Q2 2019 Earnings Call
Ladies and gentlemen, thank for standing by and welcome to the Boston Scientific Q2 2019 earnings call.
Now at this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you should require often assistance you made the press Star then zero as a reminder, today's call is being recorded I would now turn the call over to your host Susan Lisa. Please go ahead.
Thanks, Kevin Good morning, everyone and thank you for joining US with me on today's call are make 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 Q2 2019 results, which included reconciliations of the non-GAAP measures used in the release, we have posted a copy of that release as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading financials and filings.
The duration of this morning's call will be approximately one hour, Mike will provide strategic and revenue highlights of Q2 19, Dan will review the financials for the quarter and then provide Q3 19 and full year 2019 guidance and then we'll take your questions during today's Q and a session, Mike and Dan will be joined by our Chief Medical officers Dr., Ian Meredith and Dr. Ken Stein.
Before we begin I'd like to remind everyone that on the call operational revenue excludes the impact of foreign currency fluctuation and organic revenue further excludes the impact of certain acquisitions, including Nextera clarity Augmenix and Berta flex in the relevant periods for which there are no. Prior period related net sales also of note. This call contains forward looking statements within the meaning of federal Securities laws, which may be identified identified by words like anticipate expect believe estimate and other similar words. They include among other things statements about our growth and market share new product approvals and launches clinical trials cost savings and growth opportunities, our cash flow and expected use our financial performance, including sales margins earnings and other Q3 and full year 2019 guidance as well as our tax rates R&D spend and other expenses actual results may differ materially from those discussed in the forward looking statements.
Factors that may cause such differences include those described in the risk factors section of our most recent 10-K and subsequent 10-Q s filed with the SEC.
These statements speak only as of today's date, and we disclaim any intention or obligation to update them at this point I'll turn it over to Mike for his comments, Mike. Thank you Susie good morning, everyone.
[noise] multiplex as it continues to grow above market improved profitability and drive meaningful innovation to address unmet patient needs a showcase at our recent investor day.
In the second quarter, our team delivered 8% operational revenue and 6.3% organic growth with another quarter of strong balance across our businesses and geographic region.
In addition, we delivered adjusted EPS of 39, so which is which is at the high end of our guidance range, while generating 406 million and adjusted free cash flow.
We do have clear line of sight to high single digit organic growth for 2019, and we reiterate our full year 19 organic revenue growth guidance of seven to eight.
And adjusted EPS of $1.54 to $1.58.
We have increased our expected contribution from acquisitions from 110 basis points to 140, resulting in operational revenue growth guidance of 8% to 9% for the full year.
I will now detail some of the key aspects of our second quarter results and thoughts on our second half 19 prospects.
All growth rates refer to organic sales growth versus the prior year unless you mentioned.
So we'll start first with med surge sales continued on the solid high single digit performance and increased 7% or 8% organic once you adjust for the onetime mesh recall impact.
As endoscopy continue this trend of 8% organic growth quarters is fueled by more than a dozen product launches over the past 18 months.
Such a spyglass DS two jag wire and arise Jill.
We've also recently launched a rise in a single syringe version to address a broader range of procedure types, including polyps.
Infection prevention sales were also very strongly driven by strong sales in the U.S. and going forward. We look for continued momentum and all these product lines as well as the Axios and improved supply and Orca pod single use valves.
We do remain on track for a year and launch of EXONDYS single use Duodenoscopes, which is used in the year CP procedures.
We're very encouraged by physicians do the ASM for this platform and continue to believe this represents a significant opportunity in 2020 and beyond.
Urology and public health grew 15% operationally in the quarter and 6% on an organic basis. Despite the two point organic headwind from the market withdrawal and customer returns of the mesh.
Treatment of public organ prolapse. This growth was led by mid teens growth in our cornerstone franchise with strong lithovue single use ureteroscope sales across all regions, and particularly strong emerging markets growth.
Space or hydro gel also delivered in the quarter is tracking to $100 million for full year 19, which is above our original deal model as mentioned at our Investor day.
We also expect deceleration in Europe sales in the second half of the year from continued lithovue in space or strength.
The one year anniversaries of the acquisitions of Nextera and May and Augmenix in October .
And new product launches such as the Tachira implant and men's health where trends have improved not be fixed our sterilization challenges.
Rhythm and neuro grew 3% in the quarter, which we believe represents above market growth in CRM at 3%, while as sales grew 9%.
Neuromodulation sales were flat year over year, but we continue to build momentum and of note sequential growth was 7%.
While neuro mugs flat year over year sales result slowed from the first quarters, which were 9% we did face a 31% comp in second quarter versus our Q1 comp of 17%.
So on an operational basis neuroma sales were plus 2% year over year and reflects excellent brand growth from our Vercise DBS systems, which offset the weaker spinal cord stimulation simulation results.
We continue to see excellent momentum in DBS due to market receptivity to our cheesier directional lead in the us in Europe , and we anticipate full body MRI labeling for our precise systems in the second half of 19 in the U.S.
And our pain franchise Versaflex closed on June 11th and we're excited to offer the full continuum of care for patients suffering pain.
Now with an option focused on those diagnosed with moderate lumbar spinal stenosis.
The Vertis flex remains on track to generate full year 19 sales of $60 million.
And so yes, we continue to see some softness in the overall market and we faced tough comps as mentioned due to our wave rider spinal cord stim system launch in the US early last year.
While we continue to be optimistic about the long term, 7% to 10% growth potential of this market. We do expect some continued softness in 2019, given the 21% the second half comp.
