Ladies and gentlemen, thank you for standing by and welcome to the Boston Scientific Q2 2018 Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, today's call is being recorded.
I will now turn the call over to your host, Susan Lisa. Please go ahead.
Thank you, Kevin. Good morning, everyone, and 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 Q2 2018 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 Financial Information.
The duration of this morning's call will be approximately 1 hour. Mike will provide strategic and revenue highlights of Q2 2018, Dan will review the financials for the quarter and then Q3 2018 and full year 2018 guidance, and then we'll take your questions. During today's Q and A session, Mike and Dan will be joined by our Chief Medical Officers, Doctor. Ian Meredith and Doctor. Kent Stein.
Before we begin, I'd like to remind everyone that on the call, organic revenue growth is defined as year over year growth, excluding the impact of foreign currency fluctuations and sales from the acquisition of Sametis with no prior period related net sales. Also 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, 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 performance, including sales, margins, earnings and other Q3 and full year 2018 guidance as well as our tax rates, R and D spend and other expenses. Actual results may differ materially from those discussed in the forward looking statements. Factors that may cause such differences include those described in the Risk Factors section of our most recent 10 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. Mike?
Thank you, Susie, and good morning, everyone. We had a very strong second quarter as we continue to deliver on our commitments while further investing in our bright future. Boston Scientific's diversified portfolio and category leadership strategy continue to drive top tier performance while also enabling us to continue to invest meaningfully in our future pipeline both internally and via tuckettuck M and A. In Q2, our team delivered 9% operational and 8% organic revenue growth with excellent balance across our businesses as well as our geographic regions. Both MedSurg and Rhythm and Neuro grew 9% and cardiovascular sales increased 6% all on an organic basis.
Similarly, Asia Pac organic sales were up 9%, U. S. Up 8%, Europe, Middle East Africa 7% and Latin America up 15%. Overall emerging market sales grew 21% led by excellent growth in China. We leveraged this worldwide 8 percent Q2 organic revenue growth to deliver adjusted EPS of $0.41 which includes a $0.06 tax benefit.
Absent this benefit our adjusted EPS would have been $0.35 representing 9% year over year growth and at the high end of our guidance range. And Dan will also provide more details on the tax benefit. Boston Scientific also continues to generate excellent cash flow with $558,000,000 in adjusted free cash flow this quarter representing a 37% year over year increase. We're excited about the second half of twenty eighteen and beyond given our efforts to drive compelling and durable long term growth with differentiated financial performance. As a result of our strong performance and confidence in our outlook, we're bringing up the low end of our full year 2018 organic revenue growth guidance from a prior range of 5% to 7% to 6% to 7%.
We're also raising our structural heart revenue guidance from $400,000,000 to $450,000,000 and guiding to Q3 'eighteen organic revenue growth to 7% to 8%. There's no change to our full year 2018 adjusted EPS guidance range of $1.37 to 1 $0.41 we are offsetting $0.03 to $0.04 of headwind from a greater than expected FX hit and dilution from recent M and A. I'll now provide some highlights on future results and thoughts on our full year 2018 outlook. In my remarks all references to growth on organic year over year basis unless otherwise due to great results in our global endo business. Future results were led by compelling EndoChoice performance particularly in pathology and infection prevention as well as sales of our SpyGlass DS visualization platform, Axios stent and the Resolution 360 platform.
In addition, we're excited about the development of our therapeutic imaging platform as outlined at DDW in June. We anticipate this will be a great catalyst that enables to double our serve endoscopy market to $7,000,000,000 globally by 2021. This portfolio of single use scopes will develop over the coming years and include the EXALT D duzenoscope which is a bronchoscope for use in pulmonary applications and upper GI scope for emerging bleeds and a surgical scope for pancreatic biliary applications. This platform would enable physicians to perform procedures more efficiently with better outcomes while improving hospital scope readiness and alleviating cross contamination risk. We're also very encouraged by physician support enthusiasts at DDW in June and look forward to launching a single use SCO platform starting with Exalt D by year end 2019.
Our urology and pelvic health business also continued a strong global performance trend growing sales 9% in the 2nd quarter led by double digit growth in our Stone franchise where sales of LIFTAVU which is our single use digital ureteroscope continue to outperform and drive portfolio pull through. Sales of men's health products grew high single digits while our prostate health business grew mid teens with the Rezum minimally invasive therapy for BPH being a key driver. The advantage of Rezum that resonate much strongly with customers are the simple in office procedure, differentiating relief from symptoms and durability of results which limits the need for re intervention. Recent AUA guidelines supporting MIT approaches for BPH are also helping drive Rezum adoption. Neuromodulation grew an impressive 31% organically in Q2 driven primarily by the successful launch of our innovative WaveWriter's spinal cord stimulation platform in the U.
S. And increasing demand for WaveWriter in Europe. In the Pain segment, WaveWriter SCS is enjoying excellent uptake due to impressive real world results particularly in low back pain patients where the unique ability to offer combination waveform therapies both with paresthesia and sub perception can improve therapy longevity for patients who have been on therapy for many years. Given this difficult to treat condition, we believe these excellent real world outcomes with WaveWriter and the significant positive impact upon a patient's ability to function and quality of life are resonating in the physician and patient community and are resulting in both share capture and increased usage at existing accounts. We also continue to defend our intellectual property vigorously and are pleased with the judge's ruling yesterday in the litigation filed by Nevro in California.
The judge ruled in our favor at every claim asserted by Nevro finding that our products do not infringe any valid claims. Our deep brain stimulation performance capabilities also continues to expand with strong results in Europe and positive early momentum for the precise launch in the U. S. We anticipate continued strength in neuromodulation sales in the second half of twenty eighteen. CRM sales grew above market at 1% led by high single digit growth in defibrillator sales reflecting an encouraging global launch of our RESONADE platform and its HeartLogic heart failure alert as well as Emblem SICD.
