Q3 2020 Boston Scientific Corp Earnings Call
[music].
[noise] good morning, and welcome to the Boston Scientific third quarter earnings Conference call.
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I would now like to turn the conference over to Susan Lisa Vice President Investor Relations. Please go ahead.
Thank you Andrew Good morning, everyone. Thanks for joining me on today's call are Mike Mahoney, Chairman and Chief Executive Officer.
And Dan Brennan Executive Vice President and Chief Financial Officer, We issued a press release earlier. This morning announcing our Q3 2020 results, which included reconciliations of the non-GAAP measures used in the release.
We have posted a copy of that release as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading financial then filings the duration of this morning's call will be approximately one hour Mike will focus his comments on Q3 performance inclusive inclusive of the impact of the COVID-19 pandemic.
As well as future catalysts and the general outlook for our 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 joined by Chief Medical officers Dr. in Meredith and Dr., Ken Stein before I begin I'd like to remind everyone that on the call operational revenue excludes the impact of foreign currency flood.
Relation and organic revenue further excludes the impact of certain acquisition acquisitions, including BTG. Due August 15th as there are no prior period related net sales as well as the divestitures of the global Embolic microspheres portfolio and the entry uterine health franchise on this call all references.
The sales and revenue unless otherwise specified our organic finally average daily sales 80, S. normalizes sales growth for a difference in selling days year over year.
No. 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 the impacts of the COVID-19 pandemic upon the company's operations and financial results statements about our growth and market share new product approvals and launches clinical trial.
<unk> cost savings and growth opportunities, our cash flow and expected use our financial performance, including sales margins and earnings as well as our tax rates R&D spend and other expenses.
After that may cause such differences include those described in the risk factor section of our most recent 10-K and subsequent 10 Qs filed with the FCC. These statements speak only as of today's date, and we disclaim any intention or obligation to update them at this point I'll turn it over to Mike for his comments like Suzy and thank you to everyone for joining us today.
This report that we made significant progress in third quarter with excellent commercial execution and strong clinical adoption across our category, leading portfolio as we build new capabilities and few or new product launch cadence.
Good afternoon invested a promising future and are confident that this will be able to continue to grow at the high end of our peer group.
For property margins and delivered double digit adjusted EPS growth and strong free cash flow for the long term.
The third quarter operational sales declined 2.5%, an organic sales declined five another 5.7% normalizing for currency and the divestiture of both our intra uterine health business and legacy based business as well as excluding the contribution of BTG through August 15th.
Importantly note that the organic revenue results include the negative 230 basis point impact related to sales return reserves in the quarter as we strategically shifted to the consignment based model for our loved neutral appendage closure franchise with the launch of our next generation Watchman flex device in the U.S.
I'll provide more detail on the strategy and the success of the watchman flex launch in a bit.
I'll offer highlights of our performance the third quarter 2000.
Every region and every business segment improved sequentially versus second quarter in many countries returned to year over year growth in third quarter regional performance improved significantly it was very consistent around the globe.
USL declined for Europe Middle East Africa also declined three and Asia Pac Eclipse for.
We delivered growth in China for the second consecutive second consecutive quarter, plus 2% growth in third quarter on an organic basis.
This China growth includes a negative seven under 70 basis point impact from sales return reserves for channel inventory adjustments in anticipation of the upcoming national tender and drug Eluting stent and fourth quarter.
Try that strong sales and complex PCI, including imaging rhythm management peripheral interventions structural heart and urology public health and our Swift progress diversifying the portfolio and are these high growth markets means that yes will represent approximately 10% of our China revenue in 2020.
We expect our China business to accelerate growth in fourth quarter, and we're targeting double digit growth in 2021, including the D.S. tender related impact.
This regional sales performance was mirrored with a balanced a sharp recovery across our business units.
<unk> delivered 2% growth in the quarter Euro public health Neuromod, Endicia and endoscopy revenue all declined one to minus three seats.
CRM was down four and he was down seven.
Interventional cardiology is organic 17% decline includes more than 10 percentage points of negative impact related to the combined sales return reserve for transition to watchman consignment, and China, DDS tender, which are 63 million and 10 million respectively.
Specialty pharma sales of 74 million in the quarter were in line with our expectations down mid single digits year to date.
Adjusted operating income of approximately 620 million represents a 23.4 adjusted operating margin nearly double our second quarter rate and down 270 basis points year over year. This.
This two includes a negative 170 basis point impact related to the transition to consignment for watchman franchise.
Adjusted EPS for third quarter was 37 cents, which includes a six cents tax benefit that Dan will detail.
Now to turn the outlook for fourth quarter trends continued to evolve largely as we expected with worldwide organic revenue improving sequentially in third quarter, even in those regions experiencing kobin flare ups.
We aim to return to organic revenue growth in fourth quarter, excluding the impact of the ship to consignment for watchman and with the obvious caveat of cobot uncertainty.
From an adjusted operating margin standpoint, we are targeting a similar rate in the fourth quarter again, excluding the impact of the shift to consignment for watchman.
Our businesses are strong with a compelling global pipeline and multiple ongoing launches with the recent approvals that are helping lead our recovery.
We're also benefiting from the overall high acuity mix of our business inside of care it.
Admittedly determining the remaining backlog are estimated to new patient funnel remains a challenge and varies by business and region.
We believe that we have worked through a meaningful portion of our patient backlog given the acuity profiles of our technologies. We're also encouraged by the ability of our customers to manage cobot, while performing electric procedures as well as improvement in new patient referral rates, which are still slightly below normal levels.
