Brennan, Chief Financial Officer; Dr. Ken Stein, Chief Medical Officer; and Ally DeVoe, Senior Manager for Investor Relations. So thanks a lot. So much to talk about. We were writing questions. It was like, we guys have so much going on. I didn't even really know where to focus. So it's just a good problem.
Good problem to have, Travis.
Right. So we'll start with Q1. So strong quarter, 13% growth, 8% above the street. Nice EPS beat too. Just think about upside in the quarter. EP was definitely a focus, but there was really a lot that stood out in the first quarter.
Yeah, EP obviously was a piece of it. FARAPULSE had kind of a stub launch. We got approval on January 31st. But the takeaway for me was more of just the overall broad-based strength of the business for Q1. So 6 of the 8 global businesses grew double digits. All the regions grew double digits to get to that 13%. 70 basis points of adjusted operating margin expansion versus last year. And it all totaled up to 20% adjusted EPS growth for the quarter. So just a really solid start to the year. That, plus looking forward, kind of gave us the confidence to raise guidance from that 8%-9% organic revenue growth for the full year 2024 that we had as of the February call to the 10%-12% that we did on the Q1 call.
Really, really solid start to the year and excited for the rest of 2024.
The 10%-12% revenue guidance and 12%-14% EPS growth guidance is the new updated guidance. Maybe think about what that assumes first half, second half, and kind of down the P&L, some of the puts and takes that we should consider.
Sure. From a sales perspective, it's pretty simple. I mean, right now there's a healthy procedural backdrop of the ecosystem that supports our revenue growth. And that's really across, again, across all the businesses and regions. So we feel good that the procedural health of the business for 2024 will support that 10%-12%. Obviously, FARAPULSE super excited about the launch. I'm sure we'll get into the details with Dr. Stein on that. That's going well. So that's a piece of that as well. And then just the overall continued strength of each of the businesses. FARAPULSE is a great product. It's not the only launch we have. We'll be launching AGENT. We have other products that we're launching. So the top line, feel good about that 10%-12%.
For the P&L this year, 30-50 basis points of adjusted operating margin expansion as part of committing to the 150 over three years. So we'll be on the doorstep of that 28% by the end of 2026. I think that's a great spot to be. I think that's differentiated margin expansion versus our peer set. Certainly, the 10-12 is differentiated, which is what we aim for, differentiated at the top, differentiated at the bottom. And as we get to that 28, we've talked a lot about the 30% goal that we have long-term for op margin. And at 28, that's kind of squarely in sight. In terms of the specifics of the P&L, we've been very clear that this year gross margin is probably not going to help us achieve that 30-50 basis points. Last year we were 70.7%.
We think we'll be either at or slightly below that this year. So just the math would tell you that that's not going to contribute. That's okay. SG&A and R&D will pay the bills this year. History would show that as we look at what we've done over the past, we manage all lines of the P&L. So some years gross margin's going gangbusters and we're investing in SG&A and R&D, and it varies over time. So this year gross margin won't pay the bills, but I think it will help in 2025 and 2026. So confident in that 30-50 for this year.
So Q1 op margins were up 70% or 70 basis points year-over-year. Why could it not be better over the course of the year when you think about FARAPULSE launching and stuff like that?
Yeah, it's just a balance. For us, it's not really like an either/or, right? It's a balance of trying to get the differentiated top line, top of the peer set revenue growth, which I think we have at that 10-12, and then getting that differentiated margin expansion. We think at that 30-50, that's a good spot to be as balancing that because we still do need to invest to make sure that we grow that top line not only for 2024 but 2025, 2026, and beyond. So it's always a balance and feel like we've struck a pretty good balance this year.
Longer term, how do you think about kind of getting back to the kind of the pre-COVID gross margin levels of 72.5%?
Yeah, you'd have to walk the halls with us. That is a maniacal effort that we have to get back to that 72.4. That's where we were in 2019. So we know we can get we know we can do that. There's things we control and things we don't. The things we control, first of all, is mix. So launch new products that are accretive to old products, existing products, or when you launch new products like FARAPULSE and AGENT, make sure they're accretive. So I think we're doing that well. Pricing is another one. That used to be a headwind for us. Last year we were kind of flat, 23 versus 22. That's the goal going forward. We don't have that not be a tailwind or a headwind. And then just the basic blocking and tackling of taking standard manufacturing costs out of the system each year.
