Good morning, and welcome to the Boston Scientific Third Quarter 2020 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Susan Lisa, Vice President, Investor Relations. Please go ahead.
Thank you, Andrew. Good morning, everyone. Thanks for joining us. 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 Q3 2020 results, which included reconciliations of the non GAAP measures used in the release.
We have posted a copy of that release as well as reconciliations of the non GAAP measures used in today's call to the Investor Relations section of our website under the heading Financials and Filings. The duration of this morning's call will be approximately an hour. Mike will focus his comments on Q3 performance, inclusive of the impact of the COVID-nineteen pandemic as well as future catalysts and the general outlook for our business. Dan will review the financials for the quarter and then we'll take your questions. During today's Q and A session, Mike and Dan will be joined by our Chief Medical Officers, Doctor.
Ian Meredith and Doctor. Ken Stein. Before we begin, I'd like to remind everyone that on the call, operational revenue excludes the impact foreign currency fluctuations and organic revenue further excludes the impact of certain acquisitions, including BTG through August 15 as there are no prior period related net sales as well as the divestitures of the Global Embolic Microspheres portfolio and the Interuterine Health franchise. On this call, all references to sales and revenue, unless otherwise specified, are organic. Finally, average daily sales, ADS, normalizes sales growth for a difference in selling days year over year.
Of note, this call contains forward looking statements within the meaning of federal securities laws, which may be identified by words like anticipate, expect, believe, estimate and other similar words. They include, among other things, the impact of the COVID-nineteen pandemic upon the company's operations and financial results, statements about our growth and market share new product approvals and launches clinical trials cost savings and growth opportunities our cash flow and expected use our financial performance, including sales, margins and earnings as well as our tax rates, R and D spend and other expenses. 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 for his comments.
Thanks, Susie, and thank you to everyone for joining us today. I'm pleased to report that we made significant progress in Q3 with excellent commercial execution and strong clinical adoption across our category leading portfolio as we build new capabilities and fuel our new product launch cadence. We continue to invest in our promising future and are confident that this will enable us to continue to grow at the high end of our peer group, improve operating margins and deliver double digit adjusted EPS growth and strong free cash flow for the long term. In the 3rd quarter, operational sales declined 2.5% and organic sales declined 5.7%, normalizing for currency and the divestiture of both our intrauterine health business and legacy bees business as well as excluding the contribution of BTG through August 15. Importantly, note that the organic revenue result includes a negative 2 30 basis point impact related to sales return reserves in the quarter as we strategically shifted to a consignment based model for our left atrial appendage closure franchise with the launch of our next generation WATCHMAN FLX device in the U.
S. I'll provide more detail on the strategy and the success of the WATCHMAN FLX the Q2, and many countries returned to year over year growth in Q3. Regional performance improved significantly. It was very consistent around the globe. U.
S. Sales declined 4% Europe, Middle East, Africa also declined 3% and Asia Pac declined 4%. We delivered growth in China for the 2nd consecutive quarter, plus 2% growth in 3rd quarter on an organic basis. This China growth includes a negative 7 70 basis point impact from sales return reserves for channel inventory adjustments in anticipation of the upcoming national tender and drug eluting expense in 4th quarter. China has strong sales in complex PCI, including imaging, rhythm management, peripheral intervention, structural heart and urology public health.
And our swift progress diversifying the portfolio into these high growth markets means that DES will represent approximately 10% of our China revenue in 2020. We expect our China business to accelerate growth in Q4, and we are targeting double digit growth in 2021, including the DES tender related impact. This regional sales performance was mirrored with a balanced and sharp recovery across our business units. PI delivered 2% growth in the quarter. Euro Public Health, neuromod and endoscopy revenue all declined 1% to minus 3%.
CRM was down 4% and EP was down 7%. Interventional Cardiology's organic 17% decline includes more than 10 percentage points of negative impact related to the combined sales return reserve for transition to Watchmen consignment and China DES tender, which are $63,000,000 $10,000,000 respectively. Specialty Pharma sales of $74,000,000 in the quarter were in line with our expectations, down mid single digits year to date. Adjusted operating income of approximately $620,000,000 represents a 23.4% adjusted operating margin, nearly double our 2nd quarter rate and down 2 70 basis points year over year. This too includes a negative 170 basis point impact related to the transition to consignment for our Watchmen franchise.
Adjusted EPS for 3rd quarter was 0 point 37 dollars which includes a 0 point 0 $6 tax benefit that Dan will detail. Now to turn the outlook for 4th quarter. Trends continued to evolve largely as we've expected with worldwide organic revenue improving sequentially in Q3, even in those regions experiencing COVID flare ups. We aim to return to organic revenue growth in Q4, excluding the impact of the shift to consignment for Watchmen and with the obvious caveat of COVID uncertainty. From an adjusted operating margin standpoint, we're targeting a similar rate in 4th quarter, again excluding the impact of the shift to consignment for Watchmen.
Our businesses are strong with a compelling global pipeline and multiple ongoing launches with recent approvals that are helping lead our recovery. We're also benefiting from the overall high acuity mix of our business and site of care. Admittedly, determining the remaining backlog or estimated new patient funnel remains a challenge and varies by business and region. We believe that we have worked through a meaningful portion of our patient backlog given the acuity profiles of our technologies. We're also encouraged by the ability of our customers to manage COVID while performing elective procedures as well as improvement in new patient referral rates, which are still slightly below normal levels.