We have confidence that across the portfolio, our broad product launch cadence will help offset these challenges.
I'll now provide some additional commentary on the business units.
Euro pelvic health sales declined 1% in the quarter normalizing for the entire year and health divestiture sequential improvement was led by our stone and prostate health franchises with Lithovue resume and space or all adult all growing double digits in third quarter.
Notably resume achieved its highest sales quarter ever supported by our differentiated five year clinical data.
And we target ongoing improvement with new launches such as space or view in the us as well as the benefit of a higher office AMC mix for a more elective procedures.
For Das Kobi third quarter sales declined 3%, reflecting the favorable mix of both relatively high acuity and outpatient assay side of surface.
Heads in the quarter were led in the us by sequential growth in our hemostasis and build aerie franchises a.
Along with infection prevention, which grew double digits in the quarter.
We continue to see good resilience in ERP procedures for the pancreas and bile ducts, such as stone removal and tumor biopsies.
Our results the launch is accelerating with over 100 accounts opened globally and encouragingly early early trends from the transitional pass through payment granted by CMS that went into effect July onest in the outpatient setting.
We also completed the limited market release of Spyglass discover with surges enthusiastic about us direct visualization, and resulting ability to treat patients effectively with a single stage approach.
Thus, enabling fewer interventions and shorter length of stay in the hospital.
We continue to target a launch of our single use product scope in the second half 21.
In CRM third quarter sales declined 4% with high voltage sales down three and low boats as both low voltage sales down 7% for the quarter.
We continue to believe that our 2020 CRM performance will be roughly in line with the overall market.
And importantly, our Lux Dx implantable cardiac monitor is off to a strong start given the seamless patient interface and backend monitoring plus the ability to be program remotely and that event detections settings adjusted without it in person visits.
As sales were down 7% in third quarter with trends showing strong sequential improvement we've been very pleased with the limited market release of polar Rex, which is the second generation single shot cryo catheter and we'll move to full launch in Europe by year end.
Peace base remains one of the largest fastest growing markets in medtech and we're excited about our strengthened to portfolio, including our recently announced expanded investment in the irreversible electroporation field with parables.
Of note, we have elected to discontinue further development and clinical investments over Apama luminous RF single shop alone.
In Neuromodulation organic revenue declined 3% as the business has returned very quickly to serve patients in need aided by our broad portfolio digital capabilities and site of service, we've seen a nicely balanced procedure recovery across RF, Vertis flex and SCS as we execute our category leadership strategy and pain.
We're also pleased with our recent weighted brighter alpha launch in Europe, which offers the contour waveform with up to 32 contacts MRI capability and Bluetooth connectivity turning.
Turning to deep brain stimulation, our precise PC and JV a directional systems continue to drive market share gains addition.
Additionally, the recent launch of our precise genus platform expands our capabilities in both the primary and Rechargeables segments with full body MRI capability and new Bluetooth capabilities.
Gene this builds on our innovative foundational technology design to offer multiple independent channel control directional capabilities and integrated visualization of the patients brain structure for optimal programming and outcomes.
Turning to interventional cardiology Q3 sales declined 17% organically, which includes more than 10 percentage points of negative impact related to sales return reserves for the transition to consignment for watchman and upcoming China National tender.
Within a corner therapies, new products like the MABA Microcatheter imaging products, such as comment in the Vigo and the synergy XD and 48 millimeter drug loonies fence continue to drive performance in the space.
TAVR sales grew both year over year end sequentially as we continue to focus on the EU launch of accurate neo too and us I'd enrollment as well as continued us in Japan rollout of Lotus edge and us intermediate risk trial enrollment right.
We're also pleased with the consistent progress of our Strubel Embolic protection device Sentinel, which grew over 20% in the third quarter.
As disclosed that our TCT webcast earlier. This month, we now expect us approval for accurate Neo two in 2024, as well as Lotus edge indication expansion into intermediate risk and 24.
Our next generation accurate neo too is launching in Europe, and now offers low pvl rates best in class pacemaker maker raids and great hemodynamics.
Lotus edge all offers predictable control with a platform that may be fully recapture and reposition that in time.
We believe both files offer distinct benefits, while subtle as uniquely demonstrated a reduction in stroke rates during TAVR procedures in both as I'd and numerous large registries.
Returning to watchman the franchise experience, a very robust recovery in third quarter with low double digit growth excluding the impact of the sales return reserve.
Our us limited market release of Watchman Flex has gone extremely well with exceptional physician feedback and we have moved into full launch ahead of schedule and we're targeting to complete conversion to flex by mid 2021.
We believe the strategic shift to the consignment based model strongly complements the launch of this highly clinical clinically differentiated product we are purposely making this investment given the significant potential for flex growth.
Moving rapidly to consignment model will enable us to better support customers and drive committed share agreements, while accelerating the conversion to watchman flex at a price premium.
All of which enhances our competitive position and further strengthens our market leadership.
We are exceeding our flex contracting goals, thus far entirely completed the vast majority of the shift to consignment by year end 2020, which will result in a slightly larger headwind to revenue growth in Q4 than Q3.
Turning to PPI organic third quarter again, Acs sales grew 2%, reflecting overall favorable mix of high acuity and outpatient site of care for procedures as well as a category leading portfolio and strong cadence of new product launches.
Note the BTG interventional medicine portfolio grew high single digits on a pro forma basis in third quarter.
