Boston Scientific Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 24, 2024

There are 14 speakers on the call.

Operator

Good morning and welcome to the Boston Scientific Second Quarter 2024 Earnings Call.

Speaker 1

All participants

Operator

will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to John Monson, Senior Vice President, Investor Relations. Please go ahead.

Speaker 2

Thank you, Drew, and 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 Q2 results, which included reconciliations of the non GAAP measures used in this release. We have posted a link to 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 1 hour.

Speaker 2

Mike and Dan will provide comments on Q2 performance well as the outlook for our business, including Q3 and full year 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 the call, operational revenue excludes the impact of foreign currency fluctuations and organic revenue further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales. Relevant acquisitions and divestitures excluded organic growth, the majority stake investment in Aquatek Scientific Holdings Limited and the acquisitions of Apollo Endosurgery and Relivant Med Systems, which closed in February, April November 2023, respectively, as well as our acquisition of the Endoluminal Vacuum Therapy portfolio from Bebron, which closed in March 2024.

Speaker 2

Divestitures include the Endoscopy Pathology business, which closed in April 2023. Guidance excludes the previously announced agreements to acquire Axonics and Silk Road Medical, both of which are expected to close in the second half of twenty twenty four, subject to customary closing conditions. For more information, please refer to the Q2 financial and operational highlights deck, which may be found on the Investor Relations section of our website. On this call, all references to sales and revenue, unless otherwise specified, are organic. This call contains forward looking statements within the meaning of federal securities laws, which may be identified by words like anticipate, expect, may, believe, estimate and other similar words.

Speaker 2

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 of cash, our financial performance, including sales, margin, 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 or 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. This statement speaks only as of today's date, and we disclaim any intention or obligation to update them except as required by law. At this point, I'll

Speaker 3

turn it over to Mike. Mike? Thanks, John, and thank you, everyone, for joining us today. Our Q2 results exceeded our expectations, led by the strength of our differentiated global cardiovascular portfolio, particularly the execution in AF Solutions and the winning spirit of our global team. In 2nd quarter, total company operational sales grew 16, organic sales grew 15, exceeding the high end of our guidance range of 10 to 12.

Speaker 3

Our top tier growth continues to be fueled by innovation, clinical evidence generation and our strategy of category leadership. Consistent with prior quarters, most of our businesses and regions grew well above market. 2nd quarter adjusted EPS of $0.62 grew 15% versus 2023 exceeding the high end of our guidance range of $0.57 to $0.59 Second quarter adjusted operating margin was 27.2%. And as a result of our first half margin performance and revenue upside versus previous expectations, we now expect to expand adjusted operating margin 50 to 70 basis points for the full year. Turning to Q3 and full year 'twenty four outlook, we're guiding to organic growth of 13% to 15% for the 3rd quarter and raising our full year guidance from 10% to 12% to 13% to 14%, reflecting momentum across our broad portfolio, particularly in our EP business unit.

Speaker 3

Our 3rd quarter adjusted EPS guidance is $0.57 to $0.59 and we expect our full year adjusted EPS to be $2.38 to $2.42 representing growth of 16% to 18%. Dan will provide more details on our financials, and I'll provide some additional color on the quarter and the outlook for the second half of twenty twenty four. Regionally and on operational basis, the U. S. Grew 17% in the 2nd quarter with exceptional growth in EP, fueled by the continued success of the Ferra PULSE launch, as well as WATCHMAN, coronary imaging and strengthen our MedSurg businesses.

Speaker 3

Europe grew 16% on an operational basis versus Q2 'twenty three. This impressive performance was driven by double digit growth in 7 of our 8 business units, led by robust growth in EP and strength across our growth and emerging markets. 2nd quarter was also a record quarter in the region for our structural heart business following positive data presented on ACURATE NEO2 at the recent Euro PCR Conference. We expect this momentum to continue supported by the launch of the larger size Acura prime valve in late 2024. Asia Pac grew 13% operationally versus a difficult comp in Q2 'twenty three with excellent performance in China growing high teens and Japan growing double digits.

Speaker 3

We also recently received approval in China for Ferra PULSE and AGENT drug coated balloon and continue to expect approval for Ferra PULSE in Japan in the second half of this year. We expect the contribution from these launches will ramp over 2025. Within the quarter, pricing actions in key geographies went into effect with the China VBP on coronary imaging and Japan reimbursement cuts in June. We do expect Asia Pac to grow low double digits in the second half of the year, including the full impact of these pricing actions. Some additional commentary on the business units.

Speaker 3

Our urology business grew 9% organically in the quarter with double digit growth in stone management and prosthetic urology, supported by our direct to patient efforts driving patient awareness and early contribution from the limited market release of the TINACIO pump. International growth of 14% was driven by laser therapies and Rezum. We look forward to closing this previously announced acquisition of Axonics, which we continue to expect in the second half of this year. Endoscopy sales grew 8% both operationally and organically in 2nd quarter. 2nd quarter results were driven by above market growth in our biliary franchise led by high teens growth in Axios and the high teens growth in our endoluminal surgery franchise.

Speaker 3

We continue to expect endo sales to go faster than the market throughout 2024 enabled by our innovative portfolio. Neuromodulation sales grew 16% operationally and 4% organically in the quarter. Our BRAIN franchise grew low single digits with some impact from competitive product launches. We expect this business to strengthen in the second half of the year, driven by our portfolio of differentiated technologies. In 2nd quarter, our pain franchise grew strong double digits operationally and mid single digits on an organic basis.