We have confidence that across the portfolio, our broad product launch cadence will help offset these challenges. I'll now provide some additional commentary on the business units. Euro Public Health sales declined 1% in the quarter, normalizing for the interuterine health divestiture. Sequential improvement was led by our stone and prostate health franchises with lithoVu, Rezum and SpaceOAR all growing double digits in 3rd quarter. Notably, Rezum achieved its highest sales quarter ever, supported by our differentiated 5 year clinical data.
And we target ongoing improvement with new launches such as Space Review in the U. S. As well as the benefit of a higher office ASC mix for our more elective procedures. For endoscopy, 3rd quarter sales declined 3%, reflecting a favorable mix of both relatively high acuity and outpatient ASC site of service. Trends in the quarter were led in the U.
S. By sequential growth in our hemostasis and biliary franchises, along with infection prevention, which grew double digits in the quarter. We continue to see good resilience in ERCP procedures for the pancreas and bile ducts such as stone removal and tumor biopsies. Our EXALT D launch is accelerating with over 100 accounts opened globally and encouraging early trends from the transitional pass through payment granted by CMS that went into effect July 1 in the outpatient setting. We also completed the limited market release of SpyGlass Discover with surgeons enthusiastic about its direct visualization and resulting ability to treat patients effectively with a single stage approach, thus enabling fewer interventions and shorter length of stay in the hospital.
We continue to target launch of our single use bronchoscope in the second half of twenty twenty one. In CRM, 3rd quarter sales declined 4% with high voltage sales down 3% and low voltage sales down 7 percent for the quarter. We continue to believe that our 2020 CRM performance will be roughly in line with the overall market. And importantly, our LuxDx implantable cardiac monitor is off to a strong start, given the seamless patient interface and back end monitoring, plus the ability to be programmed remotely and have event detection settings adjusted without an in person visit. EP sales were down 7% in 3rd quarter with trends showing strong sequential improvement.
We've been very pleased with the limited market release of Polarex, which is a 2nd generation single shot cryocatheter and will move to full launch in Europe by year end. EEP space remains one of the largest, fastest growing markets in medtech and we're excited about our strengthening the portfolio, including our recently announced expanded investments in the irreversible electroporation field with Parapulse. Of note, we have elected to discontinue further development and clinical investments of our ALPAMA, Luminiz RF single shot balloon. In Neuromodulation, organic revenue declined 3% as the business has returned very quickly to serve patients in need aided by our broad portfolio, digital capabilities and site of service. We've seen a nicely balanced procedure recovery across RF, Vertiflex and SCS as we execute our category leadership strategy in pain.
We're also pleased with our recent WaveWriter Alpha launch in Europe, which offers the Kontoor waveform with up to 32 contacts, MRI capability and Bluetooth connectivity. Turning to deep brain stimulation. Our Precise PC and Gevia directional systems continue to drive market share gains. Additionally, the recent EU launch of our Precise Genus platform expands our capabilities in both the primary and rechargeable segments with full body MRI capability and new Bluetooth capabilities. Genus builds on our innovative foundational technology designed to offer multiple independent channel control, directional capabilities and integrated visual ization of the patient's brain structure for optimal programming and outcomes.
Turning to interventional cardiology. Q3 sales declined 17% organically, which includes more than 10 percentage points of negative impact related to sales return reserves for the transition to consignment for WATCHMAN and upcoming China national tender. Within coronary therapies, new products like the Mamba microcatheter, imaging products such as Comet and Avigo and the Synergy XD and 48 millimeter drug moving stents continue to drive performance in the space. TAVR sales grew both year over year sequentially as we continue to focus on the EU launch of ACCURATE NEO2 and U. S.
IDE enrollment as well as continued U. S. And Japan rollout of LOTUS Edge and U. S. Intermediate risk trial enrollment.
We're also pleased with the consistent progress of our cerebral embolic protection device, SENTINEL, which grew over 20% in the Q3. As disclosed at our TCT webcast earlier this month, we now expect U. S. Approval for ACURATE in 2024 as well as LOTUS Edge indication expansion into intermediate risk in 2024. Our next generation ACURATE neo2 is launching in Europe and now offers low PBL rates, best in class patient maker rates and great hemodynamics.
LOTUS Edge offers predictable control with a platform that may be fully recaptured and repositioned at any time. We believe both vials offer distinct benefits, while SENTINEL has uniquely demonstrated a reduction in stroke rates during TAVR procedures in both its IDE and numerous large registries. Returning to WATCHMAN, the franchise experienced a very robust recovery in Q3 with low double digit growth excluding the impact of the sales return reserve. Our U. S.
Limited market release of WATCHMAN Flex has gone extremely well with exceptional physician feedback, and we have moved into a full launch ahead of schedule, and we're targeting a complete conversion to FLX by mid-twenty 21. We believe the strategic shift to the consignment based model strongly complements the launch of this highly clinically differentiated product. We are purposely making this investment given the significant potential for Flex Growth. Moving rapidly to a consignment model will enable us to better support customers and drive committed share agreements while accelerating the conversion to Watchmen Flex at a price premium, all of which enhances our competitive position and further strengthens our market leadership. We're exceeding our Flex contracting goals thus far and target completing the vast majority of this shift to consignment by year end 2020, which will result in a slightly larger headwind to revenue growth in Q4 than Q3.
Turning to PI. Organic third quarter organic sales grew 2%, reflecting an overall favorable mix of high acuity and outpatient side of care for procedures as well as a category leading portfolio and strong cadence of new product launches. Of note, the BTG Interventional Medicine portfolio grew high single digits on a pro form a basis in 3rd quarter. All franchises in PI delivered growth in the quarter, arterial, venous and IO, with particular strength in drug eluting, IO in China. We also continue to anticipate 2 imminent launches, ILUVIEN China and RANGER DCB in the U.