We were able to do a little bit of that this year to the right side of zero, not as much as we have historically. The idea is to really invest this year, and we're doing this in resource design VIPs, take cost out of the system so that when you get to 2025 and 2026, gross margin can go north. Then a couple of more macro things. Inflation's not dead, so we're still kind of nibbling at our heels a bit on some of the manufacturing cost inputs. Then I'd like to see FX be a bit more of our friend. It's been a bit of a headwind going forward, but we can't control those. Focused on the things that we control and confident that as we get to 2025 and 2026, gross margin will improve. We're maniacally focused to get back to that 72.4%.
The overall utilization environment's very strong, which is helping everybody. Just kind of think about what are you seeing in the environment now? Is this kind of the normal or at a point where things are going to slow at some point? Just kind of curious your outlook on the utilization environment.
Well, I mean, in the 10%-12%, as I said, our assumption for 2024 is that the healthy procedural backdrop and the macro environment is consistent. So it's been several quarters in a row. Obviously, last year we grew 12% organically. This year, the guidance of 10%-12%, off that 12%. So it's a healthy procedural environment. And as we look at the lens through 2024, we think it continues.
Maybe switching to FARAPULSE. I don't know, Dr. Stein, are you, Dan, if you want to talk about some of the initial roll-out. Q1 was kind of a stub quarter. Q2 is the first real quarter. How should we think about this launch in general?
I'll give you one sentence and turn it to the expert. The launch is going well. Over to you, Dr. Stein.
Yeah, the WATCHMAN launch is going really well. And it is, remind everyone, right? We got the approval end of January. We actually began the launch just about mid-first quarter. We got the approval literally six months ahead of what we had initially planned, really based, I think, really priority turnaround by FDA based on the strength of our data and based on the strength of our large commercial experience in Europe. The team did an amazing job of execution to be able to pull it in that six months. I mean, starting with supply chain, we are not supply constrained at this point. Through to the team's working on contracting, pricing, this is a premium product, but we're being very careful not to put ourselves in a position where that's limiting adoption.
Through to professional education and training, and just could not be happier with how the launch has gone thus far. We're at the point now where we are approaching 70,000 patients treated globally with this device. It is proving out to be as good as everyone hoped it would be, better safety, at least as good efficacy, far better procedural efficiency.
When you think about RF versus cryo, any changes there?
I think what we're seeing, and it's maybe a surprise, I think, to many of the outside observers looking in, is really this is pulling as much from people who were legacy radio frequency point-by-point ablators as it is pulling in the cryo ablators. Actually, since there are more RF ablators, right, it's numerically more. But proportionally, it's probably about the same out of each camp.
When you think about users and accounts that you're opening in the U.S., are these typically Boston doctors? Just trying to think about where the accounts are opening and the capacity to kind of continue to open these accounts up.
Yeah, in the EP world, there were not a lot of people who were typically Boston users. So no, we are pulling from folks who were legacy users of the other large strategics.
But the capacity there is to keep opening accounts is full open, right? Fully open?
Oh, yeah. I think, as you might imagine, right, we've prioritized the larger volume accounts first, but we'll be rolling it out. And one of the things is it's not just opening the account and getting them a FARAPULSE generator and then they use it. At this point, it's how many FARAPULSE generators do you actually need for your labs? I mean, what we're seeing is once people give this a try and start with it, they tend to flip as many of their cases as they can into the labs that have the generators.
How do you think the market dynamics here will change when more competition comes to the market? You've got a couple other bigger players that are launching later this year into next year.
Yeah. Dan, it's really important that we not get arrogant. I mean, we believe we've got the best solution out there. I'd put our data up against anyone's. But obviously, there are some strong entrenched competitors. Part of the key is just user experience. And the more people we get to try FARAPULSE, the harder it gets for them to use something else, again, because of the advantages it offers in terms of safety, in terms of efficacy, but also in terms of procedural efficiency and just the overall straightforward simplicity of the procedure. But we are, I hope, being really clear that we're not just one and done. Okay, we got a great tool. That's where we stop. FARAPULSE and the FARAWAVE catheter is where we start, right? So we're continuing to push the envelope in terms of clinical trial data.
We've got 2 FARAPULSE late-breaking trials that are going to be presented later this week at HRS. We have our persistent AF ablation trial, ADVANTAGE, and expect to have the readout of that fourth quarter of this year. We are currently enrolling in a first-line persistent ablation trial, which is called AVANT GUARD. We have a next-generation FARAPULSE catheter that is already in clinical trials. We anticipate approval in the U.S. second half of this year, which will actually now have a catheter that is magnetic sensor to integrate with RHYTHMIA. We have a FARAPOINT PFA catheter, FARAPOINT. The trial to evaluate that as an adjunct to the use of FARAWAVE has already completed enrollment. And then down the road, we have a number of other catheter designs that are well into their R&D, the product development phase, and hope to begin clinical trials of them imminently.
