Boston Scientific Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 31, 2024

There are 15 speakers on the call.

Operator

Good morning, and welcome to the Boston Scientific 4th Quarter 2023 Earnings Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Lauren Tangler, Vice President, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, Drew. Welcome, everyone, and thanks for joining us today. With 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 Q4 and full year 2023 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.

Speaker 1

The duration of this morning's call will be approximately 1 hour. Mike and Dan will provide comments on Q4 and full year performance as well as the outlook for the business, including 2024 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 Officer, Doctor. Ken Stein. Before we begin, I'd like to remind everyone that on All operational revenue growth excludes the impact of foreign currency fluctuations, and organic revenue growth further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales.

Speaker 1

Relevant acquisitions and divestitures excluded for organic growth are Bayless Medical, which closed on February 14, 2022 the majority stake investment in Aquatek Scientific Holding Limited, Apollo Endosurgery and Relievement Medical, which closed in February, April, November 2023, respectively. Divestitures include the Endoscopy Pathology business, which closed in April 2023. Guidance excludes the Previously announced agreement to acquire Axonics Inc, which is expected to close in the first half of twenty twenty four, subject to customary closing conditions. For more information, please refer to our financial and operating highlights deck, which may be found on our Investor Relations website. On this call, all references Sales and revenue, unless otherwise specified, are organic.

Speaker 1

This call contains forward looking statements within the meanings of federal They include, among other things, statements about our growth and market share, new and anticipated product approvals and launches, acquisitions, clinical trials, 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 and D, spend and other expenses. If our underlying assumptions turn out to be incorrect or if certain risks Before uncertainties materialize, actual results could vary materially from the expectations and projections expressed or implied by our forward looking statements. Factors that may cause such differences include those described in the Risk Factors section of our most recent 10 ks and subsequent 10 Qs 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.

Speaker 2

Thanks, Lauren, and thank you to everyone for joining us today. 2023 results were excellent, and our global performance represented one of the strongest years in company history, exceeding our financial goals that we set for the year. This performance is fueled by innovation and clinical evidence generation, commercial execution and the winning spirit of our global teams. In Q4 'twenty three, total company operational sales grew 15% and organic sales grew 14% versus Q4 'twenty two, exceeding the high end of our guidance range of 8% to 10%. Full year 'twenty three operational sales growth of 13% versus 2022, while organic sales grew 12%, exceeding our guidance of approximately 11% for the full year.

Speaker 2

Importantly, 6 of our 8 business units grew sales double digit in the 4th quarter and double digits for the full year 2023. And all of our regions also grew double digits in the 4th quarter and double digits full year 2023. This performance is a testament to our category leadership strategy and our focus on innovation bolstered by commercial excellence. 4th quarter adjusted EPS of $0.55 grew 24% versus 2022, exceeding the high end of our guidance range of $0.49 to $0.52 Full year adjusted EPS of $2.05 grew 20% versus 2022, also exceeding the high end of our guidance range $1.99 to $2.02 Q4 adjusted operating margin was 26.6 percent And full year 'twenty three was $26,300,000 which is exciting because it exceeds pre pandemic levels. We generated full year cash flow of $1,800,000,000 and adjusted free cash flow of $2,500,000,000 in line with our expectations.

Speaker 2

Now for our 2024 outlook. We expect healthy procedure volumes to continue and are guiding to organic growth of 7% to 9% For Q1 'twenty four and $8 to $9 for the full year of 2024. Our Q1 'twenty four adjusted EPS The net is $0.50 to $0.52 We expect our full year adjusted EPS to be $2.23 to 2.27 representing growth of 9% to 11%. This guidance excludes the acquisition of Axonics, which is expected to close in the first half of twenty twenty four. Despite pressures on margins in 2024 from FX headwinds as well as investments in manufacturing capacity and selling expenses to fuel our exciting launches.

Speaker 2

We remain committed to improving operating income margins in 2024 and to our goal of improving adjusted operating margin by 150 basis points in 24 to 26. Now Dan will provide more details on those financials for both 2023 2024. I'll now provide additional highlights on 2023's results along with comments on our outlook. Regionally, on an operational basis, the U. S.

Speaker 2

Grew 11% Q4 2022. Full year 2023 grew 10% with particular strength in our WATCHMAN, EP, Endo and Europe Business Units. Europe, Middle East, and Africa grew 12% on an operational basis versus q4 'twenty two and 13% on a full year basis. This above market growth is Supported by new and ongoing product launches across the portfolio, price discipline and strong commercial execution. We're excited about the year ahead with ongoing momentum across the region, particularly with our innovative EP portfolio and further opportunity in our growth in emerging markets within the EMEA region.

Speaker 2

Asia Pacific grew 17% operationally versus Q4 in 2019 versus the full year 2022, with all major markets growing strong double digits. Japan had a strong year growing double digits for 'twenty two with ongoing momentum from new products, Most notably, AGENT, DCB, Rezum, Polar Fit and Watchmen Flex. And on a full year basis, China grew approximately 20% versus 2022. This consistent growth is fueled by the diverse portfolio, focus on innovation and strong commercial execution. Looking ahead, we expect China to be an accretive mid teens growth over our 24 to 26 LRP and to achieve over $1,000,000,000 in sales in 2024, Supported by new product launches, supply chain agility and sustained investments in our talent and capabilities.