All franchises Npis delivered growth in the quarter arterial venous and Io with particular strength in drug eluding Io in China.
We also continue to anticipate to eminent launches ILUVIEN, China and Ranger DCB in the us with Ranger, Japan launch targeted for 2021.
Voyager pad, which is large study with long term follow up an adjudicated outcomes presented at TCT. Early this month showed no association of mortality with Paclitaxel coded devices and should further accelerate the growth of this important category, where we are uniquely positioned.
These results were solid highlighted by a sharp recovery in our very very costain therapy, and a new east coast.
System controller for pulmonary embolism patients.
Interventional oncology continues to perform very well as their sphere why 90 share gains. We've also moved to full launch for the true select Microcatheter.
TG became organic mid quarter and as mentioned at TCT, We expect to exit 2020, realizing $125 million up $175 million in originally targeted synergies ahead of plan and solely via cost synergies with upside from revenue synergies.
As we continue to expand the BTG interventional medicine product line globally.
I'd also like to highlight several important sustainability accomplishments this quarter.
Food and being named among the top 50 of America's most just companies by Forbes just capital for the second consecutive year. We ranked 38 overall second among all healthcare companies and number one overall for diversity equity inclusion.
Our efforts for combating climate change responses, social justice transparent customer communications and ethical leadership. We are also committed.
Am I teased loan management review glass door also recognize DSE as a culture champion Winnable and 21 company's name to this inaugural list. So as we continue our commitment to anti races in both actions and resources, including our important close the gap initiative to close the health equity gap in underserved communities through provider education and collaboration.
At this advocacy and society partnerships and patient disease state awareness.
So overall as I leave you with a few key points about our bright outlook.
We're encouraged by consistent quarterly improvement in business trends and resilience in the face of cobot flare ups we.
We have a robust cadence of new product launches across the portfolio such as watchman flex exult, the polar vortex accurate near to Waybright Alpha precise genus and Lux Dx.
Our pipeline in 2021 and beyond also positions us well in high growth markets with new adjacent fees and a portfolio that offers us access partnership and expansion of our customer reach.
We're strategically deploying investment spend to enhance our new launches and digital capabilities and our strong financial position and compelling venture portfolio enable us to continue to develop multiple high growth markets.
To close out 2020 and pushed to 2021, we remain highly confident in our long term ability to grow at the high end of our peer group improve operating margins delivered double digit EPS growth and strong free cash flow.
I am extremely grateful to our employees for their winning spirit and I'll now turn things over to Dan.
Thanks, Mike third.
Third quarter consolidated revenue of $2.659 billion represents a reported revenue decline of 1.8% and reflects a $19 million tailwind from foreign exchange on an operational basis, which excludes the impact of foreign currency fluctuations revenue declined 2.5% in the quarter.
Sales contributed 370 basis points prior to becoming organic on August 15th partially offset by the divestitures of our legacy embolic beats portfolio and intrauterine health business.
Excluding the net contribution of acquisitions and divestitures organic revenue declined 5.7% and includes a $63 million or 230 basis point headwind from the sales return reserve related to our conversion to a consignment inventory model for our watchman franchise with the launch of our next generation watchman.
Flex device here in the United States.
These sales results represent strong sequential improvement over the second quarter as procedural volumes continue to trend upward through the ongoing COVID-19 pandemic are rebounding top line and continued PNM discipline contributed to our Q3 adjusted earnings per share of 37 cents, along with a six cents tax benefit which was partially offset.
By a negative four cents impact.
From the watchman consignment sales return reserve.
Adjusted gross margin for the third quarter was 69.3% in line with our expectations to approach 70% in the back half of the year as we outlined on the Q2 call. The sequential improvement is driven by lower negative manufacturing variances slightly offset by the impact of the transition to watchman consignment.
As a reminder, Q2 production levels were below 75% of capacity, resulting in material manufacturing variances that were expensed within the PML in that quarter in Q3 with production levels above 75% in the majority of our plants unfavorable manufacturing variances decreased and were capitalized within it.
Tori on the balance sheet and will be recognized over a six month period corresponding to our inventory turns looking forward. We continue to expect Q4 adjusted gross margin to be in line with Q3 approaching 70%.
Third quarter, adjusted operating margin was 23.4% or 25.1%, excluding a 170 basis point headwind related to the watchman consignment transition. This was slightly ahead of our expectations given the trajectory of our revenue recovery in the quarter and continued PNM disciplined we increased investment spending while maintaining prudent Ajay.
Adjusted EBITDA and adjusted R&D rates of 35.9% and 9.5% respectively. Q3 also had some favorability related to timing and investment spend will continue to increase throughout the fourth quarter.
Based on these results, we expect Q4 adjusted operating margin to be similar to Q3, excluding the impact of watchman consignment in both quarters.
On a GAAP basis operating margin was negative 7.7% and includes a $219 million intangible asset impairment, primarily related to PAMA and a $260 million litigation related expense.
As Mike detail, we've discontinued the development of the Apama RF balloon and I'll provide an update on our legal reserve shortly.
Moving below the line our expectations for full year adjusted interest and other expense have not changed from our Q2 call to be slightly above the range of $400 million to $425 million provided at the beginning of the year.
Our tax rate for the third quarter was 31.7% on a GAAP basis and minus 3.5% on an adjusted basis, which includes an $88 million noncash benefit driven by this quarter's completion of the IRS examination of our 2014 to 2016 tax years and.
Favorable position compared to our reserves.