The projected benefit from our device replacement cycle is also taking tracking to expectations. We continue to gain share as the number 2 share player in high voltage market and customer interest in HeartLogic continues to increase as heart failure practitioners recognize the value of the only FDA approved heart failure alert over 30 days in advance of an event which importantly does not require maintenance data monitoring. We also continue to enroll patients in the first phase of MANAGE AF, which is a multicenter randomized trial designed to quantify the benefit of proactive heart failure management by using heart logic. The highly differentiated Emblem SICD continues its trajectory due in part to the growing body of clinical evidence such as the late breaker Smart Pass at HRS in May. Recent guideline inclusion that has enabled expanded private insurance coverage in the U.
S. And multiple product enhancements that improve the ease of use and reduce implant procedure time. Brady patient sales were down low double digits in 2nd quarter as we lost some share due to competitive launches and the need to close the final MRI product gap in CRTP. TP. While we expect Brady patient sales to remain a headwind in second half of twenty eighteen, given the strong global momentum of our defib portfolio, we're confident that worldwide in 'eighteen our CRM business should continue
to grow above
market. EP sales grew 16% in the quarter led by good growth in our RHYTHMIA HDX mapping and navigation platform. We've also been very pleased with the recent European launch of our DirectSense and IntelliMAb MiFi OI ablation catheters. Importantly, we continue to invest in our exciting and differentiated EP pipeline. The EP market remains highly attractive with a demonstrated history of mid teens market growth.
In the coming years, we believe our EP business will be uniquely differentiated with the broadest portfolio. We expect to be the only company to offer EPs both the 2nd generation cryo balloon platform as well as an RF single shot balloon platform for pulmonary vein isolation treatment with the recent acquisitions of the criterion and Apama. These platforms will be an excellent complement to our arrhythmia mapping system and therapeutic catheter launches. Both our cryo and RF single shot AF platforms are targeted to launch by year end 2019 in Europe. Turning to group, our global PI business performed very strong growing 9% in the quarter.
The PI business grew very well in all segments including peripheral arterial disease, venous and interventional oncology. PI sales also increased across all major markets and performed particularly well in Asia. In Europe we continue to see excellent uptake of our drug eluting technologies, the Ranger drug coated balloon and the Eluvia drug coated stent as well as our Jetstream atherectomy system. We also continue to target drug eluting U. S.
Launches in first half of twenty nineteen for Eluvia DES and in 2020 for Ranger DCB, we really look forward to providing a comprehensive update on this portfolio at TCT in September. Our individual cardiology business delivered 5% growth in the quarter and really demonstrates the ongoing and very successful diversification strategy of this business segment. In Q2 IC was led by very strong sales in structural heart and complex PCI products partially offset by a challenging quarter in DES which was as expected. Our complex PCI and PCI guidance business continues to expand globally and is now approaching the same size as our global DES business. Complex PCI grew high single digits in the 2nd quarter as the number of patients requiring a complex coronary intervention continues to grow globally.
We also enjoyed a successful launch in the quarter with the Wolverine cutting balloon and Mamba catheters as well as very strong sales in China and emerging markets. Similar to first quarter trends, drug were down mid single digits this quarter and we would anticipate a similar outlook for the balance of the year. However, with new launches in complex PCI including the RotorPro atherectomy platform, we plan to offset this DES softness. Our structural heart programs continue to build momentum and our revised $450,000,000 revenue guidance is a result of both the WATCHMAN left atrial appendage closure device and ACURATE TAVR valve being ahead of plan. We're also very enthusiastic about a recent acquisition of Claret Medical which will bring SENTINEL to the BSC structural heart portfolio.
SENTINEL is the only cerebral embolic protection system approved in the U. S. And Europe to protect patients against the risk of stroke during TAVR procedures. We see significant opportunity for embolic protection in TAVR both today and longer term including intermediate and low risk patients as well as other left heart and endovascular procedures like mitral valve repair and replacement, left atrial appendage closure and pulmonary vein isolation procedures for AFib patients. There is no change to our LOTUS Edge TAVR valve commentary from earlier this year and that pending certain technical and regulatory hurdles our goal remains to launch LOTUS Edge in the US and European markets in 2019.
We continue to work towards this goal but recall that we said our next LOTUS Edge update will be either the filing of the final technical module of the PMA is imminent or that we have chosen not to proceed with the program. Our ACURATE TAVR platform is delivering impressive cadence of growth and progress in Europe and we're investing to expand ACURATE globally. We remain on track to deliver multiple ACURATE milestones in the second half of twenty eighteen, including the European launch of the next generation ACURATE NEO2, which has an advanced enhanced seal. Secondly, we'll be completing enrollment in the SCOPE-one and SCOPE-two clinical trials where ACURE is randomized to SAPIEN-three and CorVel. And finally number 3, we're looking forward to ACURE beginning enrollment in our U.
S. IDE study by the end of 2018. WATCHMAN also delivered excellent growth in the quarter and WATCHMAN continues to build very strong global physician support and particularly so in the U. S. All key metrics are trending well including utilization and reorder rates and account openings.
We began enrollment in the U. S. In the next gen WATCHMAN Flex IDE with a targeted EU launch in the first half of twenty nineteen. We remain on track to launch WATCHMAN in Japan in the second half of twenty nineteen. Also continue to invest on multiple WATCHMAN market development programs including physician training, refer education and increasing patient awareness.