Speaker 3

Our spinal cord stim business saw improved U. S. Trialing cadence in the quarter, and we expect that our U. S. SCS franchise will improve in the second half of the year.

Speaker 3

The Relieving business continues to perform extremely well with more than 30,000 patients treated with the INTERCEPT system to date. Peripheral Intervention sales grew 12% operationally and 9% organically versus 2nd quarter. High single digit growth in arterial was driven by continued momentum in our drug eluting portfolio with double digit growth in the quarter. Mid single digit growth in Venus was driven by momentum of ECOS supported by the real PE data set and continued double digit growth in Verathena. Our interventional oncology franchise grew double digits in the 2nd quarter, driven by our broad offering across embolization and cancer therapies.

Speaker 3

Looking forward, we continue to expect to close the previously announced acquisition of Silk Road Medical in the second half of this year. Cardiology. Cardiology delivered another excellent quarter with organic sales growing 22% versus Q2 of 23. Within cardiology, Interventional Cardiology Therapy sales grew 9%. Growth in coronary therapies was driven by continued strength in our global imaging franchise and APAC calcium franchise.

Speaker 3

Within the quarter, we initiated limited launch of AGENT DCB in the U. S, which has received positive initial physician feedback. Our structural heart valves franchise grew strong double digits in the 2nd quarter, led by ACRA NEO2, which continues to see growth from both new and existing accounts in Europe and Latin America. At the end of the quarter, we also completed follow-up of the full 1500 patient cohort in the U. S.

Speaker 3

ACURATE IDE trial. We now expect to present this data in the first half of twenty twenty five, likely at the annual ACC meeting. WATCHMAN had another excellent quarter growing 20% organically with strong contribution from the ongoing launch of WATCHMAN FlexPRO in the U. S. And Japan.

Speaker 3

The U. S. Grew 20% led by further penetration into the existing indicated patient population enabled by our innovation, clinical evidence and patient awareness efforts. Cardiac Rhythm Management sales grew 3% organically in the quarter. In 2nd quarter, our diagnostics franchise grew double digits.

Speaker 3

This above market growth is driven by our broad cardiac diagnostics portfolio. In Corus CRM, our high and low voltage business grew low single digits with strong international growth, partially offset by slightly below market growth in the U. S. At the recent HRS meeting, data was presented from the modular ATP trial of the modular CRM system, which is comprised of the EMPOWUR leadless pacemaker and Emblem SICD, which met all pre specified 6 month endpoints and a high rate of ATP success with no patient request for deactivation of pacing due to pain or discomfort. Turning to EP.

Speaker 3

EP sales grew an impressive 125% organically versus Q2 2023, driven by the rapid and sustained adoption of the transformative Ferrapulse PFA system. 2nd quarter sales were driven by outstanding commercial execution, robust supply and positive real world outcomes as well as increased AF ablation volumes supported by the efficiency of the Fair Pulse workflow. Our Bayless Access Solutions business also continues to see strong double digit growth in the U. S. With utilization of approximately 80% of PFA procedures and approximately 85% of WATCHMAN procedures.

Speaker 3

Internationally, we saw continued Ferra PULSE account openings and robust utilization in Europe and launched APAC Markets. Importantly, evidence of more than 20,000 patients treated with VERIPULSE has been published or presented at medical conferences, demonstrating the safety, efficacy and reproducibility of the system. And within the quarter, we completed enrollment in the NAVIGATE PF study of the FAIRIVU software module and FAIRwave NAV enabled catheter, both of which are expected to launch in the U. S. During the second half of the year.

Speaker 3

At the recent HRS meeting, outcomes from a sub analysis of the ADVENT trial were presented. This is the very first randomized data for a PFA system demonstrating superior efficacy versus thermal modalities with significantly more patients having achieved an arterial arrhythmic burden of less than 0.1% with VERIPULSE compared to RF and cryo. We plan to continue a steady cadence of clinical evidence generation to maintain our PFA leadership, including REMATCH AF, a planned trial designed to study the FAIRIPOINT and FairWave catheter in patients who need a redo ablation, which we expect to begin enrolling early in 2025. In closing, I'm very grateful to our global team for their commitment and winning spirit, enable us to deliver life changing technologies to millions of patients. We're in the most exciting chapters as a company with a track record of executing or exceeding our financial goals, while delivering meaningful innovation.

Speaker 3

With that, I'll hand it over to Dan.

Speaker 2

Thanks, Mike. 2nd quarter 2024 consolidated revenue of $4,120,100,000 represents 14.5% reported growth versus Q2 2023 and includes a 160 basis point headwind from foreign exchange, which was slightly unfavorable versus our expectations. Excluding this $57,000,000 foreign exchange headwind, operational revenue growth was 16.1% in the quarter. The sales impact from closed acquisitions was 140 basis points, resulting in 14.7 percent organic revenue growth, exceeding our 2nd quarter guidance range of 10% to 12%. Q2222024 adjusted earnings per share of $0.62 grew 15.4% versus 2023, exceeding the high end of our guidance range of $0.57 to $0.59 primarily driven by our strong sales performance.