This resulted in a six cents benefit to adjusted earnings per share.
Adjusted free cash flow for the quarter was $870 million and reported free cash flow was $595 million driven by strong operating margins and improved working capital efficiency as of September Thirtyth 2020, we had cash on hand of $2 billion total liquidity, including available credit facilities.
These of $4.8 billion and a prudent debt maturity profile with no near term maturities.
During the quarter, we prepaid the remaining $250 million balance on our February 2021 term loan. This leaves us with no debt maturities until may of 2022.
Capital expenditures for the third quarter were $49 million. We continue to expect full year 2020 capital expenditures of approximately $350 million as we focus on certain plant expansions and projects to meet capacity needs and drive value improvement programs.
With respect to our legal reserves, we booked $260 million in Q3, primarily related to mesh inclusive of a reserve related to one time claims made by a coalition of state attorneys general.
Year to date, we have made cash payments of $30 million into qualified settlement funds, leaving approximately $85 million remaining to fund.
Outstanding individual plaintiffs claims.
We ended Q3 with 1.445 billion fully diluted weighted average shares outstanding and expect approximately $1 billion $447 million for the fourth quarter, 2020, and $1 billion $432 million for the full year 2020.
In closing our businesses in pipeline remained very strong and our long term fundamentals have not changed with targeted organic revenue growth at the high end of our peers sustained adjusted operating margin expansion double digit adjusted earnings per share growth and strong free cash flow.
Please check our Investor Relations website for Q3, 2020 financial and operational highlights, which outlines more detailed Q3 results and with that I will turn it back to Susie will moderate the QNX. Thanks, Dan Andrew Let's open it up to Clinton fluid. The next 30 minutes or so in order to enable us to take as many as possible. Please limit yourself to one question and one.
The latest Biolab Andrew Please go ahead.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one.
Telephone keypad, if you are using a speakerphone. Please pick improvements that we're pressing the keys.
On your question has been addressed and you would like to withdraw your question. Please press Star then too.
Our first question comes from David Lewis.
Morgan Stanley. Please go ahead.
Great. Good morning, Thanks for taking the question just got one for Mike and then a follow up related for Dennis So Mike you just want to come back to this high end device common you made just want to confirm that it whatever the med tech peers grow, let's say, that's 4% to 5% you inspire to grow three point faster and then also for you does it concern and.
Slide of CRM and IC market dynamics are TAVR that the ability to do that frankly has changed so clearly people are focusing on the things that have gone below plan, maybe you could still be focused on some of the pieces of the business or segments that are above plan.
That are giving you the confidence that that algorithm of three points above four to five or whatever have you have is still achievable and then I had a follow up or down.
Good morning, David Thanks for the question, Yes, we're very confident our ability to continue to grow at the high end of our peer group.
I've done so for a number of years and our product launch cadence as we look to round out 20. In 2021 are are quite exciting if you look across our businesses and our launch schedule.
We've highlighted watchman flex and we laid out at TCT, while we believe the watchman flex markets larger than originally anticipated and based on the increase in utilization that we're seeing we see that as a multi billion dollar market.
So I don't want to go across every business, but we have a very strong product launch cadence.
We talked about a pie with both the the Lubys stent in the pending approval for Ranger.
We're seeing excellent growth out of our interventional oncology business led by BTG, which actually grew upper single digits in the quarter and really the strength of our Medsurg businesses, you know our endo business with the launch of our.
Well you scopes, the moment of our urology business and we had two big launches in neuro model in.
In Europe in both FCS and DBS, where we continue to take share so really across the portfolio. We have a rich bag of product launches clearly we would have liked to have the accurate neo approval prior to 2024.
And Thats certainly something that we wish we could pull in and we'll continue to try that based on our discussions with the FDA, but if you look at just the incremental tailwind of watchman growth impact taxable. We believe those two elements there and neutralize the slight delay with accurate Neal on its own. So we that have a history of growing above market.
And the product launch cadence, we have strong and our DC portfolio is quite good and.
The free cash flow and balance sheet to deploy against that is very strong.
Okay very helpful. Mike and then Dan just for you I appreciate the confirmation of growing in fourth quarter should we assume that growth in the fourth quarter is kind of low single digit type growth and then look 21, I know, we're not going to get a lot idea here, but everyone is very focused on 21 as a percent to 2019 street to double digit growth for next year I Wonder if maybe you'd commented.
Kind of the the reality those numbers, but more specifically any parameters you can offer us on 21 on the top bottom line tax margins for consideration of our models that we had an next year. Thanks so much.
Sure David So relative to Q4, the commentaries is very simple its aim to grow so we haven't given specific guidance relative to a number whether it whether it be one number or another so the commentary and and our belief is that we are aiming to grow in the fourth quarter, obviously with the with the cobot caveats that Mike mentioned with respect to 2021, I, probably can't give you a lot of.
Detailing that we're right in the middle of our annual operating plan process right now.
Except to say that again as as I mentioned closing out my prepared commentary that it's really the same goals. We've always had which is to grow at the high end of the peers to expand operating margin and to deliver double digit adjusted earnings per share growth. So.
Really no change there were working through the process and the goal would be when we get to the February call to give you a sense of where we are and let you know we think 2021 might hold.
The next question comes from Robert Hopkins Bank of America. Please go ahead.
Well, thanks, and good morning can you hear me okay.
Hey, Bob refined Bob Good morning, great. Thanks, so much so to start I apologize for the short term oriented question, but Mike I was wondering if you could just comment on the degree to which the.