I'm also pleased that while we've been delivering these very strong results, we have also been actively investing to further strengthen our category leadership strategy and long term growth profile of the company. In 2018, we've been active with tuck in M and A and in the quarter we announced 4 tuck in acquisitions Claret, Criterion, Envision and Securus. These acquisitions all target high growth markets, enhance our category leadership strategy, leverage existing BSC global capabilities and further enhance our short term and long term growth profile. We also plan to fully absorb the near term dilution of the combination of these multiple tuck in transactions while also delivering on our commitment to double digit adjusted EPS growth. Our core business has very strong momentum and our pipeline has never been stronger.
We believe we are uniquely positioned to drive shareholder value due to our differentiated long term growth profile, continued ability to improve operating margins, our commitment to double digit adjusted EPS growth and improving ability to deploy capital. I really want to thank our employees for their tremendous winning spirit and commitment to advancing the science for life. Dan will now provide a detailed review of our financials.
Thanks Mike. 2nd quarter consolidated revenue of $2,490,000,000 represents 10.3% reported revenue growth and reflects a $37,000,000 tailwind from foreign exchange, about half of the $60,000,000 to $70,000,000 tailwind expected at the time of guidance. On an operational basis, which excludes the impact of foreign currency fluctuations, revenue growth was 8.6% in the quarter. Sales from the Simetis acquisition contributed approximately 70 basis points, which was in line with our guidance. As a reminder, the operational Cemetis contribution represents only a partial period, 2 months, for which there were no prior period related sales and the revenue from Semetis is considered organic as of June 1 this year.
The resulting organic revenue growth of 7.9% in the 2nd quarter exceeded the high end of our guidance range of 5% to 7% as we continue to realize the benefits of our portfolio diversification and category leadership strategy, evidenced by the outperformance across the majority our businesses and regions once again. We leveraged this strong performance and delivered Q2 adjusted earnings per share of $0.41 which includes an $82,000,000 non cash benefit related to the finalization of our IRS stipulation of settled issues in the quarter. Absent this benefit, our adjusted earnings per share would have been $0.35 representing 9% year over year growth and at the high end of our guidance range of $0.33 to $0.35 Earnings were driven by a strong top line and solid P and L metrics and notably includes approximately $0.01 of negative FX impact as well as a $0.01 charge for an impairment of certain of our investments, which I'll discuss in a few minutes. Adjusted gross margin for the Q2 was 71.3%, slightly below our guidance range of 71.5% to 72% and represents a decline of 150 basis points year over year due primarily to a 160 basis point negative year over year impact from foreign exchange.
This is slightly below the low end of guidance primarily related to manufacturing variances in the quarter. For the full year, we continue to expect adjusted gross margin will be approximately 72% with the first half of the year being slightly below that and the second half being slightly higher due to less of an FX headwind, with Q4 expected to improve versus Q3. Adjusted SG and A expenses were $865,000,000 or 34.7 percent of sales in the quarter, down 80 basis points year over year and a good result towards the lower end of our guidance range of 34.5% to 35.5%. While also leveraging our top line growth, we remain committed to our targeted initiatives focused on reducing SG and A and continue to realize the benefit of efforts such as end to end business process streamlining and automation, enhanced leverage of our global sourcing teams and the expansion of global shared services. Adjusted research and development expenses were $260,000,000 in the 2nd quarter or 10.4 percent of sales and royalty expense was 0.7% of sales, both roughly flat year over year.
As a result of solid performance throughout the P and L on strong sales in the quarter, adjusted operating margin was 25.4% in the 2nd quarter, within our guidance range of 25.25 percent to 25.75 percent. The 60 basis point year over year decrease is primarily driven by the 160 basis point negative FX impact at the gross margin line as I discussed earlier. We continue to expect our full year adjusted operating margin to be in a range of 25.5 percent to 25.75 percent consistent with the goals outlined at the start of the year and remain committed to the long term goal of 28% adjusted operating margin by 2020. Now I'll move to below the line to interest and other expense. Interest expense for the quarter was $57,000,000 compared to $58,000,000 in Q2 of last year.
Our average interest rate interest expense rate was 3.6% in Q2 this year, slightly lower than the 3.9% in Q2 of last year as a result of net investment hedges entered into in Q2 intended to hedge a portion of our net investments in certain of our international entities. Adjusted other expense was $29,000,000 in the 2nd quarter and primarily included a $19,000,000 impairment on certain of our investments. With a growing portfolio of over 30 companies, impairments may occur from time to time. However, we believe our venture strategy is working well as most recently evidenced by the acquisitions of NxThera and Criterion Medical from this portfolio. Adjusted expense for the quarter also included dilution from our equity method investments, adjustments to our available for sale investments as well as transactional foreign exchange losses including hedging costs.
Our tax rate for the 2nd quarter was minus 60.3% on a reported basis, which includes a $250,000,000 non cash benefit from the finalization of the IRS stipulation of settled issues in the quarter. On an adjusted basis, our tax rate was minus 3.8 percent and includes an $82,000,000 benefit from that settlement. Excluding this benefit and our net benefit from stock compensation of approximately 75 basis points, our operational tax rate was approximately 12%. Our operational tax rate averaged 14% in the first half consistent with our expectations for an operational tax rate of 14% to 15% for the full year or approximately 13% to 14% all in adjusted tax rate net of stock comp benefit for the year. We've been working hard to reduce the contingent risk on our balance sheet over time.
Our tax liabilities decreased to approximately $900,000,000 as of the end of Q2, which is an almost $1,000,000,000 decrease from the Q1 ending balance. Of the $900,000,000 remaining, approximately $500,000,000 relates to the tax reform transition tax, which is payable over the next 7 years, leaving approximately $400,000,000 for all remaining global tax controversies. As a reminder, we are exploring strategies to reinvest the tax benefit reflected in our adjusted results into our tax structure with the goal of reducing our operational tax rate in 2019 beyond below our previously announced goal of 15%. We expect the majority of this reinvestment to occur in the 4th quarter as a result, we do not expect an impact to full year adjusted earnings per share as a result of this Q2 tax benefit. Just to recap, Q2 2018 adjusted earnings per share of $0.41 includes an approximate $0.06 non cash benefit related to the finalization of the IRS settlement.