S. With RANGER Japan launch targeted for 2021. Voyage or PAD, which is a large study with long term follow-up and adjudicated outcomes presented TCT earlier this month, showed no association of mortality with paclitaxel coated devices and should further accelerate the growth of this important category where we are uniquely positioned. Venus results were solid, highlighted by a sharp recovery in our barathena varicose vein therapy and a new ECOS system controller for pulmonary embolism patients. Interventional oncology continues to perform very well as TheraSPHERE Y90 share gains.
We've also moved to full launch for the TruSelect microcatheter. BTG became organic mid quarter. As mentioned at TCT, we expect to exit 2020 realizing $125,000,000 of the $175,000,000 in originally target synergies, ahead of plan and solely via cost synergies, with upside from revenue synergies. As we continue to expand the BTG Interventional Medicine product lines globally, I'd also like to highlight several important sustainability accomplishments this quarter, including being named among the top 50 of America's most just companies by Forbes Just Capital for the 2nd consecutive year. We ranked 38 overall, 2nd among all health care companies and number 1 overall for diversity, equity inclusion.
Our efforts for combating climate change, response to social justice, transparent customer communications and ethical leadership were also commented. MIT Sloan Management Review Glassdoor also recognized BSC as a culture champion, one of the 21 companies named to this inaugural list. So as we continue our commitment to anti racism, both actions and resources, including our important Close the Gap initiative to close the health equity gap in underserved communities through provider education and collaboration, efficacy and society partnerships and patient disease state awareness. So overall, I'll leave you with a few key points about our bright outlook. We're encouraged by consistent quarterly improvement in business trends and resilience in the face of COVID flare ups.
We have a robust cadence of new product launches across the portfolio such as Watchman Flex, Axalti, Polarex, Acura Neo2, WaveWriter Alpha, PreciseGenius and LuxDx. Our pipeline in 2021 and beyond also positions us well in high growth markets with new adjacencies and a portfolio that offers us access, partnership and expansion of our customer reach. We're strategically deploying investment spend to enhance our new launches and digital capabilities, And our strong financial position and compelling venture portfolio enable us to continue to develop multiple high growth markets. As we close out 2020 and push to 2021, we remain highly confident in our long term ability to grow at the high end of our peer group, improve operating margins, deliver double digit EPS growth and strong free cash flow. I'm extraordinarily grateful to our employees for their winning spirit, and I'll now turn things over to Dan.
Thanks, Mike. 3rd quarter consolidated revenue of $2,659,000,000 represents a reported revenue decline of 1.8% and reflects a $19,000,000 tailwind from foreign exchange. On an operational basis, which excludes the impact of foreign currency fluctuations, revenue declined 2.5% in the quarter. BTG sales contributed 3 70 basis points prior to becoming organic on August 15, partially offset by the divestitures of our legacy embolic beats portfolio and intrauterine health business. Excluding the net contribution of acquisitions and divestitures, organic revenue declined 5.7% and includes a $63,000,000 or 2.30 basis point headwind from the sales return reserve related to our conversion to a consignment inventory model for our Watchmen franchise with the launch of our next generation Watchmen Flex device here in the United States.
These sales results represent strong sequential improvement over the Q2 as procedural volumes continue to trend upward through the ongoing COVID-nineteen pandemic. Our rebounding top line and continued P and L discipline contributed to our Q3 adjusted earnings per share of 0
point 3 $7 along with a
$0.06 tax benefit, which was partially offset by a negative 0 point $4 impact from the Watchmen Consignment sales return reserve. Adjusted gross margin for the 3rd quarter was 69.3%, in line with our expectations to approach 70 percent in the back half of the year as we outlined on the Q2 call. The sequential improvement is driven by lower negative manufacturing variances, slightly offset by the impact of the transition to Watchmen consignment. As a reminder, Q2 production levels were below 75 percent of capacity, resulting in material manufacturing variances that were expensed within the P and L in that quarter. In Q3, with production levels above 75% in the majority of our plants, unfavorable manufacturing variances decreased and were capitalized within inventory on the balance sheet and will be recognized over a 6 month period corresponding to our inventory turns.
Looking forward, we continue to expect Q4 adjusted gross margin to be in line with Q3 approaching 70%. 3rd quarter adjusted operating margin was 23.4 percent or 25.1 percent, excluding a 170 basis point headwind related to the Watchmen consignment transition. This is slightly ahead of our expectations given the trajectory of our revenue recovery in the quarter and continued P and L discipline. We increased investment spending while maintaining prudent adjusted SG and A and adjusted R and D rates of 35.9% and 9.5 percent, respectively. Q3 also had some favorability related to timing, and investment spend will continue to increase throughout the 4th quarter.
Based on these results, we expect Q4 adjusted operating margin to be similar to Q3, excluding the impact of Watchmen Consignment in both consignment in both quarters. On a GAAP basis, operating margin was negative 7.7% and includes a $219,000,000 intangible asset impairment primarily related to Apama and a $260,000,000 litigation related expense. As Mike detailed, we've discontinued the development of the Apama RF Balloon, and I'll provide an update on our legal reserve shortly. Moving below the line. Our expectations for full year adjusted interest and other expense have not changed from our Q2 call to be slightly above the range of $400,000,000 to $425,000,000 provided at the beginning of the year.