Speaker 2

The team Latin America grew 17% Operationally versus both Q4 and full year 'twenty two with 7 of 8 business units growing double digits on a full year basis. I'll now provide some additional Comments here in our BUs. Urology had an excellent quarter, 10% organic growth versus Q4 'twenty two and on a full year basis grew 11% organically. Full year growth was led by our stone management and prosthetic urology globally. And in 2023, we relaunched our direct to patient campaign driving therapy awareness for erectile dysfunction and supporting double digit growth within our prosthetic urology We're excited about the opportunities ahead at neurology, including our recently announced agreement to acquire Axonics, a medical technology company that together and expanding access to differentiated technologies for physicians and patients.

Speaker 2

Endoscopy sales were also excellent in the quarter, Growing 12% operationally and 11% organically versus Q4 'twenty two and the full year basis growing 12% operationally and 11% organically. Within the quarter, strong results were led by Axios and Signal Use scopes, both growing double digits. On a full year basis, all regions grew double digits, supported by the broad and deep portfolio, new product innovation and focus on commercial excellence. Neuromodulation sales grew 7% operationally and 3% organically versus Q4 2022 and a full year basis 7% operationally and 5% organically versus 22%. Our Brain franchise grew double digits both in Quarter and on a full year basis, driven by the PreciseGenus portfolio and our innovative image guided programming, which is designed to improve the precision and efficiency In 4th quarter, on an organic basis, our pain franchise was flat year over year, which was in line with our expectations.

Speaker 2

We expect our performance to improve in 2024 with the recent launch of our U. S. WaveWriter Alpha DPN indication and the strong real world data on FAST recently presented at Nance. Furthermore, with the completion of our Relieveant Med Systems acquisition in the 4th quarter, We're excited about our ability to offer an expanded pain portfolio that supports a comprehensive treatment algorithm, Now including the novel IntraStep system for the treatment of chronic low back pain. Peripheral Intervention sales were Exelon also growing 12% operationally and 10% organically versus Q4 and a full year basis growing 13 Operationally in 11% organically versus 22%.

Speaker 2

Our TiVo growth was led by the performance of our drug eluting portfolio both in Q4 and in a full year. This market remains underpenetrated with more than half the procedures still being used with bare metal devices, underscoring the importance of our ongoing commitment to innovation In Venus, Q4 experienced growth was led by Verathena, our market leading varicose vein technology. Additionally, in Q4, ECOS growth was supported by Real PE, the largest real world and near real time data set evaluating advanced therapies for pulmonary embolism patients. Our interventional oncology franchise performed extremely well in Q4 and in 2023, Growing low double digits with strength across our portfolio of robust embolization technologies and cancer therapies. We continue to look to expand our clinical evidence and are pleased to have commenced enrollment in the ROMAN trial, which will access the safety and efficacy of using TheraSPHERE In combination with immunotherapy to treat HCC, the most common type of primary liver cancer.

Speaker 2

Cardiology delivered tremendous quarter delivered tremendous 4th quarter year with both operational and organic sales growing 14% versus 4th quarter and for the full year 2022. Within cardiology, interventional cardiology therapy sales grew 10% for the full year and for the quarter and into full year. On a full year basis, the coronary therapies franchise growth driven by strong performance in our international regions and our imaging franchise globally. AGENT drug coated balloon continues performed very well in Japan and we now expect approval of AGENT in the U. S.

Speaker 2

In the first half of twenty twenty four. Asian DCB will be the 1st coronary drug eluting balloon in the U. S. Indicated for instant restenosis, providing physicians and their patients a solution for this unmet clinical need. Our structural heart valves franchise grew double digits in both 4th quarter and on a full year basis led by the performance of ACURATE NEO2 in Europe, and we now have treated more than 70,000 patients to date with our ACURATE technology globally.

Speaker 2

As we look ahead, we anticipate approval of ACURATE Prime in Europe in 2025. However, After reviewing a planned interim analysis of the U. S. ACURATE IDE data, we will now wait for the full 1 year data from the RCT cohort of 1500 patients to determine our regulatory strategy. Therefore, we no longer anticipate the approval of Vacker Prime in the U.

Speaker 2

S. In 2024. Additionally, in alignment with the FDA, we are suspending enrollment in the single arm continued access study, while continuing to enroll in the randomized We expect to have more information in the second half of twenty twenty four following the full data review. WATCHMAN sales grew 23% organically versus Q4 202225% on a full year basis. Q4 finished with record sales and strong utilization in all major markets.

Speaker 2

We have now treated over 400,000 patients globally with the WATCHMAN technology. U. S. Q4 growth of 23% was supported by the breadth of the portfolio And the initial launch of WATCHMAN FlexPRO, which we expect to move into full launch in the Q1. We continue to expand the breadth of clinical evidence This technology and are pleased with the pace of enrollment within our post market HEAL LAA trial, including our newly added cohort, which is studying WATCHMAN FLEXPRO in underrepresented patient populations.

Speaker 2

We also look forward to initiating our monotherapy trial, SIMPLIFY trial later this year, which will study WATCHMAN FlexPRO with a simplified post implant drug regimen. Cardiac Rhythm Management sales grew 5% organically versus Q4 'twenty two and on a full year basis grew 6% organically versus 'twenty two. On a full year basis, our diagnostics franchise grew double digits outpacing market growth, driven by broad portfolio and ongoing investments in innovation. In core CRM in both 4th quarter and a full year basis, our high voltage business grew low single digits and our low voltage business grew mid single digits. 2023 performance was driven by our differentiated high voltage portfolio and shock polarity options.