Excluding this 0 $0.06 the $0.35 in adjusted EPS is particularly strong considering it includes a combined $0.02 of drag from the investment impairment and additional unfavorable FX. Reported GAAP EPS of $0.40 includes net charges and amortization expenses after tax, net of the settlement related tax benefit of $13,000,000 We ended Q2 with 1,399,000,000 fully diluted weighted average shares outstanding. Adjusted free cash flow for the quarter was $558,000,000 compared to $407,000,000 in Q2 of last year. In the quarter, we used cash and short term debt to fund previously agreed upon legal and tax settlements as well as our recent acquisitions. We continue to expect 2018 adjusted free cash flow to be approximately $1,900,000,000 We're also making good progress on our mesh litigation with minimal incoming new claims and approximately 1500 cases or claims remaining, which represents less than 5% of all of our known claims.
We remain on track for a year end 2018 goal to resolve the majority of our mesh claims. Our total legal reserve of which mesh is included was $1,264,000,000 as of June 30, 2018. As a reminder of the mechanics, we've already made payments into the qualified settlement fund, which is shown as restricted cash on our balance sheet with a current balance of nearly $800,000,000 Yet this liability is only released from our balance sheet when payments to plaintiffs are made out of the qualified settlement fund. So the way to think about it is we only have $400,000,000 left to fund. Capital expenditures for the 2nd quarter were $73,000,000 We expect capital expenditures of approximately $350,000,000 for the year as we build capacity, integrate acquisitions and drive growth.
I'll now walk through guidance for the Q3 and full year 2018. For the full year, we expect consolidated 2018 revenue to be in a range of $9,800,000,000 to $9,880,100,000 which represents year over year organic growth of 6% to 7%. And we expect the contribution from the Smedes acquisition realized in the 1st 5 months of the year to equate to 40 basis points of growth on that full year. We now expect foreign exchange to be a tailwind of approximately $125,000,000 to $150,000,000 for the full year, which is a decrease from our prior expectations of $200,000,000 to $225,000,000 tailwind due to the strengthening U. S.
Dollar against most major currencies. We continue to expect our adjusted gross margin for the year as a percentage of sales to be approximately 72%, which now assumes a negative FX impact of 90 basis points for the full year, down slightly from our prior guidance. There's no change to our expectations for full year adjusted SG and A to be in the range of 34.5 percent to 35 percent of sales as we are seeing the benefits of operating expense control programs currently underway. Similarly, there's no change to expectations for our full year adjusted R and D spend in a range of 10% to 11% and full year royalty rates to remain at slightly less than 1% of sales for the year. This continues to imply a full year 2018 adjusted operating margin in a range of 25.5 percent to 25.75 percent.
We also continue to expect our full year 2018 operational tax rate to be between 14% 15% and our all in adjusted tax rate to be 13% to 14%, which reflects an approximate 100 basis points of benefit from the accounting standard for stock compensation, of which the majority was already reflected in our first half twenty eighteen tax rate. Consistent with prior guidance, we expect below the line expenses, which include interest payments, dilution from our venture capital portfolio and costs associating with our hedging program to be approximately $300,000,000 for the year and a fully diluted weighted average share count of approximately 1,400,000,000 for Q3 and the full year 2018. We are reiterating our full year 2018 adjusted earnings per share range of 1.37 dollars to $1.41 representing 9% to 12% adjusted earnings growth. This now includes a negative FX impact of $0.03 to 0 point 0 $4 or an increase of $0.01 In addition, as Mike mentioned, we're maintaining our adjusted EPS guidance despite the dilution expected from product and market development activities required for the acquisitions we've completed or expect to complete in 2018. By investing in our core business through these acquisitions, we believe we can enhance our outlook for durable revenue growth, all while still delivering on our double digit EPS growth goals.
On a GAAP basis, we expect earnings per share
to be in a range of $0.99 to 1 $0.03 Now turning
to Q3 2018, we expect consolidated revenue to be in a range of $2,380,100,000 to 2,420,100,000 dollars representing year over year organic growth of 7% to 8%. In the Q3, we expect the foreign exchange impact to be relatively immaterial with an expected tailwind of $0,000,000 to $10,000,000 For the Q3, adjusted earnings per share is expected to be in a range of $0.33 to $0.35 per share, representing 8% to 13% growth and GAAP EPS is expected to be in a range of $0.21 to 0 point site for Q2 2018 financial and operational highlights, which outlines Q2 results as well as Q3 and full year 2018 guidance, including P and L line item guidance. So with that, I'll turn it back to Susie, who will moderate the Q and A.
Thanks, Dan. Kevin, let's open it up for questions for the next 30 minutes or so. In order to enable us to take as many questions as possible, please limit yourself to one question and one related follow-up. Kevin, please go ahead.
Thank you. First question is from the line of David Lewis, Morgan Stanley. Please go ahead.
Good morning and congrats on a good quarter. Just two questions for me. I'll ask them all at once. The first, Mike, is more strategic for you and then a quick follow-up for Dan. But on broader M and A, Mike, I think most investors would have expected as your capital flexibility improves that M and A builds back half this year more acutely in 2019, but we actually kind of seen the opposite.
You've been very active on M and A in the first half of the year. And I wonder if you could share with us why you're so active in the first half of the year and what this now says in terms of increased activity into 2019? And then related is, does the Claret strategy makes sense if you're not going to be in the U. S. Market with a TAVR valve for a couple of years?