Our tax rate for the 3rd quarter was 31.7% on a GAAP basis and minus 3.5 percent on an adjusted basis, which includes an $88,000,000 noncash benefit driven by this quarter's completion of the IRS examination of our 2014 to 2016 tax years in a favorable position compared to our reserves. This resulted in a $0.06 benefit to adjusted earnings per share. Adjusted free cash flow for the quarter was $870,000,000 and reported free cash flow was $595,000,000 driven by strong operating margins and improved working capital efficiency. As of September 30, 2020, we had cash on hand of 2 total liquidity, including available credit facilities, of $4,800,000,000 and a prudent debt maturity profile with no near term maturities. During the quarter, we prepaid the remaining $250,000,000 balance on our February 2021 term loan.
This leaves us with no debt maturities until May of 2022. Capital expenditures for the 3rd quarter were $49,000,000 We continue to expect full year 2020 capital expenditures of approximately $350,000,000 as we focus on certain plant expansions and projects to needs and drive value improvement programs. With respect to our legal reserves, we booked $260,000,000 in Q3, primarily related to mesh, inclusive of a reserve related to onetime claims made by a coalition of state attorneys general. Year to date, we have made cash payments of $30,000,000 into qualified settlement funds, leaving approximately $85,000,000 remaining to fund outstanding individual plaintiffs' claims. We ended Q3 with 1,445,000,000,004,045 dollars fully diluted weighted average shares outstanding and expect approximately 1,447,000,000 dollars for the Q4 2020 and 1,432,000,000 In closing, our businesses and pipeline remain very strong, and our long term fundamentals have not changed, with targeted organic revenue growth at the high end of our peers, sustained adjusted operating margin expansion, double digit adjusted earnings per share growth and strong free cash flow.
Please check our Investor Relations website for Q3 2020 financial and operational highlights, which outlines more detailed Q3 results. And with that, I'll turn it back to Susie who will moderate the Q and A.
Thanks, Dan. Andrew, let's open it up to questions for the next 30 minutes or so. Andrew, please go ahead.
Thank you. We will now begin the question and answer session. Our first question comes from David Lewis of Morgan Stanley. Please go ahead.
Great. Well, good morning and thanks for taking the question. Just got one for Mike and then a follow-up related for Dan. So Mike, I just want to come back to this high end device comment you made. So I just want to confirm that whatever the med tech peers grow, let's say that's 4% to 5%, you inspire to grow 3 points faster.
And then also for you, I think there's a concern in light of CRM and IC market dynamics or TAVR that the ability to do that frankly has changed. So clearly, people are focusing on the things that have gone below plan. Maybe you could maybe focus on some of the pieces of the business or segments that are above plan that are giving you the confidence that, that algorithm of 3 points above 4 to 5 or whatever have you have is still achievable? And then I have a follow-up for Dan.
Yes. Good morning, David. Thanks for the question. Yes, we're very confident in our ability to continue to grow at the high end of our peer group. We've done so for a number of years.
And our product launch cadence as we look to round out 2020 2021 are quite exciting. If you look across our businesses and our launch schedule, we've highlighted WATCHMAN FLX and we laid out at TCT why we believe the WATCHMAN FLX market is larger than originally multibillion dollar market. So I don't want to go across every business, but we have a very strong product launch cadence. We talked about in PI with both the ILUVI stent and the pending approval for RANGER. We're seeing excellent growth out of our interventional oncology business led by BTG, which actually grew upper single digits in the quarter and really the strength of our MedSurg businesses, our Endo business with the launch of our single use scopes, the momentum of our urology business, and we have 2 big launches in Neuromod in Europe in both SCS and DBS where we continue to take share.
So really across the portfolio, we have a rich bag of product launches. Clearly, we would have liked to have the Acura Neo approval prior to 2024, and that's certainly something that we wish we could pull in, and we'll continue to try that based on our discussions with the FDA. But if you look at just the incremental tailwind of WATCHMAN Growth and paclitaxel, we believe those two elements there neutralize the slight delay with ACURATE and EO on its own. So we have a history of growing above market, and the product launch case we have is strong. And our VC portfolio is quite good.
And the free cash flow and balance sheet to play against that is very strong.
Okay. Very helpful, Mike. And then Dan, just for you. I appreciate the confirmation of growing in 4th quarter. Should we assume that growth in the 4th quarter is kind of low single digit type growth?
And then look, 'twenty one, I know we're not going to get a lot of idea here, but everyone's very focused on 'twenty one as a percent of 2019, it's treated double digit growth for next year. I wonder if maybe you'd comment on kind of the reality of those numbers, but more specifically any parameters you can offer us on 2021 on the top bottom line tax margins for consideration of our models as we head into next year. Thanks so much.
Sure, David. So relative to Q4, the commentary is just very simple. It's aimed to grow. So we haven't given specific guidance relative to a number, whether it be one number or another. So the commentary and our belief is that we're aiming to grow in the Q4, obviously, with the COVID caveats that Mike mentioned.
With respect to 2021, probably can't give you a lot of detail on that. We're right in the middle of our annual operating plan process right now, except to say that, again, as I mentioned closing out my prepared commentary, that it's really the same goals we've always had, which is to grow at the high end of the peers, to expand operating margin and to deliver double digit adjusted earnings per share growth. So really no change there. We're working through the process. And the goal would be, when we get to the February call, to give you a sense of where we are and let you know what we think 2021 might hold.
The next question comes from Robert Hopkins of Bank of America. Please go ahead.
Thanks and good morning. Can you hear me okay?
Morning, Bob. You're fine, Bob.