Speaker 2

As we look ahead, we expect our core CRM growth to be in line with the market performance in 2024. For Indian Electrophysiology, sales grew 43%, both operationally and organically versus Q4 'twenty two and on a full year basis grew 37% operationally and 33% organically versus U. S. 4th quarter sales grew 40% organically, driven by our PolarX launch and ongoing momentum with our Access Solutions portfolio. Our international EP growth accelerated in the 4th quarter, growing 46% organically, fueled by improved VERIPUL's console supply.

Speaker 2

We now have treated over 40,000 patients globally with the FerraPulse technology to date. And with the news this morning that we received FDA approval For Ferra PULSE, we are thrilled to enter the U. S. Market immediately. We continue to invest in clinical evidence Study new indications and support access to our Ferra PULSE technology.

Speaker 2

Late last year, we initiated the Avant Garde trial to evaluate the safety and efficacy of the system It's our first line treatment for piscesin AF compared to antiarrhythmic drug therapy. Additionally, real world data was presented at For more than 17,000 patients treated with Feripulse, the manifest 17 ks registry, which reinforced the real world safety profile of the Sparapulse platform. With no reports of permanent phrenic nerve palsy or pulmonary vein stenosis or esophageal injury and an overall major adverse event rate of less than 1%. We're excited to bring this innovative technology to more markets and expect approval of TheraPulse in Japan China and Japan likely in the second half of this year. In closing, I'm very proud of our global team, what we are able to accomplish in 'twenty three, resulting in full year organic sales growth of 12% and adjusted EPS growth of 20%.

Speaker 2

We're excited about the year ahead and remain focused on our talent and sustaining the culture that's motivated drive differentiated performance and achieve our long range plan goals. Those goals, as a reminder, are sales an average of 8% to 10% Over the 3 year period, while expanding adjusted operating margin by 150 basis points, including double digit adjusted EPS growth And improvement of our free cash flow conversion to approximately 70% in 2026. With all of that, I'll pass it over to Dan to provide more details on

Speaker 3

the financials. Thanks, Mike. Q4 2023 consolidated revenue of $3,725,000,000 represents 14.9 Reported growth versus Q4 2022 and includes a 40 basis point tailwind from foreign exchange, in line with our expectations. Excluding this $12,000,000 tailwind from foreign exchange, operational revenue growth was 14.5% in the quarter. Sales from closed acquisitions and divestitures contributed 90 basis points, resulting in 13.6 percent organic revenue growth, exceeding our guidance range of 8% to 10%.

Speaker 3

Q4 2023 adjusted earnings per share of $0.55 grew 24% versus 2022, exceeding the high end of our guidance range of $0.49 to $0.52 primarily driven by our strong sales performance. Full year 2023 consolidated revenue of $14,240,000,000 represents 12.3% reported revenue growth versus full year 2022 and includes an 80 basis point headwind from foreign exchange, again, in line with our expectations. Excluding this $104,000,000 headwind from foreign exchange, operational revenue growth for the year was 13.1%. Sales from closed acquisitions and divestitures contributed 80 basis points, resulting in 12.3 percent organic revenue growth, exceeding our guidance range of approximately 11%. Full year 2023 adjusted earnings per share $2.05 grew 20% versus 2022, exceeding the high end of our guidance range of 1.99 to $2.02 Adjusted gross margin for the 4th quarter was 70.4%, resulting in full year 2023 adjusted gross margin of 70.7 percent in line with our expectations and representing a 20 basis point improvement versus full year 2022, inclusive of a 220 basis point headwind from foreign exchange.

Speaker 3

In 2024, We expect a mix benefit from our new launches with offsetting headwinds from FX and the incremental investment in our manufacturing capacity. And as a result, we anticipate our full year 2024 adjusted gross margin will be at or slightly below Our full year 2023 rate. 4th quarter adjusted operating margin was 26.6 percent, Presenting in a full year 2023 adjusted operating margin of 26.3 percent, improving 70 basis points versus 2022. We expect to expand adjusted operating margin in 2024 by another 30 basis points to 50 basis points, balancing progress towards our long range plan goal of 150 basis points over the 3 years 2024 to 2026 with flexibility for critical investments to support key launches. On a GAAP basis, the 4th quarter operating margin was 15.7%, resulting in a full year reported operating margin of 16.5%.

Speaker 3

Moving to below the line, 4th quarter adjusted interest and other expenses totaled $79,000,000 resulting And full year adjusted interest and other expense of $331,000,000 in line with our expectations. On an adjusted basis, our tax rate for the Q4 was 10% and 11.2% for the full year 2023, including favorable discrete tax items and the benefit from stock compensation accounting. Our operational tax rate was 14.6% for the 4th quarter and 13 point 9 percent for the full year, again in line with expectations. Fully diluted weighted average shares outstanding ended at 1,477,000,000,004,177 1,000,000 shares in Q4 and 1,464,000,000 shares for full year 2023. Free cash flow for the quarter was $718,000,000 with $984,000,000 from operating activities, less $267,000,000 of net capital expenditures.