And that's sort of M and A. And then for Dan, just sustainability of some momentum, the 2 biggest businesses that broke trend this quarter, obviously, neuromodulation and EP, Kind of your confidence into the back half of the year those businesses kind of can sustain that kind of momentum? Great quarter. Thanks so much.
Sure. Thanks, David. On the M and A front, first comment is that our team has really developed excellent capabilities to execute on our integration acquisitions. If you look at the history of what we've acquired last 4 or 5 years, the more mature companies are growing faster and driving more leverage in our hands and we've been able to bring the newer companies along to successful completion like Accurate Valve and so forth. Secondly, on the M and A front, this is not a new strategy for us.
We've been very active in our venture fund over the past 5 years. We've really set the stage for these strategic acquisitions over time. So many of these acquisitions were planned and many of these we actually have an ownership stake in them. So the companies that we're tracking we're very comfortable with. And I think the third point is it really just continues to reinforce our strategy.
We want to have a differentiated growth rate, differentiated financial performance, driving category leadership and these variety of tuck in deals all support that strategy. They leverage capabilities that we have today. They enhance our growth profile and the discipline of the company is such that we can deliver on these acquisitions and also continue to deliver operating income margin and double digit EPS growth, while importantly further enhancing our growth profile. So we have a lot of confidence in these. These are well planned and we expect this strategy to continue.
And then David relative to your
second question on sustainability in neuromod and EP growth rates from a revenue standpoint, you happen to pick on 2 of the highest growth markets we have. Those are both very high growth markets, probably the 2 of the hottest ones we have in the portfolio. If you look at EP, last 4 quarters 2018, 2018, 2011 2016. So that's kind of at market, which is okay. We'd like to grow better than that and we have new technologies coming.
You've also seen as you look at the M and A strategy, 3 deals in the last 12 months relative to category leadership in EP. So we're investing in that space and want to continue to drive growth there. So if you consider that market to be mid teens, we'd like to certainly be at that or above as we go forward. Neuromod, 31% in the quarter is a real testament to the strength of the portfolio there with WaveWriter and with DBS launching in the U. S.
Hard to imagine we put up 31 every quarter, but we put up 17 in the Q1. And I think said very publicly, we think that's probably the low watermark for the year. So I would like to think we're north of 20 for the foreseeable future next couple of quarters. So good two good businesses with strong growth prospects that we think should continue in the near term.
Okay.
And Mike, does Clarit makes sense? Just to follow back up on that, does Clarit makes sense if you're not going to be in the U. S. Market with the TAVR valve in the next 2 years?
Clara makes great sense. Ian can comment, but the risk of stroke, not only TAVR procedures for ammeter risk, low risk, we've seen a high percentage of their procedures have debris. And it's just an excellent complement to our current platform in Europe with ACURATE. And ideally it would be the perfect platform for a potential combination of both LOTUS and ACURATE in the U. S.
Assuming we get through the much discussed technical and regulatory hurdles that we've talked about. So not only within TAVR does it make sense, but also expanded beyond TAVR into other procedures like I mentioned in mitral as well as EP procedures is a nice strategy for us. It leverages our current sales force. They have strong clinical data and we think it's a really nice complement. Ian, Jim?
Thanks so much.
All right. Next question is from the line of Glenn Novara RBC Capital Markets. Please go ahead.
Hi. Good morning, guys. First, two questions. First for Dan, the EPS guidance that you maintain of $1.37 to $1.41 does that assume in the for 2Q, does that assume $0.41 or $0.35 And the reason I'm asking is if I plug $0.41 into the model and given what you've provided for 3Q and revenue guide for the full year, it looks like there'll be a step down in EPS. And if so, is the EPS step down a function of higher tax rate?
Or is that where you're seeing all the dilution coming from the recent deals? Thanks.
Yes. To be 100% clear, there is no step down in EPS guidance. The guidance of $1.37 to $1.41 with the way you describe it would include a $0.35 number for the Q2. The $0.06 of the tax benefit that gets you to $0.41 the plan is to reinvest that largely in the Q4. So you have $0.06 more in Q2, likely you'd see the other side of that in Q4.
So the $1.37 to $1.41 is still the number and still represents double digit adjusted earnings per share growth for the year.
Okay. So just to be clear, I should have $0.35 in the model that shows up for consensus, correct, in first call?
Absolutely. The $0.41 is the reported number, but the $0.06 of tax will not be a benefit for the year. It will be in Q2 and out in Q4.
Okay, very good, very clear. And then Mike, just I know you don't want to comment on LOTUS, but help us understand the job post things that we found recently on your website referring to the relaunch of Lotus? Thanks.
I would encourage you to send your resume into HR, Glenn.
Okay. But shouldn't that assume that you're making further progress on the catheter fix?
We're not going to comment any further. We've said all along that our goal is to launch LOTUS in the U. S. And in Europe and in getting over these hurdles. But we also have been through an up and down piece with us.
So our commitment to our investors was that we wouldn't provide a specific date until the filing of the final technical module, the PMA is imminent or that we've chose not to proceed. So we just basically don't want to give the blow by blow until this is 100% over the goal line or not. And in the meantime the company is growing 9% operational, 8% organic and our structural hard guidance we took up for the quarter. So it's our goal but we're not going to give you a further update until it's over the goal line.
Okay, fair enough. Thank you.
Next question is from the line of Rick Wise, Stifel. Please go ahead.
Good morning, everybody. Maybe I'll continue on the TAVR front, Mike. Accurate, the OUS performance you described is continuing strong. Can you quantify that at all in dollars or percent? And maybe just talk as you answer about how broadly the products are available in Europe now, the potential impact of the Accurate NIIO2 in terms of reaching more patients or facilitating more procedures?
And I have a follow-up.