We do expect second half improvement in SCS post our recent wave writer real world data.
Presentations at ins.
Wave rider software enhancements and initial release of the combo randomized clinical trial data.
Global cardiac rhythm management sales grew 3% that was led by mid single digit growth in deferred sales driven by our resonate platform and his heart logic heart failure alert as well as strong emblem S IC sales.
A replacement cycle tailwind also remains on track.
And Pacer sales declined low single digits, which is an improvement from recent quarters, but we continue to anticipate a modest pace or headwind for the full year 2019.
VP sales did grow 9% in the quarter, which was led by good sales of direct sense in Europe , Rhythmia Dx mapping and navigation platform and alumina point software, which is fully launched in the second quarter.
As we highlighted in Joe did at our Investor Day, we remain optimistic about the future for our franchise specifically for the aphid single shot market in our two platforms with this therapeutic approach.
We expect approval for our cryo based systems all Rx in Europe .
Year end 19, with Aluminize RFP balloon platform following the first half of 2000.
Shifting now to cardiovascular the group sales were up 8% in the quarter.
Peripheral intervention sales increased 8% in the quarter as well led by the launches of our Vg Venus stent in the us and Eluvia DBS in Japan, as well as actual excellent regional growth in interventional oncology, particularly in Asia.
Post the June Paclitaxel at the panel physicians continue to order Eluvia in line with our commentary at Investor Day, We do expect within the next few weeks, an updated summary, and guidance document from the FDA.
We believe Eluvia remains well positioned if the guidance continues to recommend drug eluding technologies only for patients at high risk of restenosis, which does represent 40% to 60% of the market.
And the Eluvia has the potential to achieve higher share in this segment given this performance in these patient types. For example in the pure trial in the PURELL trial, 12 month data, which demonstrated a half the rate of TLR compared with the silver Pgx.
40% of patients in Eluvia arm had severe calcium which is fourx the rate of severe calcium in the global pivotal trials of the two leading dcbs.
In addition, nearly one third of the patients had total vessel occlusions.
In the Eluvia Imperial study, which has a much higher rate than in the DCB studies.
Last month, we announced the proposed divestiture of our brand and promoted feed business to Varian medical systems in conjunction with the proposed BTG acquisition.
We continue to make progress towards closing BTG in August and look forward to the opportunity to expand our peripheral and interventional oncology portfolio and continue to execute our category leadership strategy.
Our interventional cardiology business accelerated from first quarter was 5% growth to 8% to 8% organic and 10% operational in the second quarter.
There were a strong growth across all regions led by structural heart sales and mid teens growth in complex PCI products, which was partially offset by Dts.
Watchman grew sales ahead of plan ahead of plan is now at 600 accounts in the US as this important therapy provides patients with April fibrillation, an alternative to lifelong oral anti coagulants.
We successfully launched our national direct to patient TV campaign in late March and are encouraged by the early results.
Watchman flex transition from limited market release to full launch in Europe , and physicians are very pleased by the 95% plus rates of implant success and seal and no device embolization.
We're targeting a mid 2020 launch in the us for flex.
We also remain on track to launch watchman in Japan in third quarter with reimbursements and continue to advance the clinical evidence surrounding watchman as we begin enrollment in the option trial in April formulation patients post ablation.
Accurate TAVR valve momentum continued in the second quarter with 30% growth and is now available in over 40 countries and importantly, the us I'd for accurate near two was initiated and we recently began enrollment of the 600 patient study in the second quarter.
Unfortunately in Europe , we now do expect a mid 2020 launch for accurate neo too as we have chosen to revise our approach and consolidate our regulatory submissions with fewer notified bodies due to challenges in the regulatory environment with a shift a European medical device regulation or known as MDR.
The Lotus edge controlled launch is going extremely well.
Positive physician feedback highlights the benefits complete control and drama free topper.
We are on pace to open 150 accounts in the first 12 months that we cited in Investor day, and we're very confident that our launch approach will position, both Lotus edge and our entire structural our portfolio for long term leadership in the substantial market.
We see significant opportunity in the high risk labeling we have today and we are actively enrolling for our us reprice for clinical trial to expand indication to intermediate risk patients.
And finally, the Sentinel cerebral embolic protection devices continues to enjoy strong growth rates as supply scales up we're now at over 400 accounts globally, and we believe that protected Teva with Sentinel is the emerging standard of care and we expect momentum to continue as we launched new accounts that we anniversary the Sentinel acquisition. This month.
So the combined strength of watchman accurate Lotus edge, and setting will position us well to deliver on our guidance for 700 to 725 million in structural heart revenue and 19.
So to close once again I'd like to share again, my enthusiasm for our outlook in 2019 and beyond.
And has conveyed at our Investor day, we believe that Boston scientific continues to be uniquely positioned to drive shareholder value due to our differentiated long term growth profile meaningful opportunity to improve operating margins and track record of delivering double digit adjusted EPS growth, while also improving our ability to deploy capital.
I want to thank our employees once again for their winning spirit and commitment to advancing science for life. So Dan will now provide a detailed review of our financials. Thanks, Mike.
Second quarter consolidated revenue of $2.631 billion represents 5.6% reported revenue growth and 8% growth on an operational basis, which excludes the impact of foreign currency fluctuations.
Our reported revenue reflects a 57 million dollar headwind from foreign exchange slightly unfavorable to the 45 to 50 million dollar headwind expected at the time of guidance sales from the Nextera Clarette Augmenix and vertical ex acquisitions contributed 170 basis points slightly higher than the 140 basis points expected at the time of guidance, which did not include diverted flex acquisition.
