Good morning. Thanks very much for joining us. Very pleased today to have with us, Tom Polen from Becton Dickinson.
Thank you.
Thanks so much. My name's Matt Miksic. I cover medical devices here at Barclays. The first question is probably has to be, I guess, you know, what's happened in the last week or so, implications for oil, exposure to Middle East. Maybe if you could sort of step into those two issues. Folks who are trying to get their arms around what all this might mean to Becton.
For us, we really see no impact for this year. I think, you know, the kind of days of oil and resins being closely tied, that's not the same. The other thing is since we've been implementing BD Excellence, and if you remember, we put in some hedging strategies around currency, we also put in much more aggressive hedging strategies around oil or resin prices. We're highly hedged from a resin perspective. Even if oil were to stay at or slightly above where it is today, it's very low single-digit millions of dollars, which is basically nothing for BD in the fiscal year. We'll continue to monitor obviously for future years as we see, you know, where this heads. For FY 2026, we don't see any impact for that at all.
Okay. Maybe draw some comparisons if this were to play out for a longer period of time. I guess as of yesterday afternoon, it felt like it was gonna end quickly, and then as of this morning, there's some questions again. You know, if this were to go on higher for longer, you know, how might this be similar or different to sort of last time we had to deal with elevated prices?
I think the other thing that is very different. I'm heading out to the Business Roundtable after this, and we've got a lot of folks which I'm looking forward to, you know, understanding, you know, where this is heading as we'll be in D.C. The other thing is we have, again, through BD Excellence and the work that we've done over the last couple years, if you go back three years ago, we would've been primarily just sole sourced for a number of our resins. So think about Vacutainer tubes and syringes, etc. We flush, we'd be sole sourced across that. That's not the case. Like today, we have three different vendors for Vacutainer tubes. And that was a significant cost savings.
What that also creates is when there's, you know, variances and you can actually, again, now have a much better leverage point from negotiation to optimize costs. We're in a much better spot than we've been historically, where it's been a sole source resin supplier versus where we are today. Again, we hedge more than 50% of our resins are hedged. That's allowing us again to not see an impact in FY 2026. That's not the case of where we were, you know, a number of years ago.
I think obviously, you know, beyond oil, we've done the same thing from a currency perspective, and we talked about, you know, how we did that a few years ago. BD historically, prior to three years ago, never hedged currencies ever on the income statement. There was some balance sheet hedging, but never, you know, that would impact the income statement. That's something that we've matured into, you know, quite sophisticatedly over the last couple years as well.
Yeah. No, I think a welcome change. I think that's something that's been a debate for years. And y ou know, is it a good idea? Is there economic value? You've started to enter that end of the pool, which is great.
Stability, right? It fits with you know, the new BD. That stability through different, you know, cycles. That's why we really wanna make sure that we do.
Okay. Then just in terms of timing, these are resin providers, so I would imagine there's a turns element of production on that for them, and then there's a turns element production for you, which kind of takes some time.
You have 120 days of finished goods, p lus then you have, again, we have silos full of resins at our factories which have additional raw material, and then you've got obviously the hedging that takes place and so all of that's why, as I mentioned. There's really no impact at all in FY 2026.
For the most dependent products on resin, you know, I think what we saw last time was you were in that sort of end of the spectrum of medical devices and med tech where, given there's two suppliers maybe of syringes or whatever the product is that, you know, you were able to pass through some of the price increases to the extent that they were elevated and prolonged.
Correct.
Not that we're there yet, but that's.
It's always a lever.
Right.
We certainly have done that in the past. Yeah.
I wanted to, you know, and then just lastly, just on Middle East as a percentage of your business or exposure, you know, is that sub- 5%, sub- 2%? What would you describe?
It 2. Within that 2 range.
Okay.
It's actually been a good growth contributor for us over time, and we're still, you know, deeply engaged, you know, with markets there, which is in Riyadh, in the last month or two. Certainly for right now, that's obviously paused and we're continuing to get, you know, product flow into the region, etc. You know, we have a very sophisticated supply chain throughout Europe and the Middle East, but that's obviously we're very focused on continuing to support the healthcare system there as they're going through, you know, a very challenging time.