Sure. On the inaccurate, just really proud of the team. It kind of goes back to David's question on our confidence and our ability to acquire companies and integrate them swiftly with our teams. And the team over in Europe has done a great job. We manage the delicate balance of driving and maintaining the innovation of the company that we acquire, but leveraging the global footprint that we have.
And so Accra has exceeded our expectations. As you know, it's got extremely low pacemaker rate. It's very easy to implant and it continues to get wider visibility now that has our commercial footprint. As you know, the bulk of the sales are in call it the dock region, Germany, Austria, Switzerland as well as the U. K.
And the Nordics. We're not in France yet. We expect to be there I think by the end of 2019. And we're just now starting to expand ACRAIT into other markets like Australia as well as Canada. So you'll see that ACRA platform continue to and also Latin America continue to expand outside the U.
S. Throughout the second half of this year and in 2019. And then in parallel really excited about the next generation Acura Neo, the combined improved PBL rate with the hand seal with the best in class pacemaker right now and ease of use. And then we finish up our Scope 1 and Scope 2 and hopefully initiate that U. S.
IDE here in the second half. So a lot of momentum there. And with a potential dual valve strategy and the complementary nature of a Claret really makes a compelling TAVR portfolio for us.
Turning to AF, Mike, you hired a number of milestones and targets. Maybe talk about the timing, I don't think you said it, of the U. S. AF catheter launches. EU, you said end of 2019, but U.
S. Is it 2020 or 2021? And are those launches the key inflection or a key driver that gets you to actually you are roughly at, sustains you at or gets you to above market levels of growth? Or can you get there before with all the portfolio that you have? Thanks so much.
EP has been a strategic focus for us for a while. 5 years ago, we essentially didn't have much of an EP business in terms of any innovation. And over time, we really believe that we will have the most compelling portfolio in EP as you project out over the next few years. We'll be the only company with a modern mapping system, full therapeutic catheter launches including force sensing over time And we'll be the only company with 2 shots on goal with single shot therapy with cryo as well as with AFIT with RF with our PAIMA BLUE. So we think the portfolio is uniquely differentiated and we're doing this because this market is so large.
It's growing mid teens and we're currently growing at market but we don't have the scale some of our competitors do. So we think the combination of that portfolio and we'll have the single shot balloons in Europe in second half of twenty nineteen and we'll launch the ID trials in the U. S. In second half of twenty nineteen as well. So we think that combination if you look at BSC over the next 3 years will be uniquely positioned in EP and where we grow in EP we also do better in CRM.
So it's also important for us from that perspective.
Appreciate it. Thanks Mike.
Our next question is from the line of Larry Biegelsen, Wells Fargo. Please go ahead.
Good morning. Thanks for taking the questions and I'll reiterate the congratulations on another strong quarter. First, I also wanted to start with a product question. I think the next big data presentation for you guys is the Imperial IDE with Eluvia and hopefully I think TCT in September. And I think that study is comparing Eluvia to Zilver PTX.
So my question is, do you think you need to show superiority in that trial for the product to do well commercially in the United States? And I had a follow-up question.
We'll have Doctor. Meredith respond
to that one. Thanks, Larry. I think the trial is designed on non inferiority and people often ask that question about superiority or non inferiority, but I think the point estimate of the difference is something that physicians take home from those studies. So it's designed as a non inferiority study and there are obviously safety and efficacy endpoints. I think the data doesn't need to be a superiority study.
It's important to look at the point estimate.
That's helpful. And regarding yesterday's ruling between Boston Scientific and Nevro, what does it say about your freedom to operate in the U. S. With paresthesia free 10,000 hertz spinal cord stimulation? And what are your plans to present the ACCELERATE data?
I think the slides say it's going to complete in 2018. So should we expect to see that at NAND 2019? Thanks for taking the questions.
Larry, perhaps I could take that one. As you know, the EXCELLERATE trial is the study of the Precision spinal cord stimulation system and now the SPECTRA Way brighter system, both modified to deliver higher frequency stimulation up to 10,000 Hertz. The estimated primary completion date is being pushed out now from July 2018 to March 2019 and an estimated completion date for that will be around well between April 2019 November 2019. This 9 month delay ensures that we can collect sufficient data on the Spectra WaveWriter system. Now I might add, as you know, this is a randomized trial and the primary goal of the ACCELERATE trial was to look at the impact of frequency on pain relief, but we now know that frequency is only one element.
Pulse amplitude and other factors are also very important. And you know that we have both the Whisper and Proko studies, which have basically demonstrated that choosing between frequencies results in better outcomes at the WISTA study and the PROFOS study was within subject comparison of multiple frequencies showing that you could in fact actually get as good pain relief with 1000 and 10000 Hertz and using significantly less energy and battery life to do that. So I think the we're changing our view on what spinal cord stimulation patterns and frequencies need to be to cover both amplitude and waveform.
Thanks for taking the questions, guys.
And next question is from the line of Joanne Wuensch, BMO Capital Markets. Please go ahead.
Good morning and thanks for taking the question. Very nice quarter. Two questions. I'll put them both out there. First of all, in cardiac rhythm management, it looks like there's some product gaps that need to be filled.
And how do you think about filling those and what timing and what ultimately how do you view that business line?
Sure. In CRM, we really are on a high degree of offense and defibrillators. We don't see any product gaps there and we have a lot of differentiation primarily in 2 areas with our SICD which continues to drive double digit growth globally and we have a multiyear head start on that and we continue to drive enhancements to that to improve procedures and Ken can comment on a minute. It's just on the enhanced clinical body of evidence that continues to model that. So that's a long term differentiator for us.