As a reminder, the operational Nextera contribution only represents one month as the acquisition is considered organic as of May one this year.
The resulting organic growth of 6.3% in the second quarter compared to our guidance range of 6% to 7% was driven by balanced topline performance across multiple businesses and regions as Mike has already detailed.
Q2, adjusted earnings per share of 39 cents was down 4% versus prior year up 12%. Excluding the two Q2 2018 net tax benefit of six cents and at the high end of our guidance range.
Earnings were driven by solid PNM metrics and also reflect a one cent discrete tax benefit in the quarter.
The FX impact on adjusted EPS was immaterial as expected at the time of guidance.
Adjusted gross margin for the second quarter was 72.1% at the low end of our guidance range of 72% to 73%, but represents an 80 basis point improvement.
Over prior year, driven by standard cost improvements reduce scrap and FX.
Adjusted EBITDA expenses were $936 million or 35.6% of sales in the quarter at the midpoint of our range and up 90 basis points year over year as we continue to fund initiatives related to recent acquisitions and focus on key commercial launches.
Adjusted Research and development expenses were $273 million in the second quarter or 10.4% of sales at the low end of our guidance range and flat year over year.
Royalty expense was 0.6% of sales also relatively flat over the prior year.
As a result, Q2 2019, adjusted operating margin achieved the midpoint of guidance at 25.5%.
We continue to reiterate our full year adjusted operating margin guidance of 26% to 26.5%, which represents a 50 to 100 basis point improvement over the 2018 rate of 25.5%.
Now I'll move to below the line to interest and other expense adjusted interest expense for the quarter was $66 million compared to $57 million in Q2 of last year.
Our average interest rate was 3.7% in the quarter slightly higher than the 3.6% in Q2 of last year.
Adjusted other expense was $10 million in the quarter.
And primarily includes dilution from our equity method investments and transactional foreign exchange losses, including hedging costs.
Our tax rate for the second quarter was a negative 5.9% on a GAAP basis and 7.8% on an adjusted basis below our guidance range of approximately 11% for the quarter due to a $19 million net discrete tax benefit.
This Q2 benefit will be reflected in our updated full year 2019 tax rate, which I will discuss shortly with no additional benefit expected in the third or fourth quarter of this year.
Adjusted free cash flow for the quarter was $406 million compared to $558 million in Q2 of last year in the quarter. We used cash primarily to fund the closing of the acquisition of vertical X.
We continue to expect full year adjusted free cash flow to be $2.2 billion.
We continue to work to resolve fully the Max litigation with over 95% of all known claims now settled or in the final stages of settlement, including additional settlements reached in Q2.
Our total legal reserve of which mesh is included was $604 million as of June Thirtyth 2019. This is a decrease of nearly $100 million versus March 30, Onest and includes an additional $15 million reserve for legal fees, while the anticipated cost to litigate has increased due to various judicial orders and is reflected in the incremental $15 million Reserve importantly, the known claim count remains flat at 53000 as does the anticipated amount required for settlement.
Therefore, we continue to anticipate full year payments into the qualified settlement funds to total $250 million, which will then resolve substantially all significant existing contingencies related to mesh as a reminder, this liability is released from our balance sheet as payments are made out of the qualified settlement funds to plaintiffs.
During the quarter, we made cash payments of $50 million into the qualified settlement funds, which leaves approximately $200 million to fund for the remainder of the year.
Capital expenditures for the second quarter were $91 million, we continue to expect capital expenditures to be in the range of $375 million to $400 million for the year as we build capacity integrate acquisitions and position the company for continued growth.
We ended Q2 with 1.409 billion fully diluted weighted average shares outstanding.
And now I'll walk through guidance for Q3, and full year 2019, as a reminder, the guidance on providing does not include the proposed BTG acquisition since it has not yet closed.
For the full year, we expect 2019 reported revenue growth to be in the range of approximately 7% to 8%.
We are reiterating our prior guidance of year over year organic growth of 7% to 8% now with an additional 140 basis point operational contribution expected from the Nextera Clarette augmenix and vertical ex acquisitions.
As discussed in Q1, our first half 2019 average organic growth rate of 6.3% implies a second half 2019 acceleration organic revenue and we remain comfortable with this outlook as Mike discussed given multiple anticipated key product launches continued momentum in our core the anniversary of 2018 acquisitions was thus turn organic in the second half and the normalization of selling days in the first half versus the second half of the year.
And while we expect foreign exchange to be a 170 to 180 million dollar headwind to revenue for the full year. We continue to expect FX to be neutral to earnings per share for the year due to our currency hedging program.
There is also no change to our expectations for adjusted gross margin as a percentage of sales to be in the range of 72% to 73% for the full year. We will continue to execute on our ongoing standard cost reductions and also expect a positive full year FX impact to adjusted gross margin of 60 basis points.
Similarly, we continue to expect full year adjusted EPS gionee to be in the range of 34.5% to 35% of sales a 40 to 90 basis point improvement versus full year 2018.
There is also no change to expectations for the full year adjusted R&D spend to be in a range of 10.5% to 11%.
As a result, we expect to achieve 2019 adjusted operating margin in a range of 26% to 26.5% unchanged from prior guidance and up 50 to 100 basis points versus 2018, consistent with the improvement goals, we outlined last September and reiterated at last month's Investor day.
