Good morning, and welcome to the Boston Scientific First Quarter 2021 Financial Results Conference Call. All participants will be in listen only mode. By pressing star then 0 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
Please limit yourself to one question and one related follow-up. 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, 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 Chief Financial Officer. We issued a press release earlier this morning announcing our Q1 twenty twenty one results, which included reconciliations in one hour. Mike will focus his comments on Q1 performance as well as future catalysts and the outlook for our business, including Q2 fiscal year 2021 guidance.
Dan will review the financials for the quarter, provide more details regarding our Q2 and fiscal 'twenty one guidance, and then we'll take your questions. During today's Q and A session, Mike and Dan will be joined by our Chief Medical Officer, Doctor. Ian Meredith and Doctor. Ken Stein. Before we begin, I'd like to remind everyone that on the call, operational revenue growth excludes the impact of foreign currency fluctuation and organic revenue growth further excludes acquisitions and divestitures for which there are no comparable period net sales.
Relevant acquisitions for organic growth versus 2020 2019 include Preventis, which closed March 1, 2020 and Vertiflex and BTG Interventional Medicine, which closed in May mid August of 2019, respectively. Divestitures include BTG Specialty Pharmaceuticals, which closed March 1, 2021 and the Global Embolic Microspheres portfolio and intra Uterine Health franchise, which were divested in mid August 2019 and respectively. Guidance excludes the recently announced Luminess Surgical acquisition and the BTG Specialty Pharmaceutical businesses, which as I mentioned was divested as of March 1, 2021, 1 month earlier than originally anticipated. For more information, please refer to Slide 9 of our financial and operating highlights deck, which may be found on our Investor Relations website. On this call, all references to sales and revenue, unless otherwise specified, are organic.
Finally, growth goals of 6% to 8%, excluding COVID represent comparisons between time periods in which results are not materially impacted by the COVID-nineteen pandemic. Of note, this call contains forward looking statements within the meaning of federal securities laws, which may be identified by words like anticipate, expect, 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.
Mike?
Thanks, Susie. Thank you, everyone, for joining us today. I'm pleased to report a good start to 2021 with a return to growth versus both 2020 2019. Financial results that exceeded our guidance for both revenue and EPS and multiple significant clinical milestones and continued advancement of our category leadership strategy with new product launches in tuck in M and A, including Preventis and Cardiac Diagnostics and Luminous, which is a leader in laser technology for kidney stones. Total company 1st quarter operational sales grew 5.6 procedural recovery and market share gains across many of our businesses and regions.
Many of these gains were fueled by new and ongoing product launches, most total Eluvia DES, Polarex catheter, LuxDx implantable cardiac monitor and their PreciseGenus Deep Brain Stimulation platform. 1st quarter adjusted EPS of $0.37 grew 33% versus 20 and 5% versus 2019, which exceeds the high end of guidance by $0.03 primarily due to higher sales performance and spend controls. Adjusted operating margin of 24.3 percent was in line with our expectations and demonstrates solid progress from 2020. We're really pleased with our free cash flow generation of $213,000,000 and adjusted free cash flow of $404,000,000 We believe these better than expected results are indicative of our ability to regain our pre pandemic 6 year track record of excellent performance as we execute against our strategic plan, objectives and drive towards ex COVID financial goals for 6% to 8% organic sales growth, continued operating margin expansion, double digit adjusted EPS growth and importantly an improved ability to deploy our healthy free cash flow. We're encouraged by the outlook of the rest of the year and we're emerging from the headwinds of the pandemic well positioned, given our category leadership positions, innovative pipeline, commercial execution, enhanced digital capabilities and ongoing expansion in the high level of technology.
We look forward to highlighting these capabilities with you further at our Investor Day this year, which will be held on Wednesday, September 22. So looking ahead, we continue to expect a steady recovery from the pandemic with less of an impact from COVID-nineteen in 2nd quarter versus Q1 and more normal procedure levels in second half twenty twenty one. Given the first quarter outperformance, We're narrowing the range for both full year organic revenue and adjusted EPS. So compared to 2020, We're targeting Q2 'twenty one organic revenue growth of 44% to 48% and full year of plus 15% to plus 18%. Compared to 2019, we're targeting 2nd quarter organic revenue growth of 3% to 6% and for the full year growth of 2% to 5%.