Speaker 3

Excluding special items, adjusted free cash flow was $913,000,000 Full year 2023 cash flow was $1,800,000,000 and adjusted free cash flow was $2,500,000,000 both In line with expectations. For 2024, we expect full year free cash flow to be in excess of $2,000,000,000 which includes approximately $800,000,000 of expected payments related to acquisitions, restructuring, litigation and other special items. As of December 31, 2023, we had cash on hand of $865,000,000 and our gross debt leverage was 2.3 times. We expect to fund the Axonics acquisition through a mix of cash on hand and new debt, which will be determined prior to or at the time of close. Our top capital allocation priority remains strategic tuck in M and A followed by annual share repurchases to offset dilution from employee stock grants.

Speaker 3

Our legal reserve was $377,000,000 as of December 31, a decrease of $30,000,000 versus the prior quarter, $108,000,000 of this reserve is already funded through our qualified settlement funds. Now I'll walk through guidance for 1st quarter and the full year 2024. We expect full year 2024 reported revenue growth to be in a range of 8.5% to 9.5% versus 2023. Excluding an approximate 50 basis point headwind from foreign exchange based on current rates, We expect full year 2024 operational revenue growth to be 9% to 10%, Excluding a 100 basis point contribution from closed acquisitions, we expect full year 2024 organic revenue growth to be in a range of 8 percent to 9% versus 2023. We expect Q1 2024 reported revenue growth to be in a range of 7.5% to 9.5% versus Q1 2023, excluding an approximate 100 basis point headwind From foreign exchange based on current rates, we expect Q1 2024 operational growth to be 8.5% to 10.5%, Excluding a 150 basis point contribution from closed acquisitions, we expect Q1 2024 organic revenue growth to be in a range of 7% to 9% versus Q1 2023.

Speaker 3

We expect our Full year 2024 adjusted below the line expenses to be approximately $330,000,000 Under current legislation, including enacted laws and issued guidance under OECD Pillar 2 rules, we forecast a full year 2024 operational tax rate of approximately 14% and an adjusted tax rate of approximately 13%. We continue to monitor tax legislation globally, including the currently drafted law to partially repeal U. S. R and D capitalization. If the law were to be passed As currently proposed, we would expect a tailwind of approximately 100 basis points to our operational tax rate in 2024.

Speaker 3

We expect full year adjusted earnings per share to be in a range of $2.23 to $2.27 representing 9% to 11% growth versus 2023, including an approximate $0.04 Headwind from foreign exchange at current rates and existing hedging contracts, which will be recognized ratably through the year. We expect Q1 adjusted earnings per share to be in a range of $0.50 to $0.52 For more information, Please check our Investor Relations website for Q4 2023 financial and operational highlights, which outlines more details on Q4 And full year results and 2024 guidance. In closing, I'm very proud of our 2023 performance and look forward to executing on our 2024 guidance of 8% to 9% organic revenue growth, 30 basis points to 50 basis points of adjusted operating margin expansion and adjusted EPS growth of 9% to 11%. Before I turn it back over to Lauren for the Q and A, I wanted to provide a quick update. A key part of our talent strategy is moving high potential individuals throughout the company to give them a broad set of experiences.

Speaker 3

As part of this, effective March 1, Lauren Tengler will become the Global Controller for our Urology Business Unit, providing financial leadership to the global business and importantly, Playing a key role in the integration of the Axonics business, Lauren previously spent many years within our urology business, making her uniquely qualified for this opportunity. Following Lauren's transition, John Monson, currently our Chief Accounting Officer, will move to our Investor Relations function, leading Ali Devoe and the rest of the team. I I know the investment community will join me in thanking Lauren for her leadership and contributions and in welcoming John to the role. With that, I'll turn it back to Lauren, who will moderate the Q and A.

Speaker 1

Thanks so much, Dan. Drew, let's open it up to questions for the next 30 minutes or so. In order for us to take as many Drew, please go ahead.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Robbie Marcus with JPMorgan. Please go ahead.

Speaker 4

Great. Congrats on a really good quarter and congratulations Lauren on the promotion. Wanted to ask on 2 of the biggest product drivers in 2024 Watchmen and Therapulse. Varipulse got approval today. Wanted to see what's included in guidance for this year and how to think about phasing over the year?

Speaker 4

How long will it take And then second on WATCHMAN, it looks still had a very good quarter and 4th quarter, but growth slowed a little bit. How should we be thinking about the potential for WATCHMAN and 20% plus growth in 2024? Thanks a lot.

Speaker 2

Sure. Thanks, Ravi, for the comments. I'll start with Watchmen. It's just an excellent platform. It was a growth of 23% A quarter of 25% for the full year, terrific work.

Speaker 2

And as you know, that product gets larger and larger for us. I had to cut the script back Because the clinical investments we're making with WATCHMAN go on for a while, and we can touch on those if interested. But as you know, We continue to exceed likely 90% share in the U. S. We'll be rolling out WATCHMAN FLX PRO More as a percent of our total mix in the U.

Speaker 2

S. In the Q1 and throughout the year. So you continue to see that, which is differentiated platform. So with the clinical work that we're doing and the WATCHMAN FlexPRO and the steerable sheet likely To be in the market in 2024 as well, we continue to expect to gain share and we aim to significantly widen the market opportunity through these clinical trials. So Full steam ahead of the Watchmen.

Speaker 2

On Feripulse, maybe the most exciting day I've had in my career at Boston Scientific With this platform that we have based on the results that we've seen in Europe and the enthusiasm globally for our PFA platform To receive approval today was really exciting. We did anticipate a Q1 approval for VERIPULSE. And as you might expect, we expect Impact, Feripulse to be somewhat in Q1 and much more significant as the year goes on, As we work with contracting with hospitals, getting that contract and getting the capital approved and Rolling it out. But we have a lot of experience in doing that through our European success that we've enjoyed. Our team is trained.