Due to the discrete tax benefit within the second quarter. We now expect our full year 2019, adjusted tax rate to be approximately 9%.
This is based on an operational tax rate of approximately 11%.
Slightly more than 100 basis points of benefit from the accounting standard for stock compensation.
And nearly 100 basis points from the discrete tax benefit in the quarter, which will not impact our tax rate outlook beyond 2019.
We expect below the line expenses, which include interest payments dilution from our venture capital portfolio and costs associated with our hedging program to be approximately $325 million to $350 million for the year and includes the make whole call exercised in the first quarter.
We expect a fully diluted weighted average share count of approximately $1 billion 413 million shares for Q3, and 1.412 billion shares for the full year 2019.
Note that interest expense related to the proposed.
GE acquisition is currently excluded from adjusted results and we will provide updated guidance after we close the transaction.
We are reiterating our full year 2019 adjusted earnings per share range of $1.54 cents to $1.58 cents. Although we received a one cent discreet tax benefit this quarter. We expect this to be largely offset by the divestiture of our embolic beads business to varying upon the close of BTG. As a reminder, we're also offsetting the residual one cent impact on the mesh withdrawals this $1.54 to $1.58 cent range represents 10% to 13% adjusted earnings growth. Excluding the 2018 net tax benefit of seven cents in the base on a GAAP basis, we expect earnings per share to be in a range of 94 to 98 cents.
Now turning to Q3, we expect reported revenue growth to be in a range of approximately 8% to 10%. This represents year over year organic growth in a range of 7.5% to 9% with an additional 180 basis points operational growth contribution from Clarette Augmenix and vertical ex note that the Clarette acquisition is included in organic guidance as of August .
We expect the foreign exchange impact on Q3 revenue to be a $30 million to $35 million headwind.
For the third quarter adjusted earnings per share is expected to be in a range of 37 to 39 cents per share representing 7% to 13% growth and we do not expect any adjusted earnings per share impact from FX GAAP EPS for the third quarter is expected to be in a range of 23 to 25 cents per share.
Please check our Investor Relations website for Q2, 2019 financial and operational highlights, which outlines Q2 results as well as Q2 and full year 2019 guidance, including PNNT line item guidance with that I will turn it back over to Susie who will moderate the acuity. Thanks, Dan Kevin lets open it up for the next 30 35 minutes or so in order to enable us to take as many questions as possible. Please limit yourself to one question and one related follow up Kevin. Please go ahead.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press Star then wanting a touch on phone you will hear a tone, indicating that you are in queue. You may remove yourself from Q at any time by the press the pound key.
Once again Star then one.
First question is from the line of David Lewis Morgan Stanley . Please go ahead.
Good morning, Thanks for taking the question.
Just thinking about the back half of the year, Mike and Dan you have to deliver.
Eightish like number for the third quarter momentum needs to improve in the third quarter kind of at a similar rate as it did in the second quarter. So what drives that confidence how much is predicated on business recovery versus selling days or certain deals going through organic and then I had a quick follow up.
Sure Good morning, David Thanks for the question.
Yes, so I'm really pleased especially were executing in line with what our annual plan was or is.
We knew that the second half required acceleration versus the first half of that was well thought out when we gave our full year guidance.
As we've updated that so were essentially in line.
With our plants are reiterating our full year, 78%.
Organic outlook, which does imply obviously acceleration than third quarter fourth quarter, and it's pretty straightforward, how we're going to deliver that the first two are more mechanical the first one being we have one less selling day in the first half.
And the second that we have one more selling day and another more mechanical.
Solution is some of our acquisitions become organic nextera.
Augmenix in Colorado, So that those are kind of more the mechanical ones that certainly help accelerate the growth in the second half, but importantly in terms of the actual business.
I'm pleased to see that with the exception of ETP all of our businesses continue to grow faster than the peer group, we have a lot of momentum.
Specifically in the regions, we're seeing Japan returned to a return to growth in the second quarter, we expect expect strong acceleration from our team in Japan.
Based on the anniversary of price cuts that have recently occurred.
New product launches with Eluvia, which is building momentum in Japan and also the recent news of.
Reimbursements and approval for watchman, which we anticipate selling in September .
So on a regional basis, we expect Asia to continue to accelerate the us and Europe continued to perform strong in emerging markets continue to have a lot of momentum and beyond that just the impact of our full year launches you will see.
Greater acceleration of Lotus edge, which we're very pleased with the initial results of the second quarter acceleration of RBC stent.
The watchman flex.
Approval in Europe , and it was well as Sentinel ahead supply and I would say broadly on supply our teams that are very nice job of just.
Of executing that our supply our requirement so.
We have we're a very good position with supply across the company momentum across our businesses new product launches that impact the second half or greatly as well as the mechanical pieces of additional based selling and the operational for organic so all that gives us a lot of confidence in the third quarter and the implied fourth quarter guidance that you can derive from that.
Hi, Mike very helpful. Very very clear just one quick follow up on on Lotus. Thanks for the feedback on center traction yet the number of centers can you give us any sense of average center penetration from a case basis.
Should we still expect.
This rollout to be controlled through the end of 2019 and did Sentinel.
Frankly, with Sendmail capacity still an issue here in the second quarter. Thanks, so much.
Yes, So said no we don't have.
We do not have the supply constraints within set and all that we had called for the first half of the year. So that the ops teams done a great job with that and so you'll start to see more sentinel usage in Europe in combination with accurate and loaded so the European team has been more constrained.
So you'll start to see some.