Speaker 2

Adjusted gross margin for the Q2 was 70.4%, contracting 160 basis points versus the prior year period, driven by higher than expected inventory charges related to the PolarX cryoablation system, given the strong commercial adoption of Ferrapulse in the U. S. As well as increased levels of capital placements in the quarter. We continue to expect second half adjusted gross margin to be higher than the first half, driven by the mix benefit from key product launches and full recognition of our annual standard cost improvements. We expect full year adjusted gross margin be slightly below our 2023 rate.

Speaker 2

2nd quarter adjusted operating margin was 27.2%, which expanded forty basis points versus the prior year period. Given our strong first half operating margin and our expectations for the second half, we are raising our full year 2024 adjusted operating margin expansion goal to 50 to 70 basis points from 30 to 50 basis points compared to 2023. We believe this strikes a nice balance of delivering incremental margin from our sales upside and continuing to invest appropriately to drive strong performance. On a GAAP basis, 2nd quarter operating margin was 12.6%, which included intangible asset impairment charges related to the acquisitions of Cryterion Medical and Devoro Medical. The Cryterion impairment charges were related to the high conversion rates of cryoablation to Ferra PULSE for ablation procedures in the U.

Speaker 2

S. The DeVoro impairment charges were related to the decision to discontinue work advancing the Wolff thrombectomy platform. Moving to below the line, 2nd quarter adjusted interest and other expenses totaled $68,000,000 which was favorable to our expectations. On an adjusted basis, our tax rate for the 2nd quarter was 13.1%, which includes favorable discrete tax items. Our operational tax rate for the quarter was 13.6%.

Speaker 2

Fully diluted weighted average shares outstanding ended at 1,484,000,000 shares in the 2nd quarter. Free cash flow for the 2nd quarter was $660,000,000 with $814,000,000 from operating activities, less $155,000,000 in net capital expenditures, which includes payments of $200,000,000 related to acquisitions, restructuring, litigation and other special items. In 2024, we continue to expect full year free cash flow exceed $2,000,000,000 which includes approximately $700,000,000 of expected payments related to special items. As of June 30, 2024, we had cash on hand of $2,900,000,000 and our gross debt leverage ratio was 2.4 times. 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 2

In alignment with our acquisition strategy, in Q2, we announced our agreement to acquire Silk Road Medical and closed the acquisition of SoundPath, a free revenue privately held medical technology company developing an intracardiac echocardiography product, complementing our existing electrophysiology portfolio. Our legal reserve was $251,000,000 as of June 30, a decrease of $32,000,000 versus Q1, 2024. $54,000,000 of this reserve is already funded through our qualified settlement funds. I will now walk through guidance for Q3 and full year 2024. We expect full year 2024 reported revenue growth to be in a range of 13.5 percent to 14.5 percent versus 2023.

Speaker 2

Excluding an approximate 100 basis point headwind from foreign exchange based on current rates, we expect full year 2024 operational revenue growth to be 14.5% to 15.5%. Excluding a 150 basis point contribution from closed acquisitions, we expect full year 2024 organic revenue growth to be in a range of 13% to 14% versus 2023. We expect Q3 2024 reported revenue growth to be in a range of 13% to 15% versus Q3 2023. Excluding an approximate 100 basis point headwind from foreign exchange based on current rates, we expect the Q3 2024 operational revenue growth to be 14% to 16%, Excluding a 100 basis point contribution from closed acquisitions, we expect Q3 2024 organic revenue growth to be in a range of 13% to 15% versus 2023. We now expect full year 2024 adjusted below the line expenses to be approximately $300,000,000 Given discrete items recognized in the first half of twenty twenty four, we now expect a full year 2024 operational tax rate of approximately 13.5% and an adjusted tax rate of approximately 12.5%, which contemplates current legislation, including enacted laws and issued guidance under OECD Pillar 2 rules.

Speaker 2

We expect full year adjusted earnings per share to be in a range of $2.38 to $2.42 representing growth of 16% to 18% versus 2023, including an approximate $0.04 headwind from foreign exchange, which is unchanged from our previous expectations. We expect 3rd quarter adjusted earnings per share to be in a range of $0.57 to $0.59 For more information, please check our Investor Relations website for Q2 2024 financial and operational highlights, which outlines more details on Q2 results and 2024 guidance. And with that, I'll turn it back to John, who will moderate the Q and A. Thanks, Dan. Drew, let's open it up for questions for the next 40 minutes or so.

Speaker 2

In order for us to take as many questions as possible, please limit yourself to one question. Drew, please go ahead.

Operator

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

Speaker 4

Thank you and congratulations on another fantastic quarter here.

Speaker 2

Thanks, Robbie. Thanks, Robbie.

Speaker 4

With my one question, I want to ask about guidance and the sustainability. This is a it was a big quarter. You had a big first quarter. PSA is clearly outperforming. WATCHMAN had a great quarter.

Speaker 4

A lot of the rest of the business continues to fire on all cylinders. So I'm seeing about 14% organic for the back half of the year, which is a really healthy rate. And I guess really the question is, how do you feel about continuing through 'twenty four and really into 'twenty five. Is this a pull forward of the revenues expected in the long range plan? Or do you think there's better demand, better market adoption, better volumes underlying pricing that could keep maybe not 14%, but something elevated for the foreseeable future?

Speaker 4

Thanks.