Our 2nd quarter adjusted EPS estimate is $0.36 to $0.38 and we're updating full year adjusted EPS to a revised range of 1.5 $3 to $1.60 Pam will also give the revenue contribution from Preventis and we continue to expect second half twenty twenty one close for Luminous. So now I'll provide some additional highlights in Q1 'twenty one along with some commentary on Q2 and the outlook. So regionally in Q1 on an operational basis versus 2020, the U. S. Grew 9%, Asia Pac grew 9%, Middle East Africa grew 2 percent and the emerging market sales grew 13%.
Growth in the U. S. Was supported by a procedure recovery, particularly in March, along with new product launches across entire portfolio. Europe, Middle East, Africa was driven by new product innovations with particular strength in PI, EP and Endo as the majority of markets grew in Q1 versus Q1 2019, even as some countries And going forward in Japan, despite COVID uncertainties, we expect full year growth versus 2019, thanks to the diversified portfolio and new product launches such as Ranger DCB, StablePoint, Watchmen Flex and Lifaview, which is expected later in the year. China sales grew 20% versus 2020 and were flat versus 2019, which reflects the negative impact of tender pricing for drug eluting stents and balloons.
The rest of the China portfolio saw strong double digit growth in Q1 versus 2019 with particularly notable momentum behind both complex PCI and imaging products as well as endo, euro and PI. We continue to expect full year 2021 double digit growth for China versus both 2020 2019. I'll now provide some additional commentary on the business units. Urology and Public Health continued to expand market share and sales grew organically 9% versus 2020. And Q1 growth is balanced regionally with strength in stone and prostate health.
Product highlights include continued momentum with Spacer View Hydrogel, which drove double digit growth overall for the Space Orb business. Rezum also grew double digits, fueled in part of the location of the compelling 5 year results, demonstrating resumes durability with a low 4.4% re intervention rate for BPH patients. And looking ahead, we're excited to continue to build out our stone portfolio and extend our global footprint with the acquisition of the surgical business of Luminess and its leading laser fiber technology. The deal is expected to close in the second half of the year. For endoscopy, sales grew organically 10% versus 2020.
And Endo continues to grow market share globally with double digit growth in all regions versus 2019, led by strength in key franchises such as pancreatic, biliary, hemostasis and infection prevention. And thanks to recent launches in our differentiated technologies such as SpyGlass DS, Discover and Axios. Exolty momentum is gradually improving as we have started to see capacity for hospitals to establish new protocols, hospital access has increase in the Medicare outpatient pass through payment. We also continue to target launch of our single use bronchoscope in the second half twenty twenty one and remain bullish on the long term opportunity for single use scopes broadly. In cardiac rhythm management, sales were up 1% organically versus 2020 and we believe that our CRM performance was slightly below the overall market.
For the full year 2021, we forecast cycle and anticipate beginning enrollment mid year in modular ATP, which is our dual track clinical study for standalone levos pacemaker as well as to provide pacing and antitachycardia pacing to Emblem SICD patients. Our Luxe DX implantable cardiac monitor launch is gaining U. S. Share given its high quality ECG signals, arrhythmia algorithm performance and streamlined back end monitoring. We closed the Provenus acquisition as of March 1 and are pleased with Vettis portfolio, which grew mid-twenty percent on a pro form a basis for the full quarter.
And despite recent reimbursement challenges in one segment of long term ECG, we expect plus 20% pro form a growth for prevent us in 2021, given its ability to offer all four testing modalities with BodyGuardian Mini and excellent detection algorithms. We're excited to have such unique position in the field of cardiac diagnostics and ability to offer all diagnostic modalities, including ambulatory ECG, LuxDx ICM and the HeartLogic detection alert for heart failure. Electrophysiology sales were up 8% versus 2020. And Polarex, which is our 2nd generation single shot cryocatheter is off to a strong start in Europe and taking share given its effectiveness and ease of use. StablePoint, our 4 sensing therapeutic catheter with DirectSense is also enjoying a good start in both Japan and Europe and has begun enrollment in its U.
S. IDE trial called Knewton AF. In Neuromodulation, organic revenue grew 2% versus 2020 and the Q1 result is an improvement sequentially despite the challenges of higher rates of spinal cord stim patient cancellations in December that also seeped in January February due to the COVID surge. As patient reticence waned in March, trends improved significantly and also helped by the ongoing launch of our next gen WaveWriter Alpha SCS system. Alpha has driven excitement due to its FAST and Contour, paresthesia pre waveforms with MRI compatibility, which is also supported by our Cognitus software solutions that enhance the physician's ability to identify, and maintain SCS patients.