Enhancements and growth in Europe , with Sentinel and opening more centers in the U.S I think set and will be a strong second half story for us.
Just anecdotally I was at a couple of cases last week.
A couple of live cases, we saw with our TAVR valve, which performed very well. The sandals also set and will being used with some competitive valve and low risk patients and pretty shocking to see the amount of degree that some of these physicians receives I think.
Physicians are becoming very comfortable once they use sentinel in terms of the ease of use as well as the impact from that so a lot of lot of focus there on Lotus.
Really pleased are essential to delivering per our commitment to 150 accounts that we expect to open we're on track to deliver that we're not going to provide kind of share to date or usage data by account.
But I would say you know this has been a long time coming to bring them to market and anecdotally I would say doctors are pleasantly surprised by the unique features that delivers the control.
Use of the device the ability to reposition and the elimination of the.
PBL.
Is delivering on its promise and.
Given the investment that we've made.
The time that has taken a we're really focused on quality strong patient outcomes and proctoring.
And we're in this for the long run with two valves and.
Going to deliver as planned our financial commitment and the the rollout of Lotus.
Thank you next question is from the line of Bob Hopkins Bank of America. Please go ahead.
Great. Thank you and good morning.
So two product related questions if okay first on.
Spinal cord stimulation I was wondering if you could give us a sense for.
The growth rate of that business in the second quarter and then just broadly any additional thoughts you have on underlying market growth trends and spinal cord stimulation here in 2019. Thank you.
Hi, Good morning, Bob Thanks for the question I, just high level before I get right to your question that one thing. We are happy about is the neuroma team as continues to diversify that business, who will always be led by our spinal cord.
A question for a second but our international growth is becoming more significant the team in Europe do an excellent job.
With both FCS and DBS.
And then we.
They are diversified with our platform and our Verde flex so that gives us.
Multiple product categories and more multiple regions that are contributing.
On the SCS market.
Itself.
For BSC standpoint, you know candidly, we face some brutal comps, which was good from last year, we had a 31% comp and neuro mud.
In second quarter 18, we did risk.
The sequential growth in the in that franchise within SCS in the us from first quarter to second quarter, So thats encouraging and our team has the amped up significantly more their patient awareness activities and other kind of fundamentals that we may have gotten away from a little bit and easy.
Because of the volume was so strong it really wasn't needed.
So in our view this is a seven we call it a upper single digit growth market.
We stick with that.
Based on the the unmet patient need that we see the lack of alternative and significant survey work that we've done.
So we have seen less volume in the first half of 2019, and we expect that to improve slightly in the second half.
And then will we believe will continue to grow faster than the market. So.
When we look at our guidance for the second half of 19, we obviously are conservative and.
Phil about what our SCS projections are so I think thats.
Kind of tapered view is built into our in our guidance, but we have a lot of confidence in the long term growth outlook of the market.
And the portfolio that we have.
Okay great.
And then I'm, sorry, if I missed it but it was there a specific spinal cord I'm just curious if the growth rate of the spinal cord stim.
Boston scientific business in the second quarter.
If you're willing to provide that and my second question would just quickly on peripheral and Paclitaxel just curious as to what happened to Paclitaxel sales in kind of Q2 versus Q1 is there any noticeable change there.
Yes, so just specific to your question Us SCS did decline in the second quarter.
Kind of upper single digits, and O.U.S. was up and so again that was we suffered there against the significant comp and some volume softness. So we saw sequential growth in the quarter, but for the USS Yes. It did decline upper single digit.
On Paclitaxel really nothing new since Jeff outlined at Investor Day.
We expect to hear from the FDA on their guidance document in August .
And.
We think as long as.
The the guidance documents kind of written in line with their commentary at the panel than we believe ILUVIEN will be a nice growth driver force clearly in Japan and also in the U.S.
Really nothing changed from Mervis his comments at Investor Day.
Thank you next question is from the line of Vijay Kumar Evercore. Please go ahead.
Hey, guys. Thanks for taking my question a couple of quick guidance questions. The first one fairly simple.
The days impact in back half, Mike or Dan is that split equally between CQ in fourq or is that more feature weighted.
It just rolls in over the two quarters I wouldn't I wouldn't point to one month or one particular quarter. It just rolls over the over the back half.
Understood and then just on the EPS guidance, Dan in a tax rate a tad below im assuming this is being offset by higher opex spend and I think I heard you mention support commercial launches maybe highlight a couple of where that spend is going and BTG given the August close any changes in the two to three cents contribution for for this fiscal.
Or does the math change thank you.
Yes, I think the BTG one first I can't comment on that obviously just based on the UK rules until that deal actually closes, which we say should be sometime in in August .
Relative to as you know you think of the launches that we have.
You have lotus.
We're gearing up for watchman in Japan, we have eluvia going in Japan, we have other momentum in endo in some of the the med surge franchises and then one of the other things in M&A in the quarter is if you look at the Neuromod BNL, it's de leveraged and because of the growth again, Mike Mike detailed that very nicely.
In terms of the 31% comp from last year. So we're not making any fundamental changes to that business, because we think thats, a fantastic market, 7% to 10% as as Weve said, so that as a little bit of impact in the quarter that that PNM deleverage were fine with that because we're going to keep that.
That engine going for us for the long term, but that's probably the key reasons the launches and a little bit of a de leveraged neuromonitoring on the quarter.
Thank you. Our next question is from the line of Joanne Winch BMO capital markets. Please go ahead.
Good morning, everybody and thank you for taking the question.