Good morning. Great. Thanks so much. So to start, I apologize for the short term oriented question. But Mike, I was wondering if you could just comment on the degree to which the pretty significant global flare up of COVID in the last few weeks has impacted the business.
And therefore, how confident are you in that comment Q4 that you offered at ex WATCHMAN?
Sure. So we obviously have seen a uptick globally. Everyone reads the newspapers there. I would say the hospitals are doing an amazing job of managing COVID while still performing elective procedures. So you've seen that with the sequential growth that we've had in Q3.
We're certainly mindful of the Q4 potential interruptions there. So our goal is to aim to return and grow ex WATCHMAN. But we're obviously watching COVID quite significantly like everyone else is, we continue to see month over month improvement in our trends. But we put a caveat there in the Q4 as we aim to grow, excluding WATCHMAN. And obviously, if the COVID dramatically improves or increases and there's more shutdowns and more pressures on the hospital system, then that could impact the Q4.
But so far, we've seen nice improvement sequentially month over month. Hospitals doing a better job managing it, and patients need the care that products like Boston Scientific and our peers provide. We're also obviously managing our spend, and you saw the strong improvement in our operating income margins in the 3rd quarter and the drop through in EPS. So we expect that trend to continue.
Okay, great. And then just one product comment. Could you just remind me what you said on WATCHMAN in the quarter? I think you said it did you say it grew double digits? Just curious, sounds like you saw a very rapid recovery in WATCHMAN over the course of the quarter.
Just wondering if you could get any more specifics or details? And thank you.
Yes. It did grow double digits in Q3. And it's really it's been just an excellent launch. The early results have been very good. And as I mentioned in the script, we aim with this consignment model to switch the majority high majority of our customers over by year end and complete that by Q2.
And that consignment model shift, we think is a smart move because it gets flex in the hands of our operators, which they want, allows us to tie up longer term highly committed share contracts at appropriate price premium. So the launch is going extremely well, and it bounced back very quickly in Q3 growing double digits.
The next question comes from Vijay Kumar of Evercore ISI.
Hey, guys. Thanks for taking my question. Mike, maybe getting back to a bigger picture question on the algorithm here, double digit earnings algorithm. 1, perhaps could you give us an update on BTG? I think the last update was 5 or 6 accretion with synergies coming in better where we are in BTG.
And when you look at 2021, I guess, the double digit EPS, is the right phase 2019? I'm curious because the deal is annualized here and it's included in the 2020 numbers and Street is modeling close to 18%, 19% revenue growth for next year. It seems a little excessive, but any comments I think will be helpful.
Sure, Vijay. This is Dan. I can start and Mike can add in certainly as well. Relative to BTG, I think we're potentially even more committed to the benefits of that deal now than we were when we did it. If you look at the growth, one of the highlights in the quarter, and Mike mentioned it, when you pro form a for the various Medicine, they were all at high single digits.
And so that's obviously accretive to where we are, and that's in the middle of a global pandemic. So a lot of good hopes for that. Mike also mentioned on the BTG synergies that we had talked about $175,000,000 in total synergies. Well, now we're at $125,000,000 we believe exiting 2020. We believe that we'll get that whole $175,000,000 in total out of cost.
So the revenue synergies that we had planned will actually be upside. So we look at BTG as a nice driver for us going forward. Relative to comps, I think the most relevant comp is going to end up being 2019. I mean 2020, we will compare to that, obviously, but it's a different year. I'm not going to comment on the specific numbers that are out there relative to your revenue growth for 2021.
But I think when you look at it, it'll be 2021 versus 2019. That'll be the most relevant comparison I think we have.
Got you. And then maybe on structural heart here. Mike, maybe just comment on scope 2. Does it matter? I mean, the stocks certainly reacted post ECC, but it feels like with that NEO-two, it shouldn't matter.
Perhaps could you talk about what structural thoughts should look like for Boston within Europe?
Sure. Doctor. Meredith can make some additional comments. But we just are launching scope our NEO2 platform right now. And so that obviously, as you know, is our 2nd gen platform.
It's shown in our EU study that Ian or Doctor. Meredith can further comment on. It's got improved PBL rates, very low pacemaker rates, very good hemodynamics, and that's our 2nd generation valve. And the enrollment in the U. S.
Is going quite well for that system. So we're quite bullish on ACURATE NEO2 in Europe, and we're hoping as COVID as we're hopefully in the second half year of COVID overall, that we'll continue to accelerate the trialing in the U. S. For that platform. So we'll continue to reiterate that platform, and we're confident that the European team will deliver strong results in 'twenty one with Akerneo
Thanks, Michael. Just to reinforce your comments, I think you heard the panel discussion, Vijay, at TCT, and most of the physicians on the panel recognize that this is a comparison of 1st generation versus a 3rd generation product as a comparison for SCOPE 2. Most physicians who've had significant experience with the ACURATE neo platform know how to use it appropriately. They recognize that Accurate Neo2 has a 60% larger skirt and significantly improved PBL performance in independent coral adjudicated datasets. So I don't think it's going to influence scope, the use of accurate DO2.
The next question comes from Larry Biegelsen of Wells Fargo. Please go ahead.
Good morning, guys. Thanks for taking the question. Just a follow-up on TAVR, actually a couple of TAVR questions and I'll just leave it at that. Mike, at a high level, did it still make sense from an ROI perspective to develop 2 TAVR platforms? And then for you, Ian, I heard your comments to Vijay regarding the commercial impact.
But given the result of SCOPE-one and SCOPE-two, there seemed to be some clinical risk with the U. S. Pivotal trial. And I've looked at the primary safety and efficacy endpoints. Can you talk about your confidence in the NEO-two U.