Of course, the focus is on the U.S., which it should be as the largest market. Then we have China and Japan kind of next up as we get towards the end of this year. There's geographical expansion in addition to what Dr. Stein mentioned.
At HRS and their competitors are also presenting data. Anything that you're looking at in competitive data?
Yeah, I'm glad you asked that, Travis. One of the keys I feel like I'm back now in professor mode because the key I'm looking at any clinical trial data is to not just look at the headline number because there are lots of things you can do with the headline number. And the key is really to look at the nuts and bolts of exactly what that headline number represents. And so in our ADVENT clinical trial data, in order to be called a success, you couldn't have needed to have a second ablation procedure because if the first one didn't work, I don't know how you call it a success. You couldn't have to stay on any kind of antiarrhythmic drug therapy. And you had to undergo really intensive monitoring to make sure you weren't having asymptomatic recurrences.
When you look at the sorts of data that are going to be read out from some of our competitors, they can be a lot looser on some of those definitions of what constitutes success. So we're going to want to make sure people take apples-to-apples comparisons of the data. We will have the data on hand to enable people to make those apples-to-apples comparisons.
That's helpful. And on international and kind of the geographic expansion, should we see Europe kind of step up again now that you've got more capacity? Because I think there was supply constraint in the past. I don't know. There might have been a competitor with a recall over there too as well. And just trying to think about China and Japan, how to size those opportunities.
Yeah, so continue to open up new accounts in the European market as we have more supply of those consoles and really start to see that come to fruition in the back half of last year. And then you're right. We expect approval in the second half of this year in China and Japan. Really expect that contribution to come in in 2025 as we get those approvals. We'll work to secure reimbursement, and then we'll move through limited launch. But those are large under-penetrated markets where the FARAPULSE technology benefits that we'll bring can really address those markets.
Then mapping later this year, Dr. Stein is going to touch on that. Maybe even to start with, kind of basically, how does the FARAPULSE system integrate with the mapping? Is it more of a soft integration? Is it the same catheter? Just a lot of questions on the mechanics of it as well. So start there and then kind of what it does for you, opportunity.
Yeah, and Travis, one of the key things to realize is we are trying really hard to enable people to use FARAWAVE and FARAPULSE however best fits their needs and their workflow, all right? So for instance, we see in many accounts, particularly in Europe, people don't use any mapping navigation systems at all. But in the U.S., people want to use mapping and navigation systems, right? We are not going to lock you in to say that you have to use RHYTHMIA, right? People are doing these cases today with all three of the legacy mapping systems and doing them very successfully. What's coming next, though, and so this is the next-generation FARAWAVE catheter that I talked about, is putting a magnetic sensor in the tip so we can integrate it directly with the RHYTHMIA system.
And there are some advantages we can bring to physicians by doing it. All of the legacy mapping systems out there today, and that includes RHYTHMIA, right, were built and designed for thermal ablation, for RF, all right? And there were some inherent limitations to that when you're looking at pulse field ablation. And so with this next generation, with the new catheter and the magnetic tip, and also with some iterations or some innovation with the RHYTHMIA software, we actually have built a package that now is designed for and understands pulse field ablation. And so can do a very nice job beyond just navigating the catheter in space, actually understanding where that pulse electrical field is going to impact tissue and where you're creating your lesions based actually on the physics of pulse field ablation.
Do you expect, kind of in a sense, for expectations of mapping share that you could get once it's integrated?
Yeah, again, we don't want to force people to use it, but we do think that this new system is going to be compelling. We do expect, right, that that is going to take some share. You just want to come back to what I think is, for us, the really important point, that we want people to use FARAPULSE. We want them to use it in whatever way they are most comfortable with and in whatever way gets the best results for patients.
And do you have anything, Ally? Good. All right. Anything on FARAPOINT at this point? I don't know if you expect kind of the single shot, FARAWAVE, and then for PVI, and then FARAPOINT for CTI ablations, or just kind of how you think FARAPOINT's going to kind of roll out into the market.
Yeah, so our initial clinical trial is aimed at getting labeling for FARAPOINT as an adjunct to FARAWAVE for, as you say, CTI ablation, so typical atrial flutter ablation as part of an AF ablation procedure. Post-approval, you can imagine that we'd then be looking at ways of getting indication expansion for that. I still don't think anyone, once they've used FARAWAVE, is going to want to go back to the bad old days of point-to-point ablation as a de novo AF ablation procedure. So FARAWAVE is still going to be the workhorse for pulmonary vein ablation and for posterior wall ablation, where I think we see FARAPOINT used are for some of these adjunct use cases.