Speaker 2

We have installation team. We continue to invest in this. So we're really excited about aiming to disrupt the EP market with what we think is the Premier PFA platform.

Speaker 4

Great. Thanks a lot.

Operator

The next question comes from Joanne Wuensch with Citi. Please go ahead.

Speaker 5

Thank you and good morning. I don't want to leave Ferri Pulse quite yet and

Speaker 1

I suspect there will be a lot of

Speaker 5

questions on it this call. But if you're looking for China and Japan approval in the second half of twenty twenty four, could you sort of outline what you think those And then can you just give a quick highlight on some of the other sort of higher profile cardiology companies such as Polar and Agent? Thank you.

Speaker 2

Yes. So Kent can help me out. But obviously, China and Japan represent Significant opportunities in the EP market. They're the largest markets that we compete in, In those countries, and we currently are under scale, particularly in China. In Japan, we built a lot of momentum over the last, call it 18 months with our PolarX launch.

Speaker 2

So in Japan, that grew, I don't know, I think over 40%, our EP business. And so we have a more scaled commercial team, capabilities in Japan and the Eventually approval in the second half of this year in Japan with Feripulse will really be the next leg of the growth stool in Japan for us. So A lot of confidence there that market China may be even bigger. We're a bit more under scaled in China, so we'll be making a lot of investments there. We have a brand new leader we're excited about in China to run our EP business under Jun Chang.

Speaker 2

So we'll be making additional commercial investments, Clinical investments and hope to have approval in the second half of the year in China. So those will be nice growth drivers for us in 'twenty four, more significant in 2025. And agent, Ken, you want to comment a bit more on Firplus?

Speaker 6

I'd love to comment on Farafrost, again, it's a very Joanne,

Speaker 7

in terms of the

Speaker 6

question specifically about Japan and China, right, I think we got to realize, I mean, AFib is a global Disease, I hate to use the word pandemic, but it is pandemic. Now and We're really pleased about the strength of the clinical trial data that we have as well as the commercial Experience in Europe with, as Mike said, greater than 40,000 patients already treated to date. And it's That strength of the clinical data, right, that led us to the really, I think, rapid approval that we got From the FDA and that has led us to update our anticipated approval times both in Japan and China. Again, I think having said that, We've looked to those approvals in the second half. So I don't think we're going to expect to really see too much material out of that until we get To 2025, but they are both large and important markets and large and important patient populations that are currently Really very much underserved in terms of access to ablation technology.

Speaker 1

Thanks, agent.

Speaker 2

Thanks, Joanne.

Operator

Thank you. The next question comes from Larry Biegelsen with Wells Fargo. Please go

Speaker 8

ahead. Good morning. Thanks for taking the questions. Congrats on a strong finish here and the approval of Therapulse in the U. S.

Speaker 8

On Farrah, Pauls, can you talk about the manufacturing capacity for the catheter and console upon launch and expectations for the EP business this year? You grew 43% in Q4 'twenty three. Any reason why growth would be lower in 'twenty four? And I have to ask Please clarify your comments around Accurate Neo2. It sounds like something happened with Prime, which is the larger size.

Speaker 8

What are the implications for the other sizes of Neo2 in Europe and the U. S? Thank you.

Speaker 2

Thanks, Larry. Starting with FerraPulse, really very proud of the global supply chain team and what they've done over the past 18 months And the Fair Pulse Group that we recently acquired a while ago, but they've done a tremendous job in building capabilities to supply this for the U. S. Launch And to expand in Europe and eventually Asia as we just highlighted. So we are now significantly improved Our catheter and console supply.

Speaker 2

We opened Numerous centers in Europe in the Q4 and we're ready to go. So we, at this point, don't anticipate supply being an issue To continue to support Europe or to facilitate the U. S. Launch, given the capabilities and investments that we've made in approvals to manufacture in multiple locations. So great work by the supply chain team and we're ready to launch this in the U.

Speaker 2

S. On ACURATE NEO2, as I mentioned in the earnings script, maybe just two overall points. We continue to do very well With ACCURATE NEO2 in Europe, implanting, I think the number is 70,000 and continuing to grow faster than the market in Europe. And we are on track For what we have is called Prime in Europe in 2025. So that continues to move forward as planned.

Speaker 2

With respect to the trial, as I mentioned in the script, based on the interim analysis, we now need to wait for the full 1 year follow-up of the And as a result of that, we don't we will not be receiving approval for ACURATE NEO in 2024 And we will wait until likely near the end of 2024 for the full readout of the accurate IDE study to determine our path forward.

Speaker 8

Thank you. Congrats, Lard.

Speaker 1

Thank you, Lard.

Operator

The next question comes from Vijay Kumar with Evercore ISI. Please go ahead.

Speaker 9

Hey, guys. Thanks for taking my question and congrats on a really strong finish here. Maybe just one on The guidance here perhaps for Dan. Dan, the 8% to 9%, it looks like Pharapulse, The prior guided assumed a back half launch. It's coming in a little bit ahead.