Speaker 3

Sure, Rob. I'll take a shot at it. We're not going to give that 25 guidance here. But at our Investor Day, we set our goal was to be the highest performing medtech company in terms of sales and EPS growth, which we believe we did in 'twenty three. Our aim is to do that in 'twenty four and our aim is to do that for many years to come.

Speaker 3

And I think one is the primary drivers that you've seen the decade long portfolio shift into faster growth markets for the company, where weighted average market growth rate is probably closer to 7% to 8% versus what it used to be kind of flat. So one, we enjoy because of their portfolio choices, faster growing markets. Secondly, we have strong growth across the world. You're seeing Europe double digits, Asia Pac double digits where Farepulse is not yet launched, and obviously the U. S.

Speaker 3

Doing quite well as well. And then I think you just have to look at the durability of other businesses. We'll likely talk about Fair Pulse and WATCHMAN a lot on the call, but you see continued strong growth 8% to 9% -ish through the first half within our MedSurg businesses. So that kind of gets diminished because of the strength of some other areas, but that's pretty good. And then the cardiovascular portfolio is just getting stronger and stronger.

Speaker 3

With our EP franchise, Bayless, what we're doing with coronary with drug coated balloon, you saw the results with ACURATE in Europe and also potentially some benefits with concomitant reimbursement in the future. And who knows, maybe these procedures may move over time to ASC Center in EP, which also we think would benefit Boston Scientific given our solution. So we had a tough comp in 23% with a 12%. Our guidance for the full year is now 13% to 14%. We won't give 25% guidance, but our goal is to be really distinguish

Speaker 1

The

Operator

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

Speaker 5

Thank you so much for taking the question and I echo a very nice quarter. Can we unpack just a little bit and you may not like this question, but I get it a lot. What's next? And how do we think about to your point, we're going to talk about Ferra Paltz and Lachman a lot, but people are now sort of looking forward at how does this continue to roll out to deliver this kind of growth? And thank you.

Speaker 3

Yes, I think it's Joanne. I think it's similar to some of the themes I just highlighted. We have we're in higher way the average market growth rate markets to start. We see consistent procedure volume around the world. We are in a pricing environment where we used to be a price giver pretty significantly.

Speaker 3

Now it's getting closer to negative 1 to 0. We also expect in the margin front, we took our margin goals up for the year. We expect gross margin to improve over time. Right now, we're getting more margin benefit from And we And we just have a very strong product cadence in very fast growing markets. The 2 of the best markets at all of MedTech obviously are EP and WATCHMAN.

Speaker 3

And we have strong leadership position in PFA, and that market is only growing. And we haven't launched yet in Asia. And we have a lot of clinical work going on with WATCHMAN, as you know, to significantly increase the TAM at that market where it will rival the TEVI market, 3 to 5 years from now. So the clinical evidence that we have in fast growing markets differentiate the portfolio and we continue to make and play strong M and A bets with Axonics and Silk and our venture portfolio, which we'll continue to leverage. So the playbook hasn't changed, but it's the execution of the team of continually putting this in better markets and out executing the competition.

Speaker 5

Thank you very much.

Operator

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

Speaker 6

Good morning. Thanks for taking the question and congrats on a really nice quarter here. Mike, maybe just to drill down on EP and Farapulse. I guess it's a similar question, but just the sustainability here of the growth and the share. By our math, it looks like you've captured about 15% of the US EP market in the second quarter, excluding Bayless.

Speaker 6

Help us understand how durable your EP share and growth is? Can EP continue to be a growth driver for Boston Scientific for years to come? And what's driving your confidence you can compete effectively with Athera and Varapulse when they launch? Thank you.

Speaker 3

So I'll start and then Doctor. Tsaiyan can maybe talk about how we're really leading the field in our clinical evidence and some other physician comment. We're competing with those companies today in Europe, with J and J, with all the companies that have PFA platforms. And you've heard us talk on many calls now on the differentiator Feripulse in terms of its safety profile, the clinical data and the really the usage of physicians who never considered using Boston Scientific EP prior, many of them have completely converted to using Ferra PULSE for their AFib ablation procedures. But we're still relatively early in our launch in the U.

Speaker 3

S. It's less than 6 months of launching in the U. S. And we have yet to launch in China and we've yet to launch in Japan and we have a lot more to do in Europe and we have a lot more to do in Europe and we have additional indications coming and additional portfolio coming. So we think the short story is the Ferra PULSE platform combined with Bayless, combined with our clinical will be a differentiated growth driver for Boston for many years to come.

Speaker 3

Now will it grow as it continues to scale up over 100% a quarter? Unlikely. But we expect this to be maybe the biggest business of Boston Scientific in the years to come here.

Speaker 1

Yes. And Larry, maybe just to add on what Mike said, right, first, just I mean, AF is the most common sustained arrhythmia in the world. Ablation therapy for AF today is still dramatically underpenetrated, right? I mean, ablation high single digits penetration for persistent AFib, low double digits penetration for paroxysmal afib. And the safety advantages, the efficacy advantages, the efficiency advantages and just the overall simplicity of the Ferra PULSE system, I think are just going to continue to drive the size of that market and penetration into that market.

Speaker 1

And then in terms of the competition, right, again, we do expect to see competitors bring out their 1st generation products late this year, early next year. They're already approved in Europe. And frankly, as Mike said earlier, right, we have not seen that materially impact the rapid sustained adoption of Farapulse in Europe. Farapulse is a transformative technology with really important differentiated advantages against these competitors. As Mike said, Mike treated over 70,000 patients to date, published clinical trial data and over 20,000 patients to date, which really testifies to the safety, to the simplicity, to the efficiency.