S. Pivotal trial being able to show non inferiority between NEO-two and SAPIEN-three and EVOLUT PRO, given what we've seen with SCOPE-one and 2, it doesn't look like a slam dunk, but I'd love to hear your thoughts. Thanks for taking the questions, guys.
So perhaps I'll start with the second question there, Larry, about our confidence around the Accurateneo 2 platform. As we said before, the Accurate Neo 2 is different to Accurate Neo 1 with the larger skirt and significantly different PBL performance as we saw from the CE Mark study. And so we believe that data will certainly play out in the what we saw in the CE Mark study of ACURATE NEO2 will play out in the U. S. ACURATE NEO2 IDE study.
So we are working with the FDA now as a consequence of the results of SCOPE-one and SCOPE-two to pop the path forward. We believe that we will require longer patient follow-up as part of that study, but we remain confident.
Thanks, Meredith. Yes, on the first question on our product portfolio, we're always looking at across our portfolio where our investment spend makes the most sense given the market opportunities. And we've obviously had the 2 valve strategy, and we're seeing strong results in the sites that are Opening new sites has been a challenging exercise for us given the pandemic, but the sites that are using LOTUS in the U. S. Are using it quite regularly.
So we do believe that the 2 valve strategy makes sense, and we're excited about the ACURATE neo2 launch in Europe.
Thank you, guys.
The next question comes from Joanne Wuensch of Citibank. Please go ahead.
Hi. Can you hear me okay?
Yes. We hear you fine, Joanne.
Excellent. Good morning. Two sets of questions. First one has to do with some of your commentary for the Q4. I'm curious why operating margins would not improve in the Q4 versus the Q3.
And I want to make sure I can quantify what the Watchmen adjustment is in the 4th quarter because you say you will have growth ex the Watchmen adjustment.
Sure. I can probably take that one, Joanne. 2nd part first. We expect it to be roughly similar. So you saw $63,000,000 top line adjustment for the sales term reserve for the transition.
And so as we look at it, obviously, it depends on how that rolls out in the Q4 but roughly similar, I would say. And then in terms of operating margin, the main driver of that is that Q3 was probably better than we had anticipated. So 23.4%, and that obviously included 170 basis point negative impact from the WATCHMAN sales of term reserve. So we're kind of back into a pretty good range on that operating margin in Q3 and would believe that as we head into Q4, being in that range for the Q4 is a good place to be. From a gross margin standpoint, it's probably, again, largely similar to what you saw in the Q3.
We were 69.3 percent gross margin in the quarter. That included 60 basis point negative impact from the WATCHMAN reserves. So we're in that 69% to 70% range. That's probably where gross margin would settle out in the 4th quarter, and rest of the P and L should look pretty similar. So the adjusted operating margin for the 4th quarter, I think, is in a good spot if it's similar to Q3.
Okay. And then big picture, there is a perception and this is largely after the TCT meeting that there's, how do I say this, sort of an execution issue that may or may not be happening at Boston Scientific. How much of this is reality? And how much of it is just you have so many products that are going through the pipeline, not everything is going to go exactly as planned?
Sure. Yes, I think just overall, if you look at the overall execution for a number of years in a row, we've accelerated organic sales growth each year. Last year, we put up about 7.3% and we obviously with the impact of COVID in 2020. And we've seen strong improvements each quarter. And we're set up for a very strong 2021 based on that product launch schedule.
There's no doubt that we were And now we're excited about the NEO II launch, but we are disappointed in the U. S. I think Doctor. Mariner just laid out some of those reasons. And now we're excited about the NEO 2 launch, but we are disappointed in the Scope 1, Scope 2, which delayed the impact of Acura Neo.
But I think the benefit of Boston Scientific is we're highly diversified. You look at the growth of WATCHMAN, you look at the significant growth improvement across our businesses and really the diversification of our business. We've, for many years in a row, continued to reduce down the weighting of DES and CRM in our portfolio, given the growth trajectory of those markets and increase the weighting of our other businesses. And you look at the growth of our PI business with BTG, endoscopy, euro, neuromod and also the promising growth that we see in EP. So we clearly wish the accurate scope results would have been different.
But if you look at the overall execution of the company and the diversification that we've enabled as well as the strong free cash flow and ability to continue to improve margins. We're excited about 'twenty one and beyond.
Thank you.
Next question comes from Robbie Marcus of JPMorgan. Please go ahead.
Thanks for taking the question. Maybe Dan or Mike, I was wondering if you could speak to the current M and A environment. You've had a lot of investments on the private side. The balance sheet looks better than it's been in the past. How should we think about M and A?
And if you could also touch on the reason for the discontinuation of Apama?
Sure. Again, I can start and Mike can comment as well. The M and A environment is a little bit challenging. I think you're probably referring to the IPO market. So within our DC portfolio, we've seen some of the companies go public and with some pretty lofty valuations.
We weren't able to acquire those companies. Obviously, the upside of on the other side of it is it's a nice financial gain, but that's not why we invest in these. We invest in them obviously for the potential to acquire them. So it does seem to present a short term challenge. We have over 40 companies in our VC portfolio, so there's a lot to choose from, and we'll see where that goes.
And we have as you know, we have the cash ready and available to be opportunistic relative to M and A in general. So still optimistic that we're going to get some good solid M and A done over time and be able to add to the top line story that we have.