Speaker 9

Can you just walk us through that 8% to 9%, Is that right that Farapol's perhaps assumptions have changed? Any impact from VBP or base impact that we should be aware of? And what are you assuming

Speaker 3

Sure. So the VBP assumptions are the same as they've always been, really no change there. As you saw in December, when we issued the press release on avant garde, we moved up the timing of expected Varo Pulse launch So we've been anticipating Q1 launch and that 8% to 9% full year and

Speaker 10

the 7% to 9% for

Speaker 3

the Q1 in terms of revenue growth Contemplated a Q1 approval of TheraPulse. As Mike said, there's probably some contribution in Q1, but more of that contribution comes in Q2 to Q4, so the 8% to 9% has that contemplated in the overall guide. And then pricing, so I would say on pricing is we were basically flat in 2023 and the goal is to be flat again in 2020 So likely, no impact would be the goal in 2024 versus 2023.

Speaker 9

Fantastic. Sorry, on days, Dan, any days impact here?

Speaker 3

No. All the days, there's a lot of obviously, a lot Noise in days around the world through the year, it's all contemplated in guidance, all in 8% to 9% for the full year.

Speaker 9

Fantastic. Thank you, guys.

Speaker 3

Sure, Vijay. Thanks.

Operator

The next question comes from Danielle Antalffy with UBS. Please go ahead.

Speaker 11

Hey, good morning, everyone. Thanks so much for taking the question. Just a follow-up question on Accurate NEOS-two, Mike, if I could. So appreciate the comments that you did provide. Just curious, I mean, obviously, you're giving pretty strong guidance here for 2024.

Speaker 11

I mean, is the right read here that regardless of what happens with Accurate Neo2 and timing there, You're sticking to your long term sales growth guidance that you provided back in September. And sort of how do we think about this as a long term growth contributor now given this And Lauren, we will miss you very much. Thanks so much.

Speaker 2

Lauren is not leaving the company. She'll be around. You're still going to see her.

Speaker 11

But we won't get to see her.

Speaker 1

Okay. Well, we'll I'll work my way in.

Speaker 3

We'll work my way in once

Speaker 2

in a while. So we're excited for John to come in and Lauren To move out, no, I'm excited for Lauren to go to urology. Yes, so to answer your question, we are Fully committed to the 8% to 10% organic growth CAGR over the 24 to 26 periods that we provided in Investor Day. Absolutely no change in that And pleased with the 'twenty three performance, as you know, where we grew 12. So absolutely no change to those financial goals.

Speaker 2

Accurate continues to do well in Europe. It's a product that's used every day by many European physicians and we're excited about getting the larger size We are disappointed that we didn't get accurate over the goal line for approval in 2024. So at this point, we need to wait until the full data sets have been followed up for a year and read out likely before the end of this year in 2024, and Take it from there in terms of the U. S. Launch, but we are disappointed we're not going to launch that really very end of this year and into the next, But absolutely no change to our financial guidance that we gave at Investor Day.

Speaker 11

Okay, great. And also welcome, John. Sorry, I didn't mean Thanks so much guys.

Speaker 3

Thanks Danielle.

Operator

The next question comes from Travis Steed with Bank of America. Please go ahead.

Speaker 12

Hey, thanks for taking the question. Maybe one more follow-up on TAVR. Can you remind us what the interim look was? Was that just like a 6 month look At the data now you need to wait for 1 year data for the lines to separate. And I'm curious if you think what you saw in the interim look, are you still pretty confident that at 1 year we could have a U.

Speaker 12

S. TAVR launch or does this put the whole U. S. TAVR launch at risk?

Speaker 2

Jannar, are you able to hear us okay?

Speaker 12

Yes, I can hear you loud and clear.

Speaker 2

Great. Doctor. Sathanathan is our Chief Medical Officer, as you know for ICTX and Structural Heart, maybe you could comment a bit.

Speaker 12

Yes. I will take the comment just About the data. So essentially what happened in the trial was that as part of a planned interim analysis, We made the decision to await the full 1 year data. It is important just to note that the ACURATE IDE study is still an active clinical study with active And so as a result, we cannot disclose any data related to the trial at this time. We will expect, as Mike said, a readout of the study in the Great.

Speaker 12

Thank you.

Operator

The next question comes from Josh Jennings with TD Cowen. Please go ahead.

Speaker 7

Good morning. Thanks for taking the questions and congratulations for a Strong end of the year. Wanted to ask about the international cardiac ablation market. Boston's Incredible 4th quarter 40 plus percent growth. Some of your competitors delivered really strong international Growth in their electrophysiology businesses as well.

Speaker 7

What's going on in the international market? I mean, are we seeing the promise of PFA driving market Expansion this early, or is there any pricing dynamics going on, but I think it's 20% almost Market growth in internationally for cardiac ablation this year. Just wanted to get some details there and whether that could translate to PFA launches in the United States Driving market expansion, which I think you guys detailed in your Investor Day. Thanks for taking the question.

Speaker 2

Doctor. Stein, you want to take a shot

Speaker 6

at it? Yes, Josh. And thanks, Mike. I think it's a couple of factors And I don't think it's I don't know that I can parse out for you how much is getting contributed from each. But again, I think we just begin with the fact, Right.

Speaker 6

That atrial fibrillation is an incredibly common arrhythmia. Again, as I said earlier, it is Literally pandemic worldwide. I know for instance in the U. S, right, a quarter of adults Over the age of 40, we'll experience AFib at some point in our lives. And ablation, even with legacy thermal Technologies, things for us like StablePoint or PolarX is incredibly effective.