I'd like to just hit upon acquisition last year, you announce and 2018, one so far in 2019.
Where what are you thinking in regards to continued.
Capital deployment in this area.
Hi, Joanne.
Thanks for the question. So do we have any closing our most strategic one BTG within the next.
In August here with what we're aiming for which will be.
Great and we've.
And longer than we thought given the divestiture, but the team is ready to deliver on that significant cost synergies and mixes the category leader in interventional oncology tools and products I won't go through all that but we're excited about that acquisition in 19, you've seen us really do one deal.
Thus far the Artiflex acquisition, so our pace of acquisitions.
Certainly slowed down with one acquisition through.
Almost into July here, and so we do have capacity.
To do a couple more tuck in oriented acquisitions in 19, if we wanted to and some of the valuations are quite high.
And we do have a very prolific I would say VC portfolio.
That you'll see us acquire.
Companies from that portfolio over the coming two years, but really to be determined whether we do any more acquisitions this year or potentially.
One or two at the most tuck in acquisitions, so you'll see significant.
So currently less volume in 2019 versus 18, and then we'll have additional capacity. Once we continued to delever as planned as outlined in Investor day, So nice capacity in 2020 or more tuck in acquisitions. If the strategy works in the financials makes sense for us.
And then on a specific product the exact model do you think.
Good morning, Scott.
You submitted it to April and to the FDA can you give us an update on the timing of that and how we should think about.
Just your endoscopy business in general.
So with that and so the industrial business in general is kind of firing in all cylinders they have.
Significant number of product launches throughout 2019.
After executing on and the supply and the supply chain team continues to.
To deliver against the requirements. There. So we have a lot of confidence that quite frankly, endo will accelerate growth in the second half of <unk>.
2019 versus first half on the Dudina scope.
The team makes good ongoing progress there and.
We continue to.
Put this in our in our physicians hands and they continue to test the product through clinical of.
Trials that we're doing but we do expect the approval of this product and launching that by the year end. So you will see some impact of exult dudina scope in the fourth quarter.
Which also is another reason to support our second accelerate so I would say is on track the endo business in particular is executing at a high level.
Hitting the cadence of product launches in the Duodenoscopes kind of on track per arts discussions at Investor Day.
Thank you next question is from the line of Larry Biegelsen of Wells Fargo. Please go ahead.
Good morning, Thanks for taking the question one product question one guidance question.
So so Mike on watchman in Japan.
Have reimbursement, yet and what is the rate there.
Compared to the us and how are you thinking about the trajectory of.
In Japan, and then I had one follow up.
Yes, we just we're pleased with that we just got tax like at two in the morning last night.
On watchman reimbursement approval and ill, let dr. Stein talk a little bit about the clinical indications in the second but just the economics look good as quite frankly, a little bit better than we anticipated.
The reimbursement will be in the U.S.
Dollar conversion in the 13000 dollar range for Japan reimbursement and we'll start our <unk>.
Launch kind of call. It the mid September time period, so you'll see.
Nice benefit from that in the fourth quarter.
Dr side, if you have any comments, yes, thanks, Mike Thanks, Hey, Larry again, as Mike said right now in PMT PMDA approval and now NHL W approval for reimbursement in Japan tracking to launch in September .
Just sort of putting it all together the guidelines for use are very similar to what we see in the United States and we're very pleased by.
Thank you very much and then Mike what gets you to the high end versus the low end of the guidance range for organic growth in 2019, thanks for taking the questions guys.
Let's go sell more.
[laughter].
I think it's really.
I am really pleased we just did the strat plan and I would say the team is executing really per our commitments for the year. This is what's the schedule for the acceleration in the second half given that the days in the portfolio a cadence that we have I think in terms of.
Within that range.
The structural heart business as a nice lever there.
With watchman others.
Japan approval with watchman.
The continued momentum with Lotus settle an accurate so I think thats a.
Pretty good sized swing factor in terms of our overall.
Within the range there and then I think that Japan, and Asia I would say Asia broadly is doing extremely well, yes, excellent China growth that we need to see that momentum sustain.
Which it has for a number of years that Japan getting back to healthy growth as a big.
Lift for Us in Asia Pac. So I think those are a couple and then you just have.
Produce strong concern with the exception of the PE, where we're growing slower than market and we have some exciting new launches coming in Europe on single shot and hopefully in the U.S.
A our directs our my five direct sense therapeutic catheter launch so we expect SPD get healthier in 2020, so with exception of that business. In 19 is a lot of momentum across them and so I think its the ongoing momentum the.
Kind of the swing points as the our execution in structural heart, which is kind of on plan and I would say the the Asia growth in particular is meaningful for us.
Thank you next question is from the line of Josh Jennings of Cowen. Please go ahead.
Hi, good morning, Thanks for taking the questions.
Mike I just had a quick follow up on the FDA Paclitaxel panel and then another upcoming recommendations.
Are you guys internally, assuming that there will be a label change detailing some mortality signal paclitaxel crude devices in and if you are why wouldn't that potentially be more impactful to the market.
Hello, Dr. Meredith, if you're able to hear the question or answer that one there would be helpful.
Thanks, Mike I didn't hear that.
I think the 24 hour some money from the FDA gives us some guidance as to what the.
The likely outcome of the next guidance tightened the good thing when as you noted the panel unanimously agreed that there was short term benefits of the Paclitaxel coded devices that out why these risks that we actually saw in the.
For us I'd trials, which were they were methodological reasons why that mortality signal Mont not model, they not clear and the other thing that's very important here is that.