In deep brain stimulation, our PreciseGenus platform expands our MRI capabilities in both the rechargeable and non rechargeable segments with Bluetooth communication capabilities. In Interventional Cardiology, organic sales grew 7% versus 2020. In every structural heart franchise, WATCHMAN, Acura Neo 2 and Sentinel delivered strong growth. The WATCHMAN franchise accelerated its recovery growing over 30% versus 2020 with extremely positive physician feedback on Flex device performance and safety as supported by the Pinnacle Flex IDE study that was published in circulation during the quarter. Importantly, we completed the conversion to a consignment based model last quarter and accounts in the U.
S. Are now over 90% converted to Flex. We've also seen a step up in implants per center per week versus pre COVID levels as more physician planters adopt the Flex technology.
And we continue
to push expansion as we enrolled the CHAMPION study and target enrollment completion of the OPTION trial by the end of the year. In TAVR, our ACCURATE neo2 launch continues to do quite well in Europe. And we're pleased to announce that we've expanded our risk indication and our ACCURATE NEO-two. The IDE trial now includes all risk categories, including low risk TAVR patients. We continue to target U.
S. Approval for all risk indications and market entry in 2024. During the quarter, SENTINEL, which is our cerebral embolic protection device, reached a milestone of treating 50,000 patients cumulatively and continues to enroll its protected TAVR randomized trial. Coronary therapies grew to low single digits versus 2020 with global strength in complex PCI and imaging. This helped offset drug lenastatin price weakness in the U.
S. And China And we continue to launch new products for complex PCI and are on track to begin enrollment in the 2nd quarter for the agent drug coated balloon study, which is The first in the U. S. For coronary instant restenosis and we're pleased that AGENT has been designated a breakthrough device. Peripheral interventions delivered strong performance continues to gain market share with organic sales up 8% versus Q1 2020 and interventional oncology grew high single hepatic cellular carcinoma as the positive target study outcomes were featured as a late breaker at the Central Radiology.
In addition, we were granted a breakthrough device designation for the study of TheraSPHERE in patients suffering from glioblastoma, an aggressive form of brain cancer. Performance in our Venus franchise was led by mid teens growth in ECOS versus 2020. And in arterial, drug moving technologies also A strong quarter as growth accelerated sequentially, thanks to our category leadership strategy to offer both a differentiated DES and a DCB as well as sector recovery on multiple datasets proving the safety and effectiveness of these therapies. The ILUVIENDS inpatient add on payment and the ongoing U. S.
Launch of ARRANGER DCV are helping us to drive share gains. I'd also like to highlight 2 important sustainability accomplishments this quarter. The first is the publication of our performance report and its detailed addendum referencing the Global Reporting Initiative guidelines. And secondly, place an 8 on the Forbes list of America's Best Employers for diversity in 2021. We remain as committed as ever to global sustainable economic, environmental and social practices.
And overall, we're pleased with our early performance for the year and optimistic on the outlook. We continue to drive towards ex COVID financial goals of 60% organic growth, margin expansion, driving strong cash flow and double digit adjusted EPS growth, while living our values with enduring commitment Sustainable Business Practices. Very grateful for our employees for their winning spirit and then I'll turn things over to Dan.
Thanks Mike. 1st quarter consolidated revenue of $2,752,000,000 represents 8.2% reported revenue growth and reflects a $67,000,000 tailwind from foreign exchange. On an operational basis, revenue growth was 5.6% in the quarter. Sales from the Provenis acquisition, which closed March 1, contributed 70 basis points, more than offset by the divestiture of Specialty Pharmaceuticals and our intrauterine health franchise, resulting in 5.9 percent organic revenue growth, above our guidance range of down to up 3% versus 2020. Compared to the Q1 of 2019, organic growth was 3% above our guidance range down 6% to flat.
