're sorry your conference is ending now please hang on.