Okay. Obviously, you know, absent the events of the last week or so, you've had a super busy year at BD. Congrats on the partnership and the divestiture, call it. Maybe you've highlighted a few sort of key strategies. I wanted to talk about, I won't go through, you know, what you've described as your c onnected devices and lower cost convenient settings and growth technologies kind of paraphrasing the three elements of your strategy. Maybe on smart connected, maybe talk a little bit about what the opportunity is there.
You've obviously been in connected devices for a while in terms of infusion pumps and, you know, now with the Edwards patient monitoring critical care business, you're also kind of on that side. Maybe talk about the opportunity for i nfusion systems and smart-
Maybe just to step back, you know, to what you brought up, you know, upfront. You know, we have been very active in transforming the company through the first phase of our strategy, which we've just completed, right? BD 2025, you know, just ended at the end of last fiscal year, and we're onto the next. We really are pleased with how we've set up the organization for the next phase and long-term growth. As you said, we've done significant transformation, three major divestitures over that period of time, the separation of the diabetes care business, the separation of our surgical instruments business , and then obviously most recently, right, the RMT with Waters of our $3.2 billion life science business.
That was a great transaction, I think, for both parties, and really excited, you know, for where that's gonna head. Obviously, our shareholders will own about a little under 40% of that new entity as it goes forward. At the same time, we've built very systematically a number of entirely new growth platforms that didn't really exist at the start of BD 2025, right? We have now the world's largest biologic drug delivery business, over half of our Pharma Systems business, right? Catalyzed by GLP-1s, right? That business growing double digits. Tissue reconstruction, right? We had a hernia business, but we didn't have a regenerative medicine business, which is what we have today, and a really exciting platform.
Again, an acquisition that we did early in BD 2025 that we've spawned, you know, half a dozen products off of and have probably nearly a dozen products in the pipeline off of that. The connected care business, right? We're now the world leader in pharmacy automation, a $700 million business, you know, heading towards $1 billion, you know, advanced robotics running pharmacies. I was in Europe all last week, really, really heightened interest there as people are focused on how do they transform their cost structure, and pharmacy robotics definitely play a very important role. And then in the, in the broader medication management connected care business, you know, we'll get to, you know, what you described. We've also built a urinary incontinence business that's at scale, heading towards $1 billion by 2030.
We've built a very strong peripheral vascular business that we're gonna continue to double down on. We've not only supplemented that heavily with tuck-in M&A, right? We've done three very large non-strategic exits. We've done about 20 strategic tuck-ins building these growth platforms, and we're investing obviously in those as we go forward, both organically and inorganically. As we go back to the connected care strategy. We're in a exceptionally unique position in what we've built, and you'll continue to see us, even through the balance of this year, announce new innovations that we're coming out with that have been in our pipeline, but we haven't shared quite yet.
What we've assembled very purposely, very proactively, is the ability of the only company that actually has all the understanding of our software in the pharmacy that is managing the inventory of the drugs, that then compounds the drugs using our Pyxis Prep, that then moves them up to the floor, right? Any drug that a nurse administers to the patient, the vast majority of those go through our Pyxis cabinet. They're looking at a screen and determining what the patient needs, and then we're giving them those drugs out of the cabinets. We're infusing those, and we actually have a line in with our catheter and our IV set going to our pump in the majority of patients in hospitals today.
Now we have connected to those patients a monitoring system that's understanding what is the physiological response of these drugs that the patient's getting, and are they where we want them to be? As you think about AI and technologies, the ability to integrate, right, the physiological response of a patient to the medications that they're getting and closing that loop is something that our customers get exceptionally excited about, right? You and I today, your body is not waiting for you to go to 180 over, you know, some other number blood pressure and just hang out there for 10 minutes and then swoop you back in to 120 over 80, right? It doesn't do that. It. On a microsecond basis, your body is making adjustments. That doesn't happen when you're sick, right?