Pretty significant global clear book over the last few years has impacted the business and therefore, how confident are you in that comment on fourth quarter. If you offer an explanation.
Sure.
So we obviously have seen a uptick globally.
One reason the newspapers there at that I would say the hospitals are doing an amazing job of managing co bid, while still performing electric procedures. So you've seen that with the sequential growth that we've had in third quarter. We're certainly mindful of the fourth quarter potential interruptions. There. So our goal is to aim to return to grow ex watchman, but.
Obviously watching koby quite quite significant like everyone else's and we've continued to see month over month improvement in our trends, but we put a caveat there in the fourth quarter as we aim to grow excluding watchman and obviously, if the the cove and dramatically improves or increases and theres more shutdowns and were more.
Pressures on the hospital system does that could impact the fourth quarter, but so far we've seen nice improvements sequentially month over month hospital doing a better job managing it and patients the the care that products like Boston scientific and our peers provide.
We're also obviously managing our spend and you saw the strong improvement in operating income margins third quarter and the drop through EPS. So we expect that trend to continue.
Okay, Great and then just one product comment.
Yes.
Remind me what you said on watchman in the quarter. I think you said did you say grew double digits. Just curious now that you saw very rapid recovery in launching over the course of the quarter. Just wondering if we get any more specifics or details. Thank you.
Yes, it did grow double digits in third quarter, and it's really dependent just an excellent launch. The early results have been very good and as I mentioned in the script. We aim with this consignment model to switch the majority high majority of our customers over by year end and complete that by second quarter and that consignment.
Model shift, we think as a smart move because it gets flex in the hands of our operators, which they want.
Allows us to tie up a longer term highly committed share contracts at appropriate price premium. So the launch is going extremely well and it bounced back very quickly and third quarter growing double digits.
Great. Thank you.
The next question comes from BG Kumar of Evercore ISI. Please go ahead.
Hey, guys. Thanks for taking my question, Mike maybe.
Getting back to update.
Bigger picture question on the on the algorithm tiered double digit earnings algorithm, a one that perhaps could you give us an update on VPG I think the last update was five or six.
Appreciate what synergies coming in better where we aren't BTG and when you look at 20.1, I guess on the double digit EPS, Jason is the right phase two.
2019, I'm curious because.
The deals annualize return it's big it's included in the 2020 numbers and suites modeling close to 18, 19% revenue growth for next year.
Seems a little excess over Japanese foundries that that would be helpful.
Sure Vijay this is Dan I can start and Mike can add and certainly as well relative to BTG I think were essentially even more committed to the benefits of that deal now than we were when we did it about you look at the growth one of the highlights in the quarter and Mike mentioned it when you when you pro forma for the various pieces within interventional medicines they were all high.
Single digits, and so thats, obviously accretive to where we are in that that's in the middle of a global pandemic. So lot of good hopes for that Mike also mentioned on the BTG synergies that we had talked about $175 million in total synergies will now we're at $125 million. We believe exiting 2020, we believe that we will get that whole 175.
Total out of cost so the revenue synergies that we had planned will actually be upside. So we look at BTG as a nice.
Our driver for us going forward relative to comps I think the most relevant comp is going to end up being 2019 2020, we will we will compare to that obviously, but it's a different year I'm not going to comment on the specific numbers that are out there relative to.
Your Europe.
Revenue growth for 2021, but I think when you look at it it will be 2021 versus 2019 that will be the most relevant comparison I think we have.
Got you and then.
Maybe on our structural heart here.
Mike maybe just comment on scope to.
It does it matter I mean, the stock certainly reacted post TCT, but it feels like what that neo too it shouldn't matter, perhaps could you talk about what.
Structural tortured looked like for Boston.
In Europe.
Sure Dr. America can make some additional comments, but we just are launches scope our near to platform.
Right now and so that obviously as you know is our second Gen platform shown in our EOR studies that are Dr. American for the comment on this.
Improved pvl rates very low pacemaker rates very good hemodynamics and Thats, our second generation valve and the enrollment in the us is going quite well for that system. So we're quite bullish on accurately you two in Europe, and we're we're hoping as coded as we're hopefully in the second half year of cobot overall.
That will continue to accelerate the launch the trialing in the us for that platform. So we'll continue to reiterate that platform and we are confident that the European team will deliver strong results in 21 with Aker Neo too.
Yes.
To reinforce your comments I think you heard the panel discussion VJ.
Hey, it and most of the physicians on the panel recognized.
Incentive for this generation versus a third generation.
As a company as a comparison.
Fiscal Q2.
Months physicians, who has significant experience with the accurate neo platform and know how to use it appropriately they recognize that accurate to has a 60% launches goods and significantly improved pvl performance.
Independent cool ended Judicate datasets.
So I don't think it's going to influence scope, but the use of accurate data into.
Thanks, guys.
The next question comes from Larry Biegelsen.
Wells Fargo. Please go ahead.
Good morning, guys. Thanks for taking the question just to follow up on TAVR actually couple cavern questions and I'll just leave it at that Mike at a high level does it still makes sense from an ROI perspective to develop two tablet platforms and then for you Ian I heard your comments.
VJ regarding the commercial impact.
But given the results of scope one into you know they seem to be some clinical risk with the U.S. pivotal trial.
I've looked at the primary safety and efficacy endpoints can.
Can you talk about your confidence in the in the neo to us pivotal trial.
Being able to show non inferiority.
Between Neo two in SAPIEN three in Evolut pro.