Speaker 1

And again, Mike referred to the data we presented at the Heart Rhythm Society, but it is the only system right now with any data testifying to actually superiority in an efficacy measure against traditional ablation.

Speaker 7

Thank you.

Operator

The next question comes from Rick Wise with Stifel. Please go ahead.

Speaker 3

Hey, Rick, can you hear us?

Speaker 8

Hi, there. Can you hear me?

Operator

Yes, please.

Speaker 2

Go ahead. We can hear you now.

Speaker 8

Great. Sorry about that. I was hoping also to talk about PFA from another perspective. In my recent doc checks, I've hurdled a great deal of encouraging interest in RHYTHMIA. And obviously, in many cases are being mapped now with other companies' systems.

Speaker 8

Just maybe give us some more color on when you launch your mapping integrated catheter in the second half, I assume that's still the target. How do we think about the implications for RHYTHMIA adoption for the percentage of cases that could be mapped on the RHYTHMIA system and the impact on your growth outlook as a result? Thank you.

Speaker 1

Yes. Thanks, Rick. I appreciate the question. Again, we still are projecting approval of both our NAV enabled Faraway catheter and a completely new software suite on RHYTHMIA that we're calling Faraview to help support that. And we certainly do expect that to help drive more adoption of the use of RHYTHMIA and FARAVIEW to accompany FaroWave.

Speaker 1

Now I want to begin though by saying, look, FaroPlus will remain an open system. We want to support workflows that don't involve any use of mapping or navigation, support workflows that involve these competitive systems, but also we'll expect with Fairview and Fairway Mav to provide some major advantages in terms of workflow. I think important for me to I mean emphasize that existing mapping and navigation systems don't understand PFA at all. They were built around an RF ablation paradigm. And so Fairview is going to be the 1st software in a mapping system that fundamentally understands what we do with PSA and with Faropulse.

Speaker 1

There are some important features, dynamic visualization of the catheter as it changes shape and basket flower configuration, field tagging specific to PFA energy. And I think when you put all of that together, it has the potential to minimize the use of fluoroscopy during these procedures, minimize catheter exchanges and really continue what we've tried to do and I think have accomplished with Therapulse to begin, right, which is to create a procedure that is safer, that is at least as effective and that is far more simple and efficient compared to what people have been doing with legacy systems. On the financial side, as you know, you've seen some

Speaker 3

of the competitive reports. Mapping is a sizable chunk of the overall EP procedure. And when Feripulse is being used, you're seeing increased procedure volume based on the efficiency. So some competitors are benefiting from that productivity gain of Ferrapulse. So in addition to strong utilization rates and opening new centers, more broadly impacted in 2025, we do expect a number of physicians to adopt this Fairview platform that Ken said, which is additional revenue that you're not seeing today in the FairPulse EP procedure.

Speaker 8

That's great. Thank you so much.

Operator

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

Speaker 7

Hi, guys. Thanks for taking my question and Mike, congratulations on the mix here. I had one question on USPFA, the 2 20 percent growth. Can you parse out what was capital contribution versus capital contribution in that U. S.

Speaker 7

Number? And I think you mentioned a TPT for in the U. S. In the outpatient setting. Any update on has Boston submitted its TPT?

Speaker 7

Thank you.

Speaker 3

Yes. So thanks for the question. Unfortunately, we're not going to break out for you the capital and disposable. Disposable is obviously more sizable than the capital, but that's probably the color we'll provide on that. And on the overall pricing, as you do know, the pricing is a bit of a premium, but based on the clinical benefits and efficacy and efficiency that physicians and customers are enjoying, that seems to be the proper price point.

Speaker 3

And on TPT, Ken, do you have any comments on that?

Speaker 1

Yes, Vijay. So we have submitted for TPT. Again, I think important to recognize there are some very strict criteria for eligibility for TPT. And I think just to reiterate what Mike said, which is right now we are not seeing pricing as a barrier to the rapid and sustained adoption of Ferapulse.

Operator

Next question comes from David Roman with Goldman Sachs. Please go ahead.

Speaker 9

Thank you and good morning. I want to keep going a little bit on the EP side, but also could you talk a little bit more about both the technology and commercial strategy? As you think about the technology side, right now, the bulk of your business right now sits in the ablation side. You talked a little bit about the importance of mapping and access, but how should we think about the portfolio evolving and how that unlocks new opportunities for you, whether that's in the non AF side of the ablation market, be it with FairPoint or some of the other products? And then on the commercial side, where are the opportunities for pull through here?

Speaker 9

So for example, are you training your mappers on generator replacements in ICDs? And how should we think about the overall benefit to the portfolio?

Speaker 3

Again, I guess, Ken, I'll try to tag team this. Thank you for the question. It's maybe the best market in MedTech, about $10,000,000,000 market. The chunk that we're doing well in now is the $6,000,000,000 AFIB market that we continue to strengthen and we'll get approval as you know in Asia impact in 2025. There are a number of other areas that we're trying to move into the mapping segment based on the previous commentary is 1.

Speaker 3

We do have an organic ICE program, which we hopefully will which is a 510 product. Hopefully, we'll be competitive with a new ICE platform during this LRP period, which is another large slice of it. And Ken can probably detail out a bit more the clinical studies that we're doing to widen the indication for FerriPulse beyond what issues today.