If you're in an ICU, you swing up. At some point, when you swing up so far, the alarms will go off, the nurse will come in, they'll look, they'll start trying to change the infusion rates, give you more fluids, maybe give you a vasopressor, etc. We'll try to swing you back into range. You'll swing back out. That's completely unhealthy for your body. It causes organ damage. It extends length of stay. There's no reason for it, right?
The pump can do that on its own in the future. You can do many other things that we've been doing quite a bit of work on. We will be integrating, and we shared that obviously at the time of the acquisition, the APM technology with our infusion technology. We'll be making more announcements, you know, on that as we go through this year and into early next year.
Okay. The timeline for that? I mean, imagine that is a new category. I know it's hard to resist the urge to kinda make the comparison to insulin pumps and closing the loop for patients who are looking for time and range over a 10, 20, 30, 40-year period of their lives. You're kinda talking about, you know, time and range for other kinds of metrics in a-
The indication is way broader, right?
In a hospital setting. Yeah, yeah.
We go beyond insulin in a hospital setting.
Of course. No, this would be anything, but the concept being the same.
Very true.
You don't wanna wait for something bad to happen and intervene.
We shared at the time of the acquisition, the first step will be integrating the monitor into the Alaris pump, right? The Alaris has modules that snap on. We've shared that we're working on that, and we'll look forward to obviously communicating the launch date on that. The algorithms which we've had.-
The next step would be a conversation with regulatory and so on to begin to
Yeah.
Great. That's exciting. All right. Also you mentioned the divestitures and the tuck-ins, but you know, one of the acquisitions C. R. Bard really brought in, and we talked a fair amount about this when we relaunched here at Barclays is just the capabilities on the M&A front. Maybe you know, with all the focus on you know, the sort of call it a divestiture of the diagnostics and biosciences business, flow cytometry business, you know, the spotlight is maybe taken off of the activity level in tuck-in. Maybe talk a little bit about what that you know, activity level looks like, the ways you're augmenting your i nternal organic R&D with opportunities.
Yeah. I think just to step back a bit, we've absolutely developed a very strong track record on M&A, both on the divestiture side. I think everyone would view, you know, our RMT, the first ever RMT in med tech, as a major success, right? And in a very challenging window of life science industry overall. I think that showed the capabilities of our team. At the same time, the acquisitions that we've done, including the most recent APM, which is well ahead of our deal model, it's going exceptionally well. Grew nearly 10% last year, will grow high single digits again this year. We've been integrating, we've been very prudent and thoughtful on the types of acquisitions that we've done.
As I described before, many of the key growth drivers, including in peripheral vascular, in the surgery business, you know, Tepha, even our recent. You saw us make some announcements on Surgiphor. These are just great examples of tuck-ins that we've done. You know, Tepha, tuck-in that we did, probably launched 4 or 5 new products off of that. We've got a very strong pipeline of, as I mentioned, you know, probably near 10 different iterations that are coming after that, and so we do really well with those.
Okay.
We will continue to do tuck-in M&A. Now that we've also just completed the APM 1.5 years ago, not that long ago for a $4.2 billion acquisition. Obviously, we've been busy doing the RMT. We will continue to do a balanced capital allocation strategy, which is what we've, you know, communicated very clearly for new BD, which is a heightened mix of share buybacks, continuing our strong dividend policy, but continuing also to do tuck-in M&A, focused tuck-in M&A that accelerates our growth, high growth spaces, high margin spaces that are accretive. That's where we're focused, and we have a strong track record of those, and we'll be continuing those.
Okay. The margin structure. Obviously, the RMT, you know, the two businesses that you moved into that partnership, you know, were among the higher spend in sort of R&D. Sort of that process has unleashed a fair amount of internal R&D. Maybe talk about the way you expect, the obvious question is how much of that comes through and how much of that, you know, finds a home in projects and programs elsewhere in the P&L.