Given what we've seen with scope one into.
It does it look like the slam dunk, but I'd love to hear your thoughts thanks for taking the questions guys.
So perhaps I'll stop would be the second question Larry.
Larry about our confidence around the accurate.
Two platform.
We said before the accurate number two is different to accurate one would be.
Launches good significantly different PBL performance as we saw from the seed not not.
And so we believe that data I will certainly play out in the what we saw in the CE Mark study Youve accurate too will play out in the.
Accurate.
Two I'd study. So we are working with the FDA now as a consequence of the results of scope on and scope to two pulp path forward. We believe that we will require a longer patient follow up as part of that study, but we remain confident.
Thanks, Jonathan.
Yes on the first question on our product portfolio, we are always looking at cross.
Across our portfolio, where our investment spend makes the most sense given the market opportunities and we have obviously had the two valves strategy and we're seeing strong results in the sites that are using Lotus in the US opening new sites has been a challenging.
Exercise for us given the pandemic, but the sites that are using the lowest in the us are using the quite regularly. So we do believe that the two valves strategy makes sense and we're excited about the accurate neo to launch in Europe.
Thank you guys.
The next question comes from Julian wins.
Citibank. Please go ahead.
Hi can you hear me okay.
Yes, Hey, finder and excellent good morning.
Yes. That's a question first one has to do with some of your commentary for the fourth quarter I'm curious why operating margins would not improve in the fourth quarter versus the third quarter and I want to make sure I can you quantify what the Washington adjustment is in the fourth quarter could you say you will have growth ex the watching your job.
Sure I can probably take that one Joanne second part first we expect it to be roughly similar so you saw $63 million topline.
Adjustment for the sales term reserve for that for the transition and so as we look at it obviously depends on how we how that rolls out in the fourth quarter, but roughly similar I would I would say.
And then in terms of operating margin. The main driver of that is that Q3 was it was probably better than we had anticipated so 23.4% and that obviously included 170 basis point negative impact from from the Watchman sales return reserve. So we're kind of back into a pretty good range on that on that operating margin in Q3.
And and we believe that as we head into Q4 of being in that range for the fourth quarter is a good place to be from a gross margin standpoint.
Probably again largely similar to what you saw in the third quarter, we were 69.3% gross margin in the quarter that included 60 basis point negative impact from the the watchman reserves. So we're in that 69 to 70 range, that's probably where gross margin we've.
Would settle out in the fourth quarter and the rest of the piano should look pretty similar so.
The adjusted operating margin for the fourth quarter. I think is is in a good spot if it's similar to Q3.
Okay, and then big picture there is a perception and this is largely after the TCT meeting that theres.
How do I say this sort of an execution issue that may or may not be happening at Boston scientific.
Much of this is.
It's reality and how much of it is just you have so many products that are coming to the pipeline not everything is going to go exactly as planned.
Sure, Yes, I think just overall if you look at the overall execution for.
A number of years in a row, we've accelerated organic sales growth each year.
Last year, we put about 7.3, and we obviously with impact of cobot and in 2020, and we've seen strong improvements each quarter and we're set up for a very strong 21 based in London that product launch schedule no. There's no doubt that we were disappointed with the delay with accurate neo in the US I think Dr. Meritas later.
Some of those reasons.
And now we're we're excited about the neo to launch, but we are disappointed in the scope on scope to which delayed the impact of accurate neo.
I think the benefit of Boston scientific as we're highly diversified.
Look at the growth of Watchman, you look at the significant growth improvement across our businesses and really the diversification of our business. We for many years in a row continuing to reduce down the waiting.
D.S. and CRM in our portfolio given the growth projects.
Directory of those markets and increased the weighting of our other businesses and you look at the growth of our PPI business with BTG and das can be euro Neuromod and also the promising growth that we see any piece. So we clearly wish the accurate scope results would have been different but.
But if you look at the overall execution the company and the diversification that weve enabled as well as the strong free cash flow and ability to continue to improve margins were excited about 21 and beyond.
Thank you.
The next question comes from Robbie Marcus of JP Morgan. Please go ahead.
Thanks for taking the question.
Maybe Dan or Mike I was wondering if you could speak to the current M&A environment you.
A lot of investments on the private side.
The balance sheet looks better than it's been in the past how should we think about M&A and if you could also touch on the reason for the discrete continuation of Apama.
Sure again ill start and and Mike can comment as well the.
The M&A environment is is a little bit challenging I think you're probably referring to the <unk>.
Fuel market, so within our VC portfolio, we've seen some of the companies go public and with them.
Pretty lofty valuations.
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We weren't able to to acquire those companies obviously, the the upside of on the other side of it is that it's a nice financial gain but that's not why we invest in these we invest in them obviously for the potential to acquire them. So it does seem to present a short term challenges we have over 40 companies in our VC portfolio. So there is a lot to choose from.
And we'll see where that where that goes and we have as you know we have the the cash ready and available to be opportunistic relative to to M&A in general So still optimistic that we're going to get some good solid M&A Don.
Over time and be able to add to the topline story that we have.
Yes.
The the pipeline is certainly there of M&A opportunities.
We want to be disciplined in terms of the price that will pay and to drive shareholder value. So we'll continue to do that and we certainly plan to do a few tuck in acquisitions over the next 12 months on Apama.
Essentially we made a decision there on our portfolio.