Speaker 6

It's more effective than drugs. But on a global scale, it is still really incredibly under penetrated as a market. And much of the growth that you see really just reflects, I think, increasing realization In the cardiology community, the referring physician community about the relative efficacy and safety And then you layer on top of that the promise and the data With TheraPulse, right. And TheraPulse again takes a procedure that's already effective. It is at least as effective.

Speaker 6

It is Clearly safer and it's also much more efficient than thermal ablation. And so that right enables Docs and medical centers to scale this out much better, right, and start to get into this underpenetrated Population. So maybe a long winded answer, but the short answer is, right, it's both a dramatically under penetrated population To begin with and then on top of that, you have the accelerated impact of Farapuff.

Speaker 7

Appreciate that. Thank you.

Operator

The next question comes from Richard Newitter with Truist Securities. Please go ahead.

Speaker 13

Hi. Thanks for taking the questions and congrats on a really strong finish to the year. Thanks.

Operator

My first

Speaker 13

question Just going back to TAVR, at your Analyst Day, you had talked to an expectation and a level of confidence that You could disrupt that market in the U. S. Relatively quickly out of the gate. I'm just curious, would I get something approaching 20% Share of the market over time, which is what you've done in other markets with your disruption capabilities. I'm just curious, does anything change There with the indeterminate kind of view of what the next steps are for the U.

Speaker 13

S, I'm just kind of focused on that Commentary a bit, does your outlook for the franchise in the U. S. Change in TAVR? And then I have a follow-up.

Speaker 2

Yes. Just a few clarifying points. Again, in Europe, where we set 70,000 valves and Physicians use it routinely on an everyday basis. We continue to grow faster than the market there and have continued to done that for, I don't know, 10 quarters in a row. So we make nice progress and we're excited about getting the large valve size approved in Europe, Yes, I believe in 2025 is the time period.

Speaker 2

In the U. S, honestly, we first of all, I would state that we've never quoted a market share goal For TAVR in the U. S. So we never said 20. I'm not sure if that's what you put in your models or not.

Speaker 2

But based on the results that we've seen in Europe, We've always been confident in our ability to have ACRA be a meaningful growth driver in the U. S. As we stated at Investor Day. As a result of this, we are disappointed We're not going to have this launched in 2024. As we talked about based on the data that we just highlighted in the script And as Gennar mentioned, we now need to wait for the full year data, the full 1 year follow-up on the 1500 patients And then working with the FDA and submitting that and having that data readout by year end 2024.

Speaker 2

And we'll take it from there. So, we as Jannar said, the trial is still LACTIP. So we do not expect any of this news to alter our 8% to 10% organic growth Over the 3 year period, we're coming off of 12. We continue to grow faster than most all of our peers and drop EPS faster than our peer group. And we're still very committed to those financial targets, and we're hopeful that aggregate will continue to be a big growth driver for us, but a lot of it depends And that data readout in Q4 2024.

Speaker 13

Okay. Thanks for that. And then Maybe just on M and A, you've been active in 2023 and congrats on Relivant and more recently Axonics early this year. I'm just curious on kind of how we should think about how aggressive and opportunistic you'll be over the next 12 months. You mentioned obviously your first priority remains deploying capital for tuck ins.

Speaker 13

But do we kind of think of you guys In a little bit of a digestion period or kind of steady she goes, just as aggressive and opportunistic as you have been in the past?

Speaker 3

Sure. I can take that one. So as you mentioned, Axonics, the most recent deal we did, super pleased with that. I think that is a classic tuck in for Boston Scientific. It's one I think we're going to actually look back these types of deals we really do well with and we're super excited to have that close and welcome the Axonics team into the BSE family.

Speaker 3

As you said, we've been remarkably consistent over a long period of time. Tuck in M and A is still the number one capital allocation priority for us and we'll continue to be active. In terms of the how active over the near to medium term, this is not a major event like a major delevering event that we This is take on a little bit of additional debt over a period of time and then over a very reasonable period of time, We'll be right back to where we are today relative to our leverage goals. So I'd look for us to continue to be active in the tuck in M and A space In 2024 and beyond.

Speaker 13

Okay. Again, congrats on an outstanding 4Q.

Speaker 2

Thank you. Thank you.

Operator

The next question comes from Patrick Wood with Morgan Stanley. Please go ahead.

Speaker 3

Amazing. Thank you for taking

Speaker 10

the question and congrats, Lauren. I'd like to stick with Axonics, if that's right. I appreciate it hasn't closed yet. But I'm just kind of curious, urology, Boston has a Very sizable distribution network across, I guess, primarily stone management, but a whole bunch of different areas. How are you thinking about the ability to drive Adoption in OAB faster and like really push that asset.

Speaker 10

I'm guessing, having just played with the numbers, and correct me if I'm wrong, But there's some assumption of slightly faster growth once you've acquired Axonics than the Street previously had in there, at least that's where I end up with the numbers. Feel free to correct me, but how are you thinking about the commercialization really pushing that through the distribution network? Thanks.

Speaker 2

Sure. Well, we haven't closed yet. We hope to first half of this year. The team at Axonics has done an amazing job with this platform since starting the company years ago and taking significant share in what is a A strong double digit growth market. The team at Axonics, we can't speak too much for them, it hasn't closed yet, has also done a remarkable job in a few One of just the core technology, where they gained leverage that to gain share, the clinical data that they have, the commercial excellence that they possess and also expanding the market through their direct to patient marketing and awareness.