The second one is our Resonate platform with HeartLogic is taking share there. We want to continue to focus a little bit more on CRTD with that platform. So on D Fib we're really in a very strong position. On the pacemaker side we do have some product gaps with CRTP pacing and with MRI. We hope to fill that gap within the next I guess Q4 this year.
So that will be so we expect really the second half of this year to maintain pacemaker softness but that MRI CRTP gap will be filled by the end of the year. So likely you'll see in 2019 some improvement in our pacemaker capabilities. The only other gap that we have in pacemaker is with a leadless platform and those efforts are underway combining a standalone leadless pacemaker and also uniquely differentiated combining our leadless pacemaker with our SICD. Maybe Ken you want to comment on that piece of it?
Yes. Thanks Mike. Again Joanne, I think we're comfortable that it's our competitors who have gaps, particularly in the high voltage arena. Mike mentioned the SICD, we have the world's only ICD that does not require any leads touching the heart. And as you look to how that's evolving, I think Mike hit on that we're very excited about, which is our EMPOWUR lead with spacing system, which is going to go into IDE trials in 2019, which will include trial design to show that that can function as a run of the mill VVI pacemaker and close that gap, if you will, but also show that it can be capable of coordinating with and communicating with the SICD, creating, frankly, another product gap for our competitors and resolving what has been the residual anxiety people have had about using the SICD in primary prevention patients.
Excellent. And as a follow-up
question, you're going very back to the beginning of Q and A. There's a lot of M and A that you're doing a lot faster than I and many investors I think would have expected. If we look forward 3 to 5 years, how do you sort of big picture view the portfolio? How do you plan for building it out from here? And are there things you don't want to have anymore?
Thanks.
Yes. There's lots of things we don't want to have. So we say no to all that. So we have a very I'm not going to share it on the call. We have a very thoughtful laid out strategic plan that we continue to modify some of the tactics in the regions and by BU.
We know very clearly what spaces we want to invest in, what adjacencies we want to invest in and what areas we don't. And so it's very well laid out and not surprised if you look at these small tuck in deals and none of these are significant in one size. So they're tuck in deals that are all leverage capabilities that we currently have. They enhance the diversification growth profile of the company. And importantly, probably most importantly, tremendous confidence in our team's ability to deliver on them.
And we spread them out across the BUs and we work very closely with our operations team and we still see a pipeline of future tuck in deals over the next 12 months.
Thank you.
All right. Next question is from the line of, one moment please, Robbie Marcus, JPMorgan. Please go ahead.
Great. Thanks and congrats on the good quarter. Dan, I wanted to start and follow-up on the tax question. Do you mind spending a minute on where the tax upside will be reinvested in the Q4? Is it all into the tax line or is it throughout the P and L?
Maybe talk about some of the mechanisms that will help lower the tax rate going forward in 2019?
Sure, Robbie. Yes, the short answer to that is it will all show up in the tax line and won't show up in any other areas of P and L. And just again, I think probably worth recapping. So we finalized the 2,001 to 2010 IRS settlement. There's an $82,000,000 non cash benefit to adjusted earnings in the quarter, dollars 0.06 which is the difference between the $41,000,000 and the $0.35 Our current expectation is that we would reinvest substantially all of this benefit likely in the 4th quarter.
Therefore, there's no change to full year adjusted EPS guidance. We've invested in our tax structure with the goal of reducing our tax rate 2019 beyond. So recall, we're on record now saying we'd have an operational rate of 15% in 2019 beyond. Goal would be to reinvest that in our tax structure, bring that 15% down. The way we would do that is it's not a cash investment.
So it's a non cash benefit. And what we would do is monetize some of our existing deferred tax assets. And simply put, when you look at the world and the different tax rates around the world and where you earn your income and where you have certain presences, that's what we would evaluate is how do you do that to take that 15% and bring that down for the future. So hopefully that's clear. We'll be more disclosive as we go through Q3 and Q4 and enact those strategies.
We're in the process of developing them now. But goal would be to take that $82,000,000 benefit, reinvest it and bring down the 15% in 2019 and beyond, all in the tax line.
Okay, great. And then just a quick follow-up, emerging market growth, strong double digits this quarter. Maybe you can just talk about how sustainable that strength is, some of the health of the emerging markets and are you seeing an impact? And then maybe just give us your latest thoughts on any impact from China tariffs and the latest on the China price decreases this year? Thanks.
Yes. So this is a very good quarter with emerging market growth. As we laid out in our Investor Day a while ago, emerging markets will continue to be accretive to our growth profile. I think what you're seeing is just an increased commercial capability and portfolio enhancements whether it be the emerging markets in Asia, Middle East, Africa and also Eastern Europe. So all three of those regions performed well, China being the largest one.
And it's I think the capabilities of local team, the regulatory product approvals that we have and also it's the diversification of the business. So in prior years it was really a DES play only. So DES is still important for us but it's diversifying into complex coronary capability. These peripheral interventions is growing extremely fast in emerging markets. We're expanding endoscopy, urology, neuromodulation.
So it's the diversification of the portfolio and just excellent work by the local teams. I think just the other comment I'll just make broadly maybe that we're most proud about is the diversification of the company. And 5 or 6 years ago if you would have said DES is going to be down mid single digits and CRM is going to be up 1, you'd have a company at Boston probably growing flat and we put up a 9% operational, 8% organic and our R and D pipeline in combination with a tuck in M and A are all reinforcing that category leadership strategy, diversification and faster growth markets. So it's a much different company and we're very confident in our ability to continue the momentum.
And just to tie off specifically on your China question, Ravi. So we don't manufacture in China. We do buy a small portion of our components. It's a small very manageable percentage of our supply costs, have some ability to substitute in some other suppliers outside of China. So don't see a big impact there.
In terms of the tariffs that are there, currently don't see any medical devices in that tariff list. So not anticipating a big impact there. And really nothing new on the China tender. So kind of status quo from where we've been in the last 6 months, which is no real updates on that.