Got it. And then AVANT GUARD, or AVANT GUARD, I think is how you say it, is running PFA for frontline therapy, which seems like a bigger opportunity. And maybe talk about that opportunity if PFA can be frontline therapy. And is that a competitive advantage for your therapy versus some of the competitors?
Yeah. So first off, glad that you mentioned it, right? That AF ablation, as effective as it is today, is still very poorly penetrated, poorly penetrated in the United States. The United States is far, far beyond international geographies in terms of the use of the procedure. We have very good reason to believe that the earlier you intervene in atrial fibrillation, the higher your success rates are going to be. What we're studying in AVANT GUARD very specifically is using it as first-line therapy the first time a patient gets a diagnosis of persistent atrial fibrillation. That could, I think, potentially double the addressable market for AF ablation. The FARAWAVE catheter is really exquisitely designed for this particular purpose. It's a great catheter for pulmonary vein ablation. It is also a great catheter for posterior wall ablation. Trial just began enrolling the end of last year.
Pleased with how the enrollment is going. We see it as a very important trial in our portfolio and for moving the field.
What are you seeing in the overall EP market? It feels like the market may be accelerating a little bit. It seems like early to be accelerating this quickly. But I know March is a strong month for one of your competitors and EP in general. Just any sense for what kind of the market being at a faster level than it was last year?
Yeah, so if you look at the Q1 results across our peers and what we reported, you're right. The market absolutely grew faster than the mid-teens that we had called at Investor Day. And I think there's a couple of factors at play. One, there's an increased level of patient awareness and diagnosis. There's also an element of PFA being at a price premium, which can accelerate the market to a certain extent. But I think the biggest factor is one that Ken hit on, which is that this is a highly under-penetrated market where we're bringing a new technology with strong clinical evidence, including efficiency data. And so as FARAPULSE is launched into these markets, physicians are able to treat more of the 38 million patients with atrial fibrillation.
Great. Anything I missed on PFA before I switch topics?
We could talk all day.
Sounds good. I could too. Let's go to WATCHMAN. You've got the new DRG. You've got the OPTION Trial coming maybe later this year. How do you think about that opportunity, especially if you think about the OR efficiencies? It seems like a no-brainer for the hospitals, at least.
Yeah, I agree with you completely. So, right, the CMS proposed inpatient payment rule now for the first time has established a specific coding for concomitant procedure, AF ablation, and left atrial appendage closure. Very glad to see it. I think, as you say, it's really good for hospitals. Frankly, it's even better for patients. Why undergo the risks and the stress and everything of having two procedures when you can have it all done at the same time? This also is an area where I think our portfolio is really well placed to facilitate these concomitant procedures. And that starts with our Access Solutions portfolio. That was our Baylis acquisition a couple of years ago, being able to do safe, efficient transseptal puncture through to FARAPULSE, where, again, you've got a very safe but also very efficient procedure.
And then with WATCHMAN, with WATCHMAN FLX and now WATCHMAN FLX Pro, again, have what is clearly the safest technology for left atrial appendage closure on the market, as well as, again, a very efficient procedure. So, again, it enables docs to do these procedures very safely, very quickly on patients. Again, that's great for hospitals. That's great for docs, as Ali said, right? You increase your lab throughput and maybe make it home in time for dinner. And, again, it's most importantly, it's great for patients because, again, the less time you spend in a cath lab on an operating table, the better you're going to do.
Any expectation for when we see the data? Is there a particular conference you're aiming for? And was there something that kind of led that trial to kind of go faster than you expected?
I'm really glad you asked me that. So the trial enrolled really rapidly during COVID. But we knew that all along. So we have, again, pulled in our anticipated data, releasing the data now into late this year or early next year. Honestly, that just reflects a clinical trials team that we have that have just developed some amazing efficiencies in terms of how do you get from the last patient in getting their data through to cleaning up the data, locking the database, and analyzing the data. It's what we did with Advent. It was one of the things that enabled us to accelerate the Advent data presentation and get it in when we got it in last year. The team is taking those same lessons and going to apply them to OPTION.
On CHAMPION, just anything that you can point to to kind of give confidence in that readout in the CHAMPION trial in 2026? Any thoughts on that opportunity?
Yeah, right. So, again, just to baseline, I want to remind you. So OPTION is our WATCHMAN trial, comparing WATCHMAN to the new, the novel oral anticoagulants to people after AF ablation. Champion is the direct head-to-head WATCHMAN against the NOACs in all comers. Expect to have the CHAMPION data out first half of 2026. We have a very extensive real-world data experience, both in the U.S. with the SURPASS registry, as well as in Europe. We've seen some independent randomized trials out of Europe. And all of it, again, signals that we should expect the stroke reduction with WATCHMAN to be comparable to the stroke reduction that's seen with anticoagulation. And, again, just based on first principles, have a very high degree of confidence that we're going to show that we're better off on bleeding than we are with those oral anticoagulants. Now, again, it's research.