The panel couldn't describe the Clos subject to Paclitaxel to bosses SUNS Eluvia recourse was not included in that analysis. So it behaves more like a drug eluding stent. The DCB in terms of the delivery mechanism and the target the focal way, it's actually to leave and so we feel that.
The the panel guidance, thus far actually points too.
A fairly reasonable.
How come from the next statement so I suspect.
That will bode well for ILUVIEN.
Thanks for that and this is just one follow up actually with Dr. Meredith on on Lotus edge.
Can you help us understand how your marketing.
The pacemaker rate clearly theres a through a lot of positive metrics to put on the table for some of your physician customers, but I think TV too we saw a lotus edge combined cohort of 33 patients down in the low low double digit pacemaker rate of 30 days is that the rate you guys are putting forward two to physician customers and.
And then I think you did do a 50 patient you need 50 patients to get the.
FTC approval with it we ever going to see that date or how is that going to be brought brought forward. Thanks for taking the questions. Okay. Thanks I'll answer the second one first and then come back to the first part of your question. So the as you know there was a nested registry the focus of the NIST 50 patient needs to bridge as she was related to the pinnacle issue decided that that actually didnt occur we've decided to continue enrollment in that study and.
But study is ongoing so that we will ultimately have a significant Titus said, where we can actually assess the pacemaker rate. We believe the pacemaker rate will be competitive and.
In that.
Order of magnitude that you mentioned before from both the reprise the age and the CMC studies.
Where we had that cohort of patients with a 12% pacemaker right.
So that study is nested registry is ongoing and will report out probably when we have 150 patients in that study and along with that we will have reprise for another off our SaaS, which will give us a clear indication of the pacemaker rate thus far on the.
But that's how we are assessing the pacemaker right in the data that we have some.
That reprise edge and CMC studies suggest that we will have a competitive price night right along with all the other advantages that you alluded to the very the lowest best in class Pvl one.
Great as it is to reposition ability no need for valve in valve.
Thank you. Your next question is from the line of Matt Taylor, Yes. Please go ahead.
Hi, Thank you for taking the question I just want to ask one on the European regulatory environment. You mentioned the delay 20 programs. There do you think this is something that's going to be kind of a chronic issue could you characterize it a little bit more in terms of the additional timelines are costs that you could occur with other new programs.
Yes, I think the.
The MDR process.
Certainly adding.
Some resource requirements for Boston scientific and others.
We think it will in the long run.
This will be good for Europe , but clearly over the other.
In the short run its a.
The significant investment from us than other companies to provide the.
The request of the MTR.
Processor is requiring so.
I was thinking that in the near term, it's more and more of a financial expense item and resource allocation I think.
Longer term in terms of our internal processes and capabilities, we're certainly equipped to do it.
I think it might have a small as a greater impact on some of the smaller companies than the larger companies.
There was specific to the accurate neo too.
Peace.
The good news there is we've initiated our us IDE clinical trials, we're on schedule to bring that.
Second valves to the U.S. market per our Investor day, we are seeing a delay.
I think like six months 12 months in Europe for our accurate near to obviously won't impact our existing accurate in our.
Our embolic protection capabilities, there, but essentially what we've tried to do is consolidate.
Our regulatory submissions with fewer notified bodies in Europe .
And in doing that we think we'll have better long term performance working with fewer regulatory.
Notified bodies and will help with future accurate portfolio expansion and approval timelines. So there's not a.
Product question with a specific valve its more us down selecting on the number of agencies.
We're working with a number of agencies in Europe , given the number of them and the new MDR requirement, it's quite a challenge for them as well.
So we think working with a few of them.
And following that process will be investor Boston scientific, but we think in the near term. Obviously there is some expense challenges and some minor delays in Europe with products.
Okay very clear and then you work the emerging market growth continues to be really strong is there anything to call out there and how long can you keep up this kind of 20% operational growth.
Yeah, we've been doing it for quite a while and as the good news is it's across a number of countries like China clearly is the largest catalyst there.
And the benefit there as we used to be primarily a Japanese company in Asia and now we are much more diversified with strength in Australia The Korean team.
And the ongoing growth of China, but China is really the key driver for us in emerging markets and so much of its kind of our playbook of.
Of bringing all of our portfolio to China, rather than just drug Eluting stent, which is what it was historically our PPI business is growing exceptionally well in China as is our complex coronary business.
And our Washington business and Endo in Euro and other divisions are scaling up there. So I think it's an ongoing diversification of our portfolio.
Getting our products approve there so we expect continued momentum in China.
So we don't see a slowdown in the second half in China or the emerging markets also our team Latin America continued despite the challenges that market continues to grow well above market and a nice profitable rates and we're seeing that nice growth in certain parts of middle East Africa and in the ASEAN countries. So there's quite a stew within the emerging markets, but China is the biggest driver.
Thank you. Our next question from the line of Chris Best Qualys.
Guggenheim. Please go ahead.
Mike I just wanted to understand your comments on the FDA is updated guidance document coming out of the panel and maybe duck meritor can chime in here too.
Do you expect him to recommend that paclitaxel products only be used in high risk patients was unclear. If you were saying that that was something you thought it would actually take place.
So do you want me to take that monk sure.
Yes so.
We don't want to speculate on what the FDA does it position will actually be but I was trying to draw from the statements that came from the 24 hour summary in the.
As in that 24 hour summary, the panel increase.
The FDA panel and create that we should continue to approve devices with 12 month follow up clinical data.