Given the timeline adult the timeline delays that were impacted the apama program with Covance really along with faster than anticipated new technology developments, namely IRA we made the decision to discontinue the development and clinical investment and the Apama platform. So we're going to continue to invest significantly in our stable point, our four cents and Kathy.
Sure, we're very bullish on our Apama, sorry on our cryo balloon in Europe.
It will be in full launch mode in the fourth quarter. It was should provide some significant growth in 2021, and we're very encouraged about the investment that we have variables friary and Thats investment we made us six years ago and now we have an option to purchase that company. So as the market continues to shift we believe were very strong position with those platforms for the future.
Thanks, and maybe a quick follow up on.
As I listened to your commentary it sounds like volume trends continue to improve are you able to speak to how the pipeline is filling up behind that how patient visits and scans are filling up behind that is there a discrepancy by geography. Thanks.
Yes, I had a few comments there in my script that it's a difficult one to call I would say overall globally differs by region by state. So.
Substrates in the in the us have very normalized a.
Referral patterns and new patient funnels, some in the us maybe down 10%.
China is essentially back to normal I would say and Japan is quite strong. So it really varies around the world I think if you were to net it all out.
It's down so we're not quite at normal new patient referral programs globally and were down as tough to call that weather is down five are down 10%, but it's down slightly.
And it really varies by state and by country.
Appreciate it thanks Yep.
Yep.
Our next question comes from Rick Wise of Stifel. Please go ahead.
Good morning, everybody.
Maybe just a couple of.
Product questions and just update that Mike.
Mike you highlighted.
Okay. So the 100 accounts open is that.
Where you wanted to be that where you expect it again.
Cobra decided.
Post cobot is that where you expected just maybe walk us through what's next and I'll go ahead and add the other two.
Just curious you said you had a terrific quarter.
Yes, they are.
But the trial enrollment.
Yes.
We haven't talked and site TV program in a long time.
Great.
Who will random, but just hearing some competitive noise.
Got it from Boston scientific.
Got it okay. The.
The ledger, thanks a lot.
Sure So exult Sentinel Esas CD.
Dr. Meredith the pension in the middle here. So for you too much here, but on the result, we clearly last call. It four to six months with exult without launch, but the really encouraging news in third quarter.
We've really picked up quite a bit of momentum. So our accounts weve had more access to our customers in the us and in Europe, and we've opened approximately 100 global accounts and so the team has really made strong progress call. It. The last 60 to 90 days and new account openings Trey.
Training.
And really starting to increase utilization of that platform and we also were at a nice tailwind just I would say broadly we had strong tailwinds and reimbursement in third quarter.
I won't get too off track, but with the new TPG with exalt as a nice tailwind for that so we looked at for example to be a nice growth driver for us and in 2021, and we also had the surgical scope recently approved we're on track for Braca scope. So that's a multibillion dollar opportunity just broadly with the reimbursement on this call. This out because we picked.
Got a few of the headwinds with scope one a scope to we had some great reimbursement news mentally with Eluvia.
But with exalt also with Ecos in the quarter. So I think it really demonstrates the clinical efficacy of these platforms and the Devon is to support the additional reimbursement.
While turnover Sentinel to Dr., Meredith and maybe SSD comments from Dr. Stein.
Hey, Mike.
Thanks for the question Rick.
With respect to seasonal as you know.
And more than 750 accounts worldwide and 20 feet of Tappan zee the spots that are actually using seasonal.
Actually having a simple procedure.
Struck as you know is it to.
To bill is having a devastating condition that onto reported in Tampa. We believe that this is the right strategy that protected tablet trial that you mentioned is now more than ever are critical critical study to actually.
Prove beyond a shadow of doubt that sort of blend balling protection is the right strategy FFO for Teva, we're very pleased with.
Having designed that study prospectively as you know it's a 3000 patients study looking at clinical stroke. We have 30 sites enrolled in that trial and continue to act to buy activated spots to spot.
Obviously, they will saw some slowing of new site activation in the second and early in the third quarter, but we believe that that will continue to ramp up. So we're looking forward to the results of that trial. So that's a critical study in light of the data that you heard it at TCT, which.
Which was a mixed bag of evidence and almost everybody pointed to the protected Teva trial as well as the single most important study in this field and I'm glad that we actually planned this prospectively.
Doug just on any comments on Esas CD.
Yes, Thanks, a lot Mike Rick.
Be quick here I think we've been very pleased with what we're seeing in terms of continued growth with the size CD as I think you know we recently reported out the results in two major clinical trials retorted on touched Praetorian published in doing the journal medicine on touch because just published in circulation, which really.
Vince singly show that the say Cds are remarkably safe.
Straightforward procedure and look to be considered as first line therapy for the broad group of patients with a primary prevention indication who don't have into.
Indication for integrated Korea, Paysinger its tech cardia pacing, yes.
I think what comes next and what's I think very exciting from that standpoint is we push out our modular cardiac rhythm management concept with the development of our lead list pacemaker, which is designed to be able to communicate with the essay CD and can deliver both that's got Brady pacing.
And if you pick radio pacing.
And that is still on track to launch into clinical trials first answer next year.
Thanks, everybody.
The next question comes from that Mike.
Credit Suisse. Please go ahead.
Good morning, Matt Hi, can you hear me okay.
Yes, Hey, fine.
Terrific. Thank you so.
Just a couple of questions if I could.
As fees and sort of your exposure to the outpatient channel you've talked about that if I remember correctly kind of in the two thirds range.
If you could maybe comment on just how those are some of those businesses are performing well.