Okay. Next, we have Chris Pasquale, Glutheme. Please go ahead.
Thanks. A quick one for Dan and then one for Doctor. Meredith on Claret. Dan, can you just quantify the M and A dilution you're offsetting this year?
Yes, it's a little north of $0.02 Yes.
Great, thanks. And then just
a quick comment on that.
So none of them individually is that large when you see the press releases. They're all overall immaterial on each one. It's just when you do that the number we've done and we're excited for the deals we've done, it just aggregates to about $0.02
Perfect. Thank you. And then Doctor. Meredith, on Claret, do you expect to see the new tech add on payment for that technology when the IPPS final rule is released in a couple of weeks? And how do you think about the potential for adoption either with or without that economic incentive for use?
And then from a pipeline perspective, what are you more focused on? Is it iterating the technology or expanding the indications for use? I know there's been some question about whether leaving the left subclavian exposed might limit the efficacy of that particular device?
Okay. Thanks very much, Chris, for the question. First of all, as you know, there is an application for the in process and we'll hear the outcome of that by the end of August and it will be coming to effect if we receive that in October. But we are not dependent on that nor have we modeled that as being critical to the uptake and utilization. More than 100 centers in the U.
S. Currently using the device and it's up to 60% of cases in those centers using device. So I think physicians have essentially voted with their feet. As you know there are last 15 trials in a pooled registry have shown a stroke rate of around 4.5 percent more than 8,000 patients and half of those are disabling stroke. So I think physicians and hospitals are voting with their feet with respect to this.
And obviously the NTAP payment would be much welcome, but it's certainly not we're not dependent on that. And as for expanding the indications, I think the first thing to say is to consolidate where we are in the TAVR market and then obviously the iteration of the device to cover the left vertebral artery. Now does that really matter? Probably not significantly so. It accounts less than 10%, probably 5% of the flow.
The other vessels are more relevant. And of course, then as you've mentioned, thereafter, the indications for other uses, the mitral, left atrial appendage occlusion and then high risk PBI for AF ablation because all of those procedures are associated with somewhere between 0.5% and 1.5% risk of stroke and a 20% to 40% occurrence of asymptomatic cerebral ischemic injuries on MR or other forms of neuroendocrine. So I think that's the way it rolls out.
Kevin, we'll take one more please.
And that question is from the line of Bruce Nudell of SunTrust Robinson. Please go ahead.
Thank you for squeezing me in. I just have one I have two questions. 1 sort of clinical, 1 M and A related. So on the clinical side, just to put a finer point on it, the result Nevro put out a press release this morning saying they're still protected above 1.5 kilohertz without debating the veracity of that statement. Just given the day you've got to date showing no dose response between 1 10 kilohertz, improved battery efficiency and the importance of waveform optionality.
Do you actually is there any evidence that you really are going to have to go above 1.5 kilohertz? That's my first question.
Yes. So, Bruce, that's a good question. And the reality is there is definitely a learning curve for the lower frequencies. And but we have level 1 evidence in that PROCO randomized trial. And we also have data from the WISTA trial and there are other studies like the NORTH study, 3 randomized controlled trials that show then when we properly delivered 1 kilohertz provides excellent outcomes.
But more importantly, as I said before, there are more things that determine pain relief. The optionality, the ability to use 2 waveforms simultaneously, sub perception and parathecia. So it is not all just about the frequency. There are other factors, amplitude, variability in amplitude, pulse width, duration, trains. So there's really more to it than just the frequency.
Thanks. And my second follow-up is or my follow-up is to Mike. Mike, you seem to be taking a very aggressive view in some of your acquisitions towards really getting heft in targeted areas. So EP bought a a cryo balloon 1 shot. In BPH, we are exploring both embolization as well as the NxThera approach.
Could you just kind of talk about that strategy of really going after things in a
very aggressive way? Yes, I think I would recall it as very planful and smart because it is all planned. And as I mentioned before, many of these are companies that we already have investments in and we've been tracking for multiple years. So it's not ad hoc. And I think the second thing is it just reinforces category leadership.
We're the category leader in urology, but we didn't have a MIS play and we didn't want to spend $1,000,000,000 to acquire one. And so we felt NxThera is an excellent offering and very good for shareholders and it creates strengthening category leadership in urology and expands our EPH beyond green light. EP is a fantastic market that we're committed long term to. There's pull through benefits to our large CRM business and we had we saw an opportunity in the fastest growing segment which is single shot to disrupt and be the only company to have both. And we see that segment growing probably likely plus 20%.
And so we feel like that puts us at a competitive advantage in a fast growth market with a differentiated portfolio that helps pull through. Same thing with Claret. We feel like Claret is a proven technology. It will have a revenue impact in the second half of this year and twenty nineteen just like NxThera. So some of these deals will have revenue this year or next year.
Some of them are longer term investments. But Claret as Ian mentioned is a perfect complement to our TAVR strategy and there's upside in other indications structural. So we think all of this reinforces category leadership in spaces that are high growth that enhance the long term growth profile of the company and our team has excellent ability to execute on these.
Great. With that, we'd
like to
conclude the call. Thanks for joining us today and appreciate your interest in Boston Scientific. Before you disconnect, Kevin will give you all the pertinent details for the replay.
Thank you. Ladies and gentlemen, this conference will be available for replay and that's starting today at 10:30 am Eastern Time and will run through August 8th midnight. You may dial the AT and T Executive Playback Service by dialing 1-eight hundred-four seventy five-six thousand seven hundred and one with the access code 449,752. International callers may dial area code 320-365-3844 with the access code 449,752. Now that does conclude your conference.
We do thank you for joining. You may now disconnect.