To quantify to assess the.
Safety and efficacy and it is very likely that there will be a need for us longer term data to just fully understand the would be.
Oh that sequel.
I think the fact that there was not a CLIA clawson based actually established and there is clear.
Benefits and Mike alluded to the TLR differences, we sold the Loopier. It by this one and two years.
But.
But the.
It's very likely that there will be continued use of paclitaxel.
As the pension freeze to notices.
Obviously, the is easy to suggest that it will be allude, therefore high risk patients, but I think one of the important comments that came out of this was that it should be up to the physician and the patients to side.
Uh huh.
Who is appropriate for that treatment.
I think just also just for broader specific up DSC and when we look at our second half got third quarter guidance and implied fourth quarter guidance, we're assuming.
Growth significantly slower than planned originally for the year that we've de risked.
The eluvia sales quite a bit in our guidance.
Appropriately, but we do see strong uptake in Japan, because this issue doesn't seem to be a.
Concerning in Japan.
More importantly, I think is just within our PA business. The other growth drivers. In addition to some questions around what happens with Paclitaxel. So we'll know more in the next 45 days, but even if you remove.
ILUVIEN topic from the question with the closing of interventional oncology with BTG.
They need he said that we have recently.
Our launching Theres a number of growth drivers within our PA business that will continue to strengthen that most we'll know more in 30 days on the FDA fees.
Thanks, that's helpful and then just to follow up on Lotus.
Reprise for has been up and running now for a little while can you give us an updated timeline on that we were not expecting that.
A home run.
All in on pack attack, so when we give our guidance that's not that's not the assumption when we give our second half guidance.
Thanks, Mike.
And then just quickly on or priest forward, just any update on the timing of enrollment completion. There. When you guys expect that trial to get builds just want to get a sense for when we could get label expansion and see that data. Thanks.
Okay.
Yes, so the recruitment to endeavor praise for trial is going to be going well and saw a lot of positive patient feedback on the reprise boss.
A study in recruitment it's a single arm study, yes, as you know and that that study should be on track for sort of.
Completion with one the follow up.
Probably.
The 2020.
Thats a completion of the patients in this study early twenties Wendy.
Thank you and our next question is Jason Mills Canaccord Genuity. Please go ahead.
Good morning, Mike Dean team. Thanks for taking the question to paying any questions. Mike first on LP in second on very modulation, specifically STS E P.
It was a plus grower for you notwithstanding that the greatest slowed you talked about new product launch is that is that what.
We'll drive great hire and shipping into back into the teens range and commensurate with the market in way over the course of let's say the next couple of years do you envision.
We'll also argument that business profile do you see it as a double digit growth over the longer term and I'll. Just ask my second question now to shortly with respect to SCS and based on your performance in one of your competitors do you believe that you lost share in the United States see us theaters the market getting growing commensurate with what we've seen you report, meaning you can blame it. Thank you.
Yes, yes, we just don't know yet.
We had some nice product enhancements coming to second half of the year.
If you want to do our two year growth CAGR of 15% or so.
Tough comps this year and we haven't had some of the competitors report yet. So we'll know more you know 45 days or so whether we lost any share gain share or held share in the quarter.
But.
On any doctors I can comment I think.
With the IP. This is a long term commitment that we have in this business.
Given the size of the market and the growth profile and the overlap that we have on the call point and capabilities and so it's really a tale of two cities right. Now we have strong growth in Europe , where we have our rhythmia is doing extremely well and our therapeutic catheter launches doing quite well and so Europe I would say is growing above market.
And us is growing below market and us we don't have the portfolio all the portfolio pieces that Europe has so I think Europe is a good indicator for us for the future and beyond Rhythmia, which is doing well.
And the.
Direct sense, a therapeutic catheter, we hope to bring a differentiated triable known.
To the market by the end of the fourth quarter time period, So that will have a nice impact for us in 2020 in Europe , and we'll start our U.S. trial in the U.S. So I think you'll see Europe continued to grow quite a bit faster than market.
Second half of this year and in 20.
In the U.S. likely will lag.
Until we can get the direct sense approval in the us, which we hope will be in the first half. So once we get that than the us will.
Grow more effectively and then once we get single shot so I think you'll see.
Longer term.
We'll be the only company with a full suite of mapping systems therapeutic catheters and multiple shots on goal in single shot so portfolio be quite differentiated it just it just lags more in the U.S.
Dr. Simon do you have any comments, yes, and Mike just to reiterate what you said or some of the key to our strategy is offering the most round and most comprehensive portfolio of tools that ends need to treat complex arrhythmias I gauge of fibrillation. So ragged. It's two different single shot techniques Cryoablation catheter polar acts and an RF balloon or.
Women icecap.
It's also having a high density high mappings high resolution mapping with Rhythmia with direct sense, and then with the commerce stable point, catheter, which which will be unique on the market having both floors.
And direct sense and then in addition to that things like.
Our acquisition of Securus, which is.
A infrared monitor for Sop, Agila monitoring and protection during ablation procedures.
Theres no competitor, that's able to offer.
That kind of a comprehensive portfolio and then you know as as as Joe and I have talked about it.
Investors day and at at HRS.
The tap into double digit growth is also moving our product mix.
From.
What had traditionally been in these low growth segments of electrophysiology into these higher growth segments like complex mapping like single shot for interest relation.
Great. Okay, Kevin we bought we're going to conclude the call. We thank everyone very much for joining us and Kevin will now provide the replay details.
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