This 3% growth excludes $15,000,000 in 20 19 sales of Divested Intrauterine Health and Embolic Bees Businesses as well as $160,000,000 in 2021 sales of acquired businesses, which consists of 1 month of ProVenus, 2 months of Specialty Pharmaceuticals and a full quarter of BTG Interventional Medicines and Vertiflex. Top line results drove Q1 adjusted earnings per share of $0.37 representing 33% growth versus 2020, 5 percent growth versus 2019 and exceeding our guidance range of $0.28 to 0 $0.34 Adjusted gross margin for the Q1 was 68.9%, slightly below our expectations driven by inventory charges and lower sales within higher margin businesses. As expected, The COVID driven negative manufacturing variances capitalized on the balance sheet in 2020 should be substantially recognized in the P and L by the end of Q2, enabling higher gross margins in the second half of the year. 1st quarter adjusted operating margin was 24.3%, slightly above our expectations driven by strong sales and spend control as SG and A and R and D remained slightly below historical levels as a percentage of sales. Moving to below the line, adjusted interest expense totaled $97,000,000 in line with our expectations.
Our tax rate for the Q1 was 5.9 percent on an adjusted basis and includes 2.40 basis points of benefit from pretax items within the quarter as well as a 190 basis point benefit from stock compensation accounting higher than previously expected. Adjusted free cash flow for the quarter was $404,000,000 and free cash flow was $213,000,000 with $284,000,000 from operating activities, less $71,000,000 of net capital expenditures. Our goal is to deliver adjusted free cash flow in line with 2020 despite increased working capital headwinds in inventory and accounts receivable as we return more normalized volumes during the remainder of 2021. March 2021, we had cash on hand of $2,000,000,000 our top priority for capital deployment remains tuck in M and A. We have capacity to pursue additional business development opportunities, while continuing to remain active with our venture capital portfolio and consider opportunistic share repurchase.
We ended Q1 with 1,431,000,000 fully diluted weighted average shares outstanding. Now I'll walk through the guidance for Q2 and full year 2021. For the full year, we expect 2021 operational revenue growth to be in a range of 14 to 17%, which includes an approximate net 100 basis point headwind from the divestiture of our intrauterine health franchise and specialty pharmaceuticals, partially offset by the acquisition of Provenus. Excluding the impact of acquisitions and divestitures, we expect organic revenue growth to be in the range of 15% to 18% versus 2020 and 2% to 5% versus 2019. For the organic comparison to 2019, full year 2019 sales exclude $50,000,000 in sales of our embolic Beds portfolio and intrauterine health franchise as well as $81,000,000 in specialty pharmaceutical sales.
And at the midpoint of guidance, 2021 sales exclude approximately $480,000,000 in sales from recent acquisitions, including Vertiflex through May, BTG Interventional Medicines through mid August and Preventis as of March, as well as $13,000,000 of specialty pharmaceutical sales prior to divestiture. For Q2 2021, we expect operational revenue growth to be in a range of 42% to 46%, which includes an approximate net 200 basis point headwind from the divestiture of Specialty Pharmaceuticals, partially offset by 44% to 48% versus 2020 and 3% to 6% growth versus 2019. For the organic comparison to 2019, 2019 sales exclude $15,000,000 in sales of our embolic feeds portfolio, creator and health franchise. And at the midpoint of guidance, 2021 sales exclude approximately 175 dollars in sales from the acquisitions of Vertiflex, BTG Interventional Medicines and Preventis. For adjusted operating margin, while we aim for sequential improvement, we expect Q2 to be similar to Q1 as we remain flexible with investment opportunities and given strong Q1 performance.
Our goal is to average 26% adjusted operating margin in the back half of the year, setting us up to exit 2021 at a higher level and full year 2019. We continue to forecast our full year 2021 operational tax rate to be approximately 11% and now expect an adjusted tax rate of approximately 10% due to the Q1 discrete tax benefits and more stock compensation favorability than previously anticipated. We continue to expect adjusted below the line expenses, which include interest payments, dilution from our VC portfolio and costs associated with our hedging program to be approximately $400,000,000 to $425,000,000 for the year. We expect fully diluted weighted average share counts of approximately 1,435,000,000 shares for Q2, 2021,000,000 and 1,436,000,000 for full year 2021. We are now raising the low end of our full year 2021 adjusted earnings per share guidance to $1.53 and maintaining the high end of 1 point $0 in line with our update to sales guidance as Q1 results have removed some uncertainty from our previously wider range.
For the Q2, adjusted EPS is expected to be in a range of $0.36 to $0.38 Please check our Investor Relations website for Q1 2020 financial and operational highlights, which outlines more detailed Q1 results. With that, I'll turn it back to Susie, who will moderate the Q and
Thanks, Dan. Andrew, let's open it up to questions for the next 30, 35 minutes or so. As Andrew mentioned, in order to enable us to take as many questions as possible,
before
pressing the please press star then 2. The first question to assemble our roster. The first question comes from Bob Hopkins with Bank of America. Please go ahead.