Yes. I think the pipeline is certainly there of M and A opportunities, but we want to be disciplined in terms of the price that we'll pay and to drive shareholder value. So we'll continue to do that and we certainly plan to do a few tuck in acquisitions over the next 12 months. On Apama, essentially, we made a decision there on our portfolio given the timeline delays that were impacted the APAMA program with COVID, really along with faster than anticipated new technology developments, namely IRE, we made the decision to discontinue the development and clinical investment in the APAMA platform. So we're going to continue to invest significantly in our stable point, our 4 sensing catheter.
We're very bullish on our APAMA sorry, on our cryo balloon in Europe. That will be in full launch mode in Q4, which should provide some significant growth in 2021. And we're very encouraged about the investment that we have in VeriPulse for IRE, and that's an investment we made 6 years ago, and now we have an option to purchase that company. So as the market continues to shift, we believe we're in very strong position with those platforms for the future.
Thanks. And maybe a quick follow-up. As I listen to your commentary, it sounds like volume trends continue to improve. Are you able to speak to how the pipeline is filling up behind that? How patient visits and scans are filling up behind that?
And is there a
to call. I would say overall, globally, it differs by region, by state. Some states in the U. S. Have very normalized referral patterns and new patient funnels.
Some in the U. S. May be down 10%. China is essentially back to normal, I would say. And Japan is quite strong.
So it really varies around the world. I think if you were to net it all out, it's down. So we're not quite at normal new patient referral programs globally. And we're down. It's tough to call that whether it's down 5% or down 10%, but it's down slightly.
And it really varies by state and by country.
Appreciate it. Thanks.
Yes.
Next question comes from Rick Wise of Stifel. Please go ahead.
Good morning, everybody. Maybe just a couple of product questions and just updates. Mike, you highlighted the early success of Exalt B, 100 accounts opened. Is that where you want it to be? Is that where you're expected?
Again, COVID decided and post COVID, is that where you expected? Just maybe talk us through what's next. And I'll go ahead and ask the other 2. I'm just curious, Sentinel obviously had a terrific quarter. What's next there?
And talk about the trial enrollment. And maybe we haven't talked about the SICD program in a long time. Just wondering, it seems a little random, but just hearing some competitive noise, what's next from Boston Scientific on that side of the ledger? Thanks a lot.
Sure. So Exalt, Sentinel and SICD.
Yes.
I'll get Doctor. Meredith to pitch in the middle here. It's like I don't bore you too much here. But on Axalt, we clearly lost, call it, 4 to 6 months with Axalt D with that launch. But the really encouraging news in Q3, we've really picked up quite a bit of momentum.
So our accounts, we've had more access to our customers in the U. S. And in Europe, and we've opened approximately 100 global accounts. And so the team has really made strong call it, the last 60 to 90 days in new account openings, training and really starting to increase utilization of that platform. And we also were had a nice tailwind.
Just I would say broadly, we had strong tailwinds in reimbursement in Q3. I won't get too off track, but with the new TPT with Exalt, is a nice tailwind for that. So we looked at for EXALT to be a nice growth driver for us in 2021. And we also had the surgical scope recently approved, and we're on track for a bronchoscope. So that's a multibillion dollar opportunity.
Just broadly with reimbursement, I'll just call this out because we picked on a few of the headwinds with Scope 1 and Scope 2. We had some great reimbursement news, not only with Eluvia but with Xalt, also with ECOS in the quarter. So I think it really demonstrates the clinical efficacy of these platforms and the evidence to support that additional reimbursement. So I'll turn over Sentinel to Doctor. Meredith and maybe SICD comments from Doctor.
Stein.
Thanks, Mike. Thanks for the question, Rick. With respect to Sentinel, as you know, we're in more than 7.50 accounts worldwide and 20% of TAVR's in the sites that are actually using SENTINEL actually having a SENTINEL procedure. Stroke, as know, is a debilitating and devastating condition that's underreported in TAVA. We believe that this is the right strategy.
The protected TAVA trial that you mentioned is now more than ever a critical study to actually prove beyond a shadow of a doubt that cerebal embolic protection is the right strategy for TAVO. We're very pleased with having designed that study prospectively. As you know, it's a 3,000 patient study looking at clinical stroke. We have 30 sites enrolled in that trial and continue to activate sites despite COVID. Obviously, there was some slowing of new site activation in the second and early in Q3, but we believe that, that will continue to ramp up.
So we're looking forward to the results of that trial. It's a critical study in light of the data that you heard at TCT, which was a mixed bag of evidence. And almost everybody pointed to the protected TAVIT trial as the single most important study in this field, and I'm glad that we actually planned this prospectively.
Doctor. Stein, any comments on SICD?
Yes, yes. Thanks a lot, Mike. And Rick, I'll be quick here. I think we're very Praetorian and Untouched. Praetorian published in the New England Journal of Medicine, Untouched was just published in Circulation, which really convincingly show that the SICD is a remarkably safe, straightforward procedure and ought to be considered as first line therapy for the broad group of patients with a primary prevention indication who don't have indication for antebradycardiopacing or antitachycardia pacing.
I think what comes next and what's I think very exciting from that standpoint is we push out our modular cardiac rhythm management concept with the development of our Empower leadless pacemaker, which is designed to be able to communicate with the SICD and can deliver both backup Brady pacing and antitachycardia pacing. And that is still on track to launch into clinical trials first half of next year.
Thanks everybody.
The next question comes from Matt Miksic of Credit Suisse. Please go ahead.