Related to the predominantly invasion lines of business, maybe in terms of the Prefilled per.
Senator precluded levels or or any other metrics like that and then I just had one quick follow up on the same topic.
Sure, Yes, we provided I think as our maybe our first quarter earnings call the mixed by business roughly of our inpatient versus outpatient.
And Thats really kind.
I have been very consistent in terms of the recovery during coded so across our businesses.
Not surprising where we had a stronger outpatient orientation, you've seen a bit stronger recovery, there with Pi and urology.
Endo and Neuromodulation, you saw Neuromonitoring cheese, which was down like what 70, 80% or some crazy number of second quarter and.
Came back dramatically in third quarter, because of patient demand and that set setting so really euro endo pie and neuromod.
Our more oriented to the outpatient setting and CRM and interventional cardiology lean a little bit more towards inpatient and the kind of pace recovery. If you look at the third quarter results.
Are pretty consistent with that.
That's super helpful and.
And just if I could I.
I think we're all looking at the current trends and wondering over the next couple of months, if we're going to be facing some version of what we saw in late July and August in some areas of the country.
And in terms of the hospitals getting.
Capacity getting tighter some regions and states picking counties or Zip codes and trying to steer folks away from booking in patient cases, or cases or things like that and I'm wondering do you have any comments or experience from how that winds in those areas in the in Q3 is we did.
The a little bit of that and potentially what that might entail over the next several months. If we if we continue to see that happen.
The total is that might be.
Yes. It is.
Tough to call I mean, we don't see a scenario where.
The results of Twoq you are matched again, so we don't see that happening and you saw obviously is a strong improvement 3% negative growth neutralizing for the one timers in third quarter and as I mentioned before we've seen sequential improvement really each quarter since the the dark as time of coated inside the hospitals are doing a remark.
Well the good job of managing cobot patients and elective procedures.
Capitals have.
Built additional capacity to manage coded patients during the surge that.
They are better staffed for it so I think it's going to be potentially is challenging winter, but the hospitals are much better prepared to manage it I believe than they were six eight months ago, and they're also better able to manage.
Elective procedures in parallel so well that we commented before that.
The new patient referral.
Pattern globally still as an add 100% and so that likely still could be under some pressure.
As cobot continues to search, but we'll continue to.
We're having great progress in launching new products getting products approved we're managing our margins will drive strong EPS and we will see how the the cobot impact plays out, but weve seeing sequential improvement monthly and we continue to aim for growth the fourth quarter. Despite.
The Coca challenges and excluding the Airwatch the consignment.
Thanks, Mike appreciate that.
You bet that question Andrea.
Thank you and that will come from Ben.
As healthy as need be Leerink. Please go ahead.
Hi, Good morning, everyone. Thank you so much for squeezing me in and congrats on a strong quarter and my.
I have two products really your question. So first on watch mean, what did the things investors are paying attention healy potential competitor on the market and I was hoping maybe you could outline what the model from a competitive perspective are that you built around the watchman is that should make us feel okay about.
The continued growth trajectory, there and I'll just ask me right now on a don't be given the financial constraints at high levels and just curious about how quickly that can be the meaningful revenue contributor than it probably ultimately will be by hospitals have to work through their current financial duress and that was my question. Thanks. So much.
Sure Dr side, you want to speak to the watchman clinical.
Capabilities.
Yes, Thanks, Mike and Danielle I think.
On on Watchman your first of all.
Yeah, we're very pleased with the response that we've seen in the clinical data we generated with the flex device.
Approved on the basis of a trial that it didn't just meet its endpoints, but actually showed 100%.
Six cents will seal it at.
One year and I think combined with the great clinical results and physician familiarity and ease of use with the flex device.
I get it I think it is very strong against any competition. We continue to push what is the most robust.
Portfolio of clinical science on the safety and efficacy of the device the ongoing option trial, which in spite of coal that has continued to enroll well, which extend the use of the device as a first line for patients following a civil ablation and in it as I think you know, we recently announced that they.
The imminent launch of our champion trial, which is a head to head trial of the watchman device as first line therapy against novel oral in its clinical.
Yes, so obviously the clinical safety efficacy is the primary driver and Thats why Dr. Stein comment at first and then on the on the business model that that was obviously one of the reasons, we switched to the consignment model was to continue to build a strong moat supported by our clinical efficacy.
I see and also the easy to use and just the penetration that we see globally and the consignment model changeover allows us to drive our longer term hi committed shared contracts at the appropriate price uplift. So we think thats a smart move for us.
Exactly.
I mentioned before with the.
With a breakthrough status, we did get the additional reimbursement, India and the outpatient setting which is which is very very helpful. And we believe would be in the inpatient setting and the outpatient setting there is room in that DRG that makes sense for the.
Excellent.
Platform. So our adopt we team will continue to drive a healthcare economic studies with Exult D. It's clear that physicians see the benefit of reducing the risk of infection and our team is gaining more and more capabilities in terms of how to drive utilization of Axalta. Yes. Each month passes. So we think those will be a nice growth driver we know.
It will be nice growth driver for us in 2021.
Thank you.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Susan Lisa for any closing remarks.
Thank you Andrew and thanks, everyone for joining we appreciate your time and we'll now turn it back to Andrew for the replay details.
Thank you. This concludes today's conference call replay for this call may be accessed in one hour until November four fully 20 by dialing 187734475 to nine or 1412317 008.
And use access code 10147.
Seven three again 10147673.
You may now disconnect. Your line at this time thank you.
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