Speaker 1

Yes, thanks Mike. So David, let me start with the clinical strategy and then maybe say a little more about where we're going from a technology standpoint as well, because I think it's important, right, that all the other stuff we're doing doesn't just get lost in the excitement around Therapulse, as exciting as Therapulse is. From clinical trial standpoint, to begin with our ADVANTAGE clinical trial, which is aimed to get labeling for VERIPULS in persistent AFib has completed enrollment. We expect to present those results late this year, early next year. We are well underway in a trial called Avant Garde, which is aimed to prove that Therapulse be used as first line therapy for patients with persistent atrial fibrillation.

Speaker 1

We've announced intent to run a trial called REMATCH, which will look at Therapulse for redo ablations. And then from a technology standpoint, we've already talked about the Ferro8 NAV catheter. In addition to that, we have a point catheter, Farpoint that's through its clinical trial. And then down the road, I think more sophisticated catheters for both mapping and ablation, a catheter called Faraflex. And I think as you can imagine, we are shaker tachycardia that pretty much you name it.

Speaker 1

But I don't want some of the other technology innovations to get lost. And so right, the EP performance was not only a Farapulse story, fantastic performance from our Access Solutions portfolio. And in terms of pull through, right, see very good synergy between Farapulse and the Access Solution products, likewise, in really good synergy between the WATCHMAN and the Access Solution products. Again, I think in terms of the pull through question, but the most obvious opportunity as Mike mentioned is the opportunity now to have reimbursement in the U. S.

Speaker 1

For concomitant Therapulse ablation and WATCHMAN procedures, which we expect will be a growth driver and hope to see that finalized before the end of this year by CMS. Again, Dan mentioned our acquisition of SoundCap and so an ICE product to support EP procedures and potentially also WATCHMAN procedures, probably just a very long winded way of saying we love Therapulse, but it is far from the only story.

Operator

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

Speaker 10

Fabulous. Thank you. And on that note, I might flip the script if that's right with everybody and maybe focus on something a little different. Obviously, you guys announced Silk and appreciate that hasn't closed yet. But I'd love if you could unpack what was so exciting for you guys in TCAR and that asset overall and the ability to flip wall stent into the package and how meaningful that is relative to just the capacity to plug it into Boston overall and drive sales?

Speaker 10

Anything around that would

Speaker 3

be great. Sure. Silk is a really terrific asset we've looked at for a long time. Hopefully that we aim to close that in second half this year. As a standalone business, they're really kind of leading the rejuvenation of that field through their clinical evidence and their performance over many years in the U.

Speaker 3

S. And it came to a point where we felt that was mature enough in terms of its sales ramp and for us to acquire it at the right price. So I guess, first of all, it always starts with clinical indications. We're really pleased with the data and the long term durability of this procedure. So as a standalone company, they're growing certainly accretive to Boston Scientific faster, but clearly not there on the margin front.

Speaker 3

So now in Boston Scientific's hands, we feel like we can grow the company faster, in the U. S. Given the category leadership portfolio we have and a common call point with a vascular surgeon. We also have the ability to take it outside the U. S.

Speaker 3

To appropriate countries. And we also aim to improve the margin profile of the business by integrating the company as appropriately within our operation supply chain team like we've done for many other acquisitions in the past. So it's an accretive asset that we think will be stronger and more profitable in the hands of Boston and make us more important for the vascular surgeon, which is an area that was a needs improvement for us, I would say, within that business unit. So now, we have the leverage not the leverage, but the capabilities to present to vascular surgeons our broader PI portfolio given the relationships that the Silk Road team has with the vascular surgeon.

Speaker 11

Brilliant. Thanks, Mike.

Operator

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

Speaker 11

ahead. Hey, thanks for taking the question. I wanted to ask, given the strong margin guide raise and EPS guide raise here, where you're at kind of on the Ferrapolts getting those to full margins in scale there? Are you halfway there kind of more or less and your willingness to kind of continue to let that flow through? And I also wanted to ask about TAVR.

Speaker 11

It felt like a little bit of a time change and tone change on TAVR. So I just wanted to make sure we didn't miss anything on the TAVR update.

Speaker 2

Sure. I can start on the gross margin and then Mike can take the TAVR one. So where are we on the journey? As Mike said, we're early in the journey in the United States relative to the Farapulse launch. That corresponds pretty well with the gross margin story.

Speaker 2

So if you think of where we are, the standard margin for Farapulse is absolutely accretive relative to the catheter. So that's a great accretive gross margin growth driver. The things that in the initial stages are a little bit dilutive are obviously, you heard me talk about the inventory charges with respect to Polarex. So we don't want to take inventory charges, but when it's when you're taking them as a result of the success of Farapulse, that should be temporary and should not be something that continues. So those should get better over time.

Speaker 2

The manufacturing branches, so we have built our manufacturing capacity and our operations and supply chain team to be the leaders in this space. So we have significant capacity. So as we're making the product today, it's a little under absorbed relative to that. So that will get better obviously as we make more and that's obviously our plan. Then the capital placements are dilutive.

Speaker 2

Again, it's not a huge number relative to the overall gross margin for the company, but it does at the edges kind of take that down a bit. So overall, I would say Ferra PULSE every quarter Ferra PULSE will be a better contributor to margin. And I think as you get into 2025 and 2026, it will be a significantly accretive growth driver for gross margin for the company.