Speaker 2

So this is a significant global opportunity and the patient awareness of this treatment is still early days. And so that's one reason why we acquired the company With the momentum they have, the technology and the long term market CAGR that we see based on the global opportunity. The market today is nearly all U. S. That's something we'll evaluate more in the future here as to would it make sense for us to bring this To select markets outside the U.

Speaker 2

S. Given the data that we have. As you mentioned, we have a significant commercial channel in our urology business through all of our different Business units within urology. So this is an ideal fit. It is an adjacency for us.

Speaker 2

We don't have any competitive product in this area. So it's a nice adjacency for us that will allow us to Compete more comprehensively with urology customers. But we aim to take Axonics to the next level, but that team has done a terrific job today.

Speaker 10

Amazing. Thanks for taking the question.

Speaker 2

Sure.

Operator

And just to verify, do we have time for one more question?

Speaker 1

Yes. One last question, please.

Operator

Okay. That question will come from Michael Pollack with Wolfe Research. Please go ahead.

Speaker 14

Hey, good morning. Thanks for sneaking me in. I'll ask a gross margin question. Dan, I heard in the script for 20 Or flat to maybe slightly down year on year in the guide. The world seems to be calmer on price cost, But as we all know, the Middle East is flaring.

Speaker 14

And so I'm curious, 1, have you built in any cushion for kind of Cost push from those events and 2 in real time are you seeing any impact in the field and if so what Does that look like?

Speaker 3

Yes, I can give you the short answer and a little bit longer answer. So the short one is that we've contemplated all that. Our team It's super close to everything relative to our global supply chain network. And so there everything that we have in the guidance that we gave contemplates what we No today and what and the guidance that they're giving us on that, which the impact is minimal. Overall, on gross margin, the little bit longer answer.

Speaker 3

If you look at 'twenty three, we came in pretty much right where we expected at that 70.7%. And then as we said at the Investor Day in September, We said it would be challenged to contribute to our margin expansion goals in 2024, right, which that's probably going to prove out to be true because we're saying we'll be either at or slightly below. But that's okay. There are many other areas of the P and L. And as you know, we have a pretty solid track record over time of managing all those lines of the P and L To drive margin expansion, most recently, that's 70 basis points last year.

Speaker 3

So for 2024, I'd kind of point to 2 headwinds and 2 tailwinds that will Play out and again have us at that kind of at or slightly below the $70,700,000 we put up last year. And one is inflation, and that's probably a little bit of a tailwind, Right. So it's the macro factors are improving in general relative to inflation and other things. But as a reminder, we enter into contracts for many elements The materials for 2024 already last year, so we don't want to see that full benefit. But in 2025 and 2026, I'd like to believe There's even more benefit there, not only from the macro side of inflation, but also for gross margin in total.

Speaker 3

And then our mix, So getting the Ferra Pulse approval today, that's exciting because that's a great mix thing for the company and many of our other launches are as well. And then on the headwind side, foreign exchange was a headwind in 'twenty three, continue in 'twenty four. And as I said at Investor Day, good problem to have, but we also need to make investments in manufacturing To support the sales growth, growing 12 last year and then 8 to 9 this year. But we're absolutely committed to the 150 points over 3 years. Gross margin probably won't pay a lot of bills for us in 'twenty four, but I think it certainly will in 'twenty five and 'twenty six.

Speaker 3

Recall, we used to be north of 72% back 2019 and we are maniacally focused to get there and then to get the overall operating margin kind of on the doorstep of 28 when we get to 2026 and that puts that 30% long term goal that we've had kind of right in our line of sight as we're in 2026.

Speaker 6

Thank you.

Speaker 2

Thank you. Thanks

Speaker 1

Thanks for joining us today. We appreciate your interest in Boston Scientific. If we were unable to get to your question or if you have any follow ups, please don't hesitate to reach out to the Investor Relations team. Before you disconnect, Drew will give you all of the pertinent details for replay.

Operator

Thank you. Please note, A recording will be available in 1 hour by dialing either 1-eight seventy seven-three forty four 7,529 or 1-four twelve-three seventeen-eighty eight using replay code 2,394,361 until February 7, 2024 at 11:59 pm Eastern Time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Boston Scientific delivered a strong Q4 and full‐year 2023, with operational sales up 15% in Q4 (organic +14%) and 13% for the year (organic +12%), 4Q adjusted EPS of $0.55 (+24%) and FY adjusted EPS of $2.05 (+20%), while achieving a 26.3% adjusted operating margin.
  • For 2024, the company guides to 8%–9% organic revenue growth (7%–9% in Q1), adjusted EPS of $2.23–2.27 (9%–11% growth) and 30–50 bps of operating margin expansion, excluding the anticipated Axonics acquisition.
  • Key product milestones include FDA approval of FerraPulse PFA for atrial fibrillation in Q1, 23% growth in WATCHMAN sales with WATCHMAN FLX PRO rollout, expected US approval of AGENT DCB in H1 2024, and a shift in ACURATE NEO2 US timing pending full one-year IDE data.
  • All regions and six of eight business units saw double-digit growth in Q4 and full year, led by Asia Pacific’s 17% Q4 increase and ~20% full-year growth in China, where sales are targeted to exceed $1 billion in 2024.
  • Financial strength remains a priority, with $2.5 billion of adjusted free cash flow in 2023, a 2.3× leverage ratio, and continued focus on tuck-in M&A—underscored by the pending Axonics deal—and share repurchases to offset dilution.
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Earnings Conference Call
Boston Scientific Q4 2023
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