Well, we let that flow with those businesses. We didn't restock up from just the overall R&D number. What we did do, though, is we reallocated about $50 million of corporate R&D spend into the businesses, and we did that at the start of this year. We've talked about a number of the spaces. We put that into regenerative medicine. We put it into new adjacent spaces for PureWick, as an example. We put more money into APM. You're seeing us invest more into actual R&D projects in those high-growth spaces. We put some more into the biologic drug delivery space. We'll continue to look at doing that, but we always, you know, look first at our existing portfolio and spend of the company and how we reallocate that into productive R&D spend at the project level.
Okay. A couple of things before we get to the last couple minutes here. I'd be remiss not to sort of ask about China, given the challenges in sort of predicting which way that's gonna go and when it might inflect or stabilize. Maybe talk a little bit about how you're thinking about that business now and, you know, what you've learned over the past couple of years and how you're thinking about it differently now.
Yeah. Obviously, we've shared that value-based procurement's obviously particularly going through some of the Bard portfolio, surgery and PI primarily. We expect that still to have gone through about 80% of our portfolio by the end of the fiscal year. We've shared that. You know, we feel that headwind this year. On a positive side, New BD China will be about 4% of our revenue, you know, this year, which is down from about 7% over, you know, a couple years before.
That's a combination of just the impact of VBP, but also the fact that life sciences, you know, was our largest segment in China. Now with that separation, that actually further de-risks China as part of our overall portfolio. We're continuing to invest in the opportunities where they exist, but I'd say we're taking a prudent approach to China, just given there is still broader long-term uncertainty around that market.
Okay. Then a couple of the other questions that I get often is, you know, around Alaris and pumps. A lot of excitement or anticipation around the approval that came, you know, a fairly robust success and kind of, you know, coming back to the market, I almost said roaring back to the market. But now, you know, sort of moderating some of those expectations in terms of, you know, what could share gains be? What should margin contribution look like? You know, what's the right way to think about Alaris going forward, aside from the connected s trategy you mentioned?
W e couldn't be more pleased with the relaunch of Alaris and how that went. First off, we've certainly are exceeding the commitments that we made to the FDA around upgrading within that three-year period. Extremely challenging to do as you think about upgrading 60% of the market in a three-year window. Right? That's 20% of the market every year. Just put it in comparison, you've got, you know, roughly three other players with another 40% still on an eight-year replacement cycle. So all competitors combined, you know, upgrade about 5% of the market a year, and we did 20%, you know, 4x all competitors combined for the last three years. So the scale and what our manufacturing team did was just outstanding and our service organization.
We're coming to the end of that upgrade process. You know, obviously that creates a natural crossover, because you would have never normally upgraded your entire base in a three-year window.
Sure.
That was obviously part of the commitment to the FDA. That creates a growth over this year and will create, you know, the growth over next year that's very defined. At the same time, it's a situation where that, you know, growth over creates a revenue headwind, but we're actually gonna continue to hit peak market shares at every step along the way. This past quarter we shared Q1 was another, like, record quarter for us in terms of competitive share gain. We gained about a point of share just in the first quarter. You know, even when Alaris was hitting full stride before the ship hold, it was 1-2 points of share a year. To have that in the first quarter, we have a very strong funnel of competitive business.
I think what you're seeing is our sales team has been exceptionally busy just upgrading our base, right? Upgrading 60% of the base. That's coming to an end, right? The vast majority of our customers are either upgraded or have already been contractually committed to upgrade. It's a service organization execution topic, not a sales execution topic. Our sales team has pivoted, you know, heavily to competitive, you know, share focus, 'cause that's really the only opportunity for them to go after. I think that bodes well for the next several years of share focus for us, 'cause that's all we have to focus on.
Right.
Yeah.
Okay. Someone might say that the timing for you is good, given some of the competitive.
Yeah. It's all offense, no defense. Everyone has brand-new Alaris pumps.
Sure.
It's not a defense game there, it's an offense game.