Speaker 3

And on Tabby, the European team has done really outstanding quarter and outstanding quarters back to back with Accurate Neo2 over 20% growth. Importantly, we expect to launch in Q4 or maybe Q1 2025 Prime, which is our next generation Accurate Neo 2 that has all risk indications and the full size matrix, which has been the challenge for us to date with the optimized delivery in the valve frame. On the just to reiterate, on the U. S. Timing, we did complete enrollment of the 1500 patient cohort and we do expect to present the data in the first half of twenty twenty five likely at the ACC meeting.

Speaker 3

I think it's important to note that this is the largest randomized trial that's been done in TAVI. And based on the really based on time and the last patient follow-up and the size of the trial and the multiple risks and mixed control groups that we have in it. It's an extensive trial and we believe that the first half twenty twenty five and likely at ACC is appropriate timing.

Speaker 2

And then just as a quick follow-up to the gross margin question, Travis. None of that's a surprise relative to gross margin. So we've been saying all along that gross margin is not likely to help the margin improvement story in 2024. But lo and behold, we're able to increase the overall operating margin 30 to 50 to 50 to 70. So I think all is well on the margin expansion front.

Speaker 2

Really proud of that 50 to 70 relative to the guidance for this year. And as you look to 2025 and beyond, I think gross margin, I think all lines of the P and L can contribute to the margin expansion journey and gross margin will be one of those.

Speaker 11

Great. Very helpful. Thanks a lot.

Operator

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

Speaker 12

Good morning. Thanks a lot for taking the questions and congrats on the stellar results. I wanted to just follow-up on Travis's two questions. I guess first on TAVR, could we see top line data before the ACC presentation next year and could Boston file before that presentation? And then just the other follow-up is just on the profitability you guys are seeing, letting a lot of profitability flow through on the outperformance the top line.

Speaker 12

Wanted to just get a sense of taking some of that profitability and reinvesting that, where could we see where some of those dollars going and just some high level commentary on that reinvestment driving supporting this sustainability of top tier revenue growth in the med tech space? Thanks for taking the questions.

Speaker 1

Yes, TAVR, Josh, maybe I'll take the TAVR question first and then let Dan and Mike take the others. Just really what Mike said, right. Last patient follow-up in the trial was just in this quarter. It's a very large, very complex trial. And just honestly, based on the timing of getting the data cleaned and getting the readouts from all of the various core labs that are engaged in getting us the analyses for the trial, we are going to miss the abstract deadlines for all of the major fall meetings.

Speaker 1

So those deadlines literally come up within a couple of weeks. And again, these data are so important and pivotal, right. We want to present this at a major meeting. And so, right, the first major cardiology meeting, where we'll be able to meet an abstract deadline is going to be the ACC. Would not expect you to see any data released ahead of that.

Speaker 2

And the second part of your question relative to the balance between reinvesting the sales upside and dropping some through, I think you're seeing the evidence of that here in our guidance raise for the 50 to 70. So I think we've struck a really good balance on that. So we've had sales upside during the year and the realization that we closed the first half a little bit ahead of expectations. So we're giving some of that back. So we're taking the 30 to 50 to the 50 to 70.

Speaker 2

So that's great. At the same time, we are reinvesting in the business, primarily in the commercial facing functions. We're leveraging the back office and the administrative areas, which makes sense. We don't need to grow those when you're growing the revenue at the rate that we're at. So we got significant leverage opportunities there.

Speaker 2

And then as Mike said, this isn't just reinvesting in Feripulse. This is reinvesting across the whole portfolio, the broad portfolio that we have. So we picked the right spots to reinvest to be able to continue to deliver that top line performance for the long term. I think we're striking a nice balance there.

Operator

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

Speaker 13

Hey, good morning, everyone. Thanks so much for taking the question and I'll be a broken record here. Congrats on the really awesome quarter. Mike, I wanted to go in a different direction here away from PFA for a second and talk about how we should think just on this theme of sustainability of growth into 2025, appreciating you won't give guidance here. But if we think about agent DCB launching back half of this year and modular in the back half or I guess is that launching this year as well.

Speaker 13

So how do we think about those contributing and maybe elevating CRM growth above the market in next year as well as the interventional cardiology portfolio? Thanks so much.

Speaker 3

Thank you for pointing that out, because I was getting hammered by text from our agent team and our CRM team for not mentioning those in the prior question. So I think if you're to continue to add on that discussion, which is how do we maintain and sustain high performance that's highly differentiated from the peer group for many years to come. It's all the things we talked about before with PFA and WATCHMAN indication expansion. And as you said with AGENT, kudos to that team. They're really transforming that portfolio.

Speaker 3

Drug loading stents next year will probably be 2% of overall Boston Scientific. And you're seeing tremendous growth in our imaging business with our IVAS imaging platform. And now we're the first one to have approval for agent and that GPT decision will be made soon and apply in hopefully in January. And that is a market that we plan to drive where we have a multiyear advantage, where we have superiority data for what is at least 10% of the market with restenosis, in appropriate price points. That's going to accelerate the growth of that division and significantly improve the margin profile over time, while we continue to invest in clinical science and our structural heart portfolio.