You never know what you're going to know until you know it. But we feel really well positioned to expect a positive result from that trial.
Great. And on TAVR, a little bit, I guess, lack of clarity on TAVR from here for you in the U.S. and just trying to get an update on when we see the data for that. And two, the message on TAVR is regulatory. We'll think about regulatory strategy, which is different than what you usually say. Usually, you're saying, "Hey, we'll submit data at a certain point in time." So kind of what's the reason for that messaging on the TAVR?
Yeah, I think, oh, do you want to go ahead?
Nope, go ahead.
Anyone else? We had hoped to be able to submit based on an interim analysis. Clearly, we're not. The trial is ongoing. I think not worth speculating on what it's going to show. We're going to know what it shows. I think what we're messaging in terms of regulatory implications, etc., is let's see what the data show. Depending on what the data show, then we're going to be able to establish what is our regulatory strategy in the U.S. I think important to say with all of this, the valve continues to do very well in Europe. The results in Europe are well.
In fact, there was just a data presentation at EuroPCR earlier last night, U.S. time, early Tuesday, Paris time, that was independent real-world data analysis of retrospective but propensity-matched populations getting SAPIEN 3 versus ACURATE neo2, which showed absolutely comparable outcomes at the end of one year in terms of death, stroke, or rehospitalization. So we're very pleased with the performance of the valve, pleased with commercial use in Europe. And in terms of the U.S., I think it's just not worth speculating until we actually see what the data are.
Just to layer on, in Q1, we saw mid-teens growth in our TAVR business. We continue to invest in this space. We talked about bringing Prime to the European market in 2025. First and foremost, what Prime brings to that market is expanded valve sizing, including an XL-sized valve, which we think is about 25% of the market we don't play in today. It also has some valve enhancements on the frame and deliverability. We continue to be very pleased with what we're seeing in Europe and internationally.
After the U.S. update, I think one of the questions I got quite a bit was, "OK, I can take the U.S. out of the model. But what do I do to Europe?" It sounds like you're confident in Europe. We keep the European numbers in the model and growing like we did before. Kind of no impact to the European business?
Based on Q1, the mid-teens growth, we think, was above market.
OK, great. And then, data at HRS on the leadless pacemaker EMPOWER. Curious how to think about that opportunity and how you think about the competitive landscape there?
Yeah, really excited about that. So this is data from our modular CRM system. So we have a leadless pacemaker. It's the EMPOWER device. It is the only leadless pacemaker that is designed to be able to communicate with our subcutaneous ICD. And so the data that we're going to present at HRS reflects a pre-specified adaptive trial design, so it's an early cut of those data that show with an aim to show both that our EMPOWER device can successfully communicate with the S-ICD and deliver anti-tachycardia pacing for patients so they can still have a "leadless" ICD system, but also to show that it can work as a sort of typical standalone single-chamber ventricular pacemaker. I think it's important to us for two reasons, right? One is it's our first entry into that leadless pacemaker market. People have to wait and see what the data show.
But we think that there are some distinct advantages to our delivery system with the device in terms of safety and deliverability. But more importantly, see it really as unlocking and mitigating the big concern people have had in terms of using the S-ICD as a default device for patients with primary prevention indication for sudden death prophylaxis and gives people the ability to either do a staged procedure, start with the S-ICD, and if it turns out you need anti-tachycardia pacing, you can always get it later with this device, again, and stay leadless, or maybe for some patients, even get both devices at the same time. And so from our standpoint, one of the big implications, if the data are positive and the device is approvable, will be what it does to unlock further growth with the S-ICD.
I don't know if you have 10 seconds on AGENT DCB. It kind of talks to the portfolio that we're doing that last, but.
Yeah, and gosh, and as you say, there are too many things to talk about here. AGENT, the first drug-coated balloon approved for use in the coronaries in the United States, approved on the basis of a randomized clinical trial. The data were so strong that it literally got a standing ovation when it was presented at TCT last year. Again, very rapid approval. Approved for in-stent restenosis. That's about 10% current PCI volume in the United States and then potentially expandable to another 10% of current PCIs when you go beyond that to small vessel disease, bifurcation lesions, and potentially some cases of acute coronary syndrome.
All right, great. Thanks a lot. It was a great discussion.
Thanks, Travis. Appreciate it.