Yeah. Your largest competitor is in a little bit of a, you know, I don't wanna say terribly difficult situation, but, you know, it's a ship hold and they're-
We know that situation better than anyone.
Yes, I'm sure. I'm trying to describe it delicately. No, maybe talk a little bit about the pull-through. Like, this is, you know, you've upgraded and returned a lot of pumps to the market. From a margin contribution standpoint, does the consumable side, the S-side of that business stand to, you know-
The consumables are a higher margin more than the capital. If you place the capital up front, it's at a bit of a lower margin than the consumable stream, which you're on now. Consumable stream for, call it, 8-10 years, which is the life of the pump at that higher margin profile. Yes, we would expect that to build over time as share continues to expand.
Okay. One just question about the guide this year before we wrap up is, you know, the sort of, you know, low single-digit growth with some, I'd say, maybe, you know, conservatism and caution built in around some of the decel, you know, is assumed in Alaris and continued pressure off a smaller base in China. Maybe pharma systems.
Vaccines?
Right, in vaccines. Maybe what in that, you know, what can push that higher this year? I understand given the last couple of years in particular, the desire to start this at, in a conservative, you know, baseline. You know, what are some of the things you're excited about that could potentially push you to the higher end of your range?
As you just described, you know, we obviously put out a prudent guide, mid- to low-single-digits guide. That assumes that 90% of the company growing strong mid-single digits, you know, about 4.5%+, and 10% of the portfolio, which is the categories you described, Alaris, vaccines and pharma systems in China, you know, growing less and pulling that down by about 250 basis points. Those represent what we communicated at the start. You can kinda do the math, right, to get it to that solid mid-single digits for the 90% of the portfolio. That includes a lot of areas growing high-single and double digits. As we think about, you know, where that incremental growth opportunity comes from, it's from those high-single-digit, double-digit growth areas.
Biologic drug delivery continues to grow double digits for us. Obviously, GLP-1s continue to expand. APM continues to, you know, with the launch of Stream, which has the opportunity now to move from an $80,000 monitor to something that's a fraction of the cost that can democratize access to hemodynamic monitoring across not just the ICU, but the general wards for high-risk patients. That's a new opportunity that we've just expanded the sales force in and are investing behind. PureWick continues to now grow very strong double digits, and we now have reimbursement in the Veterans Administration. We've put more salespeople focused in there to get veterans access to the technology. That's actually running ahead of our plan today, so it's off to a great start. It's another category that we certainly see, you know, opportunity in.
Continuing in Alaris for sure, and Pyxis Pro, which is the first new Pyxis in, you know, essentially 20 years of a cabinet. I think we shared that 80%+ of our initial wins in the first quarter were all competitive wins in that space, and we expect that to continue to be a very strong competitive gain platform for us. It was designed to be that.
It's getting very positive customer feedback integrated with our BD and Incada AI platform, which will continue to roll out in Alaris and APM, and our pharmacy robotics will all be under that AI umbrella, right? That creates, again, a flywheel effect to pull through that portfolio. We've got quite a few, right, growth levers that we've been investing behind. We've talked about, right, we've put money behind those going into this year as well. We expanded our APM US sales team by 15%. We expanded our PI sales team by 15%.
We put more money behind the PureWick, you know, launch in the Veterans this year. Surgery, that's another area of great momentum that we have, is that regenerative medicine business. We have claims in Europe now for plastic surgery reconstruction and breast reconstruction using our GalaFLEX, which is one of the Tepha products that we had acquired a couple years ago. As people are getting GLP-1 surgeries, right, skin needing chin lifts, breast lifts, tricep lifts, that's all being done with our GalaFLEX, resorbable mesh that disappears in 18 months and leaves everything kinda held up there. We've put more feet on the street in Brazil, across Europe, and again, that's going very well. A number of different growth drivers that we're investing in that could provide those opportunities.
Okay. I think, with that, we're just a touch over here. We should probably call it. Thanks so much, Tom.
Yeah. Great seeing you. Thank you.
Thank you.
Thanks, everyone.