Terrific. Thank you. So just a couple of questions, if I could, on ASCs and sort of your exposure to the outpatient channel. You've talked about that, if I remember correctly, kind of in the 2 thirds range. If you could maybe comment on just how those are how some of those businesses are performing related to the predominantly inpatient lines of business, maybe in terms of pre COVID percent of pre COVID levels or any other metrics like that?
And then I just had one quick follow-up on the same topic.
Sure. Yes, we provided, I think, as our maybe our Q1 earnings call, the mix by business roughly of our inpatient versus outpatient. And that's really kind of been very consistent in terms of the recovery during COVID. So across our businesses, not surprising where we had a stronger outpatient orientation. You've seen a bit stronger recovery there with PI and urology, Endo and neuromod.
You saw neuromod, geez, it was down like what, 70%, 80% or some crazy number in the 2nd quarter and came back dramatically in Q3 because of patient demand in that setting. So really, uro, endo, PI and neuromod are more oriented to outpatient setting and CRM and interventional cardiology lean a little bit more towards inpatient. And the kind of pace recovery, if you look at the 3rd quarter results, are pretty consistent with
that. That's super helpful. And then just if I could, I think we're all looking at the current trends and wondering over the next couple of months if we're going to be facing some version of what we saw in like July August in some areas of the country and in terms of hospitals getting capacity getting tighter, some regions and states picking counties or zip codes and trying to steer folks away from booking inpatient cases or overnight cases or things like that. And I'm wondering if you have any comments or experience from how that went in those areas in Q3 because we did see a little bit of that and potentially what that might entail over the next several months if we
Yes. It's tough to call. I mean, we don't see a scenario where, the results of 2Q are matched again. So we don't see that happening. And you saw, obviously, a strong improvement, 3% negative growth neutralizing for the onetimers in 3rd quarter.
And as I mentioned before, we've seen sequential improvement really each quarter since the darkest time of COVID. And so the hospitals are doing a remarkably good job of managing COVID patients and elective procedures. Hospitals have built additional capacity to manage COVID patients during the surge. They're better staffed for it. So I think it's going to be potentially a challenging winter, but the hospitals are much better prepared to manage it, I believe, than they were 6, 8 months ago.
And they're also better able to manage elective procedures in parallel. So with that, we commented before that the new patient referral pattern globally still isn't at 100%. And so that likely still could be under some pressure as COVID continues to surge. But we'll continue to we're having great progress in launching new products, getting products approved. We're managing our margins.
We'll drive strong EPS, and we'll see how the COVID impact plays out. But we've seen sequential improvement monthly, and we continue to aim for growth in the 4th quarter despite the COVID challenges and excluding the Watchmen consignment.
Thanks Mike. Appreciate that.
You bet. Last question, Andrew.
Thank you. And that will come from Danielle Antalffy of SVB Leerink. Please go ahead.
Hey, good morning, everyone. Thank you so much for squeezing me in and congrats on a strong quarter. My I have 2 product related questions. So first on WATCHMAN, one of the things investors are paying attention to is a potential competitor coming to market. And I was okay about the continued growth trajectory there.
And I'll just ask my second now. On Exalt B, given the financial constraints at hospitals, I'm just curious about how quickly that can be the meaningful revenue contributor that it probably ultimately will be, but hospitals have to work through their current financial duress. And those are my questions. Thanks so much.
Sure. Doctor. Stein, do you want to speak to the WATCHMAN clinical capabilities?
Yes. Thanks, Mike. And Danielle, I think on WATCHMAN, first of all, we're very pleased with the response that we've seen and the clinical data we generated with the FLEX device, approved on the basis of a trial that didn't just meet its endpoints, but actually showed 100% successful seal at 1 year. And I think combined with the great clinical results and physician familiarity and ease of use with the Flex device, I think is very strong against any competition. We continue to push what is the most robust portfolio of clinical science on the safety and efficacy of the device, the ongoing option trial, which in spite of COVID has continued to enroll well, which extends the use of the device as a first line fib ablation.
And then as I think you know, we've recently announced the imminent launch of our CHAMPION trial, which is a head to head trial of the WATCHMAN device as first line therapy against novel or anticoagulants.
Yes. So obviously, the clinical safety efficacy is the primary driver, and that's why Doctor. Stein commented first. And then on the business model, that was obviously one of the reasons we switched to the consignment model was to continue to build a strong moat supported by our clinical efficacy and also the ease of use and just the penetration that we see globally. And the consignment model changeover allows us to drive longer term with high committed share contracts at the appropriate price uplift.
So we think that's a smart move for us. On Axalti, I mentioned before with the breakthrough status, we did get the additional reimbursement in the outpatient setting, which is very, very helpful. And we believe with the in the inpatient setting and the outpatient setting, there's room in that DRG that makes sense for the Axalti platform. So our endoscopy team will continue to drive health care economic studies with Axalti. It's clear that physicians see the benefit of reducing the risk of infection, and our team is gaining more and more capabilities in terms of how to drive utilization of Axalt D as each month passes.
So we think those be a nice growth driver, and we know it will be a nice growth driver for us in 2021.
This concludes our question and answer session. I would like to turn the conference back over to Susan Lisa for any closing remarks.
Thank you, Andrew, and thanks, everyone, for joining. We appreciate your time, and we'll now turn it back to Andrew for the replay details.
Thank you. This concludes today's conference call. Replay for this call may be accessed in 1 hour until November 4, 2020, by dialing 1-eight seventy seven-three forty four-seven thousand five hundred and twenty nine or 1-four twelve-three seventeen-eighty eight and use access code 10,147, 673. Again, 10,147,673. You may now disconnect your line at this time.
Thank you.