Speaker 3

And also, we have a very vast VC portfolio. And oftentimes, those VC investments come with dilution, which our team is able to manage consistently while investing for the future, while improving margins at the same time. So I think that's a big part of it. As you do know, the CRM business is a bit of a lag for us. International business did quite well, U.

Speaker 3

S. Lagged a little bit. And the modular ATP, proud of the team for that. That was a long study, a very difficult project. But you saw the results of that SICD with the modular platform and we're excited to launch that in 2025.

Speaker 3

So there are 2 other areas that I didn't mention before that you pointed out. And also what's not being mentioned here today is just the tremendous growth in our Endo and Euro businesses. Our Euro business is near double digits for the first half. Our endo business is near double digit for the first half. Those are all accretive margin companies for us.

Speaker 3

We're very excited about the Axonics acquisition, which will have operational benefit in 2025 and organic in 2026 primarily. But it just makes those divisions even stronger. So there's many things to be excited about for the future of the company to continue on with our goal of differentiated performance.

Speaker 13

Thank you.

Operator

The next question comes from Matthew O'Brien with Piper Scientific. Please go ahead.

Speaker 11

Great. Thanks so much. Piper Sandler. Just maybe on just sticking with kind of where Danielle was going outside of TFA, but just on the WATCHMAN business, 20% growth is a little bit of a tick up versus Q1. Your competitor said they grew 45% in the quarter.

Speaker 11

So are you losing a little bit of share to those guys or is the market starting to accelerate for some reason? I don't know if it's in front of this concomitant reimbursement. Just maybe talk a little bit about that and then maybe for Doctor. Stein specifically, if you get this concomitant reimbursement, can you just talk about the workflow for the clinician in terms of doing a PSA case plus a WATCHMAN case at the same time? I mean, how much more challenging is that you have to bring in an IC sometimes and other times not bringing IC in to do the WATCHMAN part of the case?

Speaker 11

Just maybe talk a little about that opportunity going forward? Thank you.

Speaker 3

Yes. I'll just touch on the growth. 20% is excellent. We're in the midst of launching our WATCHMAN FLXPRO and maybe as importantly, this new steerable sheath, which is early in its launch. So I think the clinical data and the extremely high market share of WATCHMAN speaks for itself and the ongoing R and D platforms that we're driving for WATCHMAN and clinical science.

Speaker 3

So we are extremely comfortable that we're nearly 90% -ish share in the U. S. And there may be some extremely price sensitive accounts that will occasionally lose business to, but it's very, very small margin, very, very small numbers. And if you look at the size of this Watchman business and our share and our technology lead, we're very comfortable with the position we're in.

Speaker 1

Yes. And in terms of just workflow and concomitant, this is one of the areas where I think in between, right, the safety and efficiency advantages of WATCHMAN FLEX and FLEX Pro combined with the efficiency and safety advantages of Farapulse could create a real advantage for us as a unified ecosystem. The beauty of doing these two procedures together, right, as they both involve transseptal access into the left atrium, they both involve catheter manipulation inside the left atrium. So there's a huge benefit to patients to be able to have it all done at one sitting as opposed to having that one procedure and then go through many of the same risks of the first procedure, go ahead and have it done as a second procedure. And just to reiterate, when you think of doing it as a concomitant procedure, what you want are technologies that enable you to do it safely, enable you to do it reproducibly and enable you to do it efficiently.

Speaker 1

So you're spending as little time as possible, right, mucking about inside someone's left atrium. And TheraPulse and WATCHMAN FlexPRO together are unmatched in giving you those advantages.

Operator

And I understand there's time for one last question.

Speaker 1

Yes, please.

Operator

Okay. That last question will come from Matt Taylor with Jefferies. Please go ahead.

Speaker 11

Hi, good morning guys. Thank you for taking the question and congrats on a great quarter. I did want to ask a follow-up question on Therapol just to help with thinking about the modeling and the opportunity there. Could you give us any kind of update or parameters on how many centers you're in, how many boxes you've placed? And maybe talk about whether the early experience has changed your views on how the market could evolve like you laid out at the Analyst Day several months ago?

Speaker 1

Yes.

Speaker 3

I think the only piece of that we'll provide color on is the last part of it. We don't want to break out catheter usage, capital usage, how many sites. I would say the utilization rates of sites once they use Therapulse is very quick and sustainable. So we're not seeing hospitals turn it on and turn it off and go in and out of it, like you see in many med tech products. So the sustainability and usage of Therapulse is very high once customers start using it.

Speaker 3

And obviously, we have a chance to sell more consoles to larger centers in the existing accounts besides opening new accounts. Got it.

Speaker 2

Okay. Great. Thanks, Matt. I ended

Speaker 3

it with a dud. Sorry, Matt.

Speaker 11

That's okay. All right.

Speaker 2

Well, thanks everyone for joining us today. As always, we appreciate your interest in Boston Scientific. If we were unable to get to your question or have any follow ups, please don't hesitate to reach out to the Investor Relations team. And before we disconnect, Drew will give you all the pertinent details for the replay. Thanks so much.

Operator

Thank you. Please note a recording will be available in 1 hour by dialing either 1-eight seventy seven-three forty four 7529 or 1-four twelve-three seventeen-eighty eight using replay code 2,312,308 until July 31, 2024 at 11:59 pm Eastern Time. The conference has now concluded. Thank you for attending

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Earnings Conference Call
Boston Scientific Q2 2024
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