Thank you and good morning and congrats on a good start to the year. First question I'd love to ask is just on your 2021 revenue guidance. And I realize there's a lot of numbers flying around here. But to keep it simple, I think you said your organic sales growth in the Q1 of 21 over the Q1 of 2019 was 3%. You expect an improvement on that same basis to 3% to 6% in Q2 and 2% to 5% for the full year.
My question is that suggests kind of very little incremental growth in the back half versus the first half. So Is that simply conservatism or is there something going on in the back half that we should be aware of?
Thanks, Bob. Good morning. I'll take that one. I don't think there's anything going on in the back half. I mean, we believe the guidance is appropriate.
And I think you're correct. I mean, the best way to look at it is probably 2019 to eliminate the COVID impact in the base year. And so the way I think of it is, you look at Q1 and that was percent, right. You look at Q2 and at the midpoint that's 4.5%. So that's a nice acceleration.
You heard Mike talk about the recovery and we look for that recovery Q2, so the midpoint is at 4.5%. And then if you look at the full year range of 2% to 5% and you take the high end of 5%, That implies that we're north of 6% in both of Q3 and Q4. And so that's a nice acceleration from where we We'll be in Q2 at the midpoint. And also it's worth noting that the comps versus 2019 are 200 basis points higher in the second half. So our comps 2019 were 6% and 6% in the first half Q1 and Q2, so obviously an average of 6%.
And then in the back half, they were 9% and 7% for an average of 8%. So if you look at the high end of the 5 and you say that implies that we're north of 6, that's in the range of that 6 to 8 We always talk about ex COVID for our expectations. So we feel like as we look at the 2% to 5% full year and then also the Q2, 3% to 6%, we think it's appropriate.
Great. Super helpful. And then one quick question for Mike on just a geographic question. Mike, I was wondering if you could just comment really quickly on kind of what you're seeing in Europe and Japan from a COVID and surgical procedure recovery perspective?
Sure. Good morning, Bob. In Europe, overall, very pleased with the team's performance, grew 2% in the quarter versus 20 3% versus 2019. That's really despite some of the lockdowns that you've seen. So in some markets like U.
K, the business has been stronger. The business has picked up in Germany. Some countries like Italy and Spain have been a bit softer. So we do anticipate those markets to get better as we expand over the Q2 given improvements in vaccination like we've seen 2019. And in Japan, really a similar story.
Vaccination rates are a bit Lower there, but never seem to grow versus 2019 at 1%, which is encouraging. And we expect that business to strengthen as the year moves on and that's supported by a number of product launches in Japan, primarily the DCB and Eluvia, the StablePoint platform as well as some additional launches in urology. So the U. S. Was the strongest market overall.
China performed very well and some choppiness in Europe with some of the lockdowns, but the team delivered nice growth there.
Great. Thank you very much.
Thanks, Bob.
The next question comes from Robbie Marcus with JPMorgan. Please go ahead.
And I'll add my congrats on a really strong Q1 here. I wanted to touch on, I know a lot of your procedure, something like 2 thirds are outside of the hospital on the ASC setting. And a lot of these are, as we learned last year, preferable procedure. So I'd love to get a sense of how you're thinking about the potential for a backlog of patients to come through later this year and into next year and how sizable an opportunity that might be?
Yes. Good morning, Robbie. It's a bit difficult to quantify. We have Try to frame it with our guidance for 2nd quarter, which we anticipate acceleration of our Q1 just if you take the midpoint. And so that obviously implies improvement in the strengthening of the business.
And overall you saw Our most susceptible business is to COVID, all of them were susceptible, but the most sensitive were urology and neuromodulation. And we saw quite a bit of softness in the first half
of the quarter really through
most of February, particularly in SCS. And then we saw a significant improvement in March. And so we're quite bullish on that business In the U. S. Where the bulk of that business is in the U.
S. In SES in the second quarter and second half. And so we think that will be quite a bit Stronger than it was in 2019, stronger than it was in the first half of first quarter. And urology, you saw that urology numbers were quite strong in the Q1. So I think to answer your question it's a bit difficult.
We anticipate
to predict additional boluses on top of that.
Got it. Yes, I imagine it's tough for everyone to guess how it will play out. Maybe a quick follow-up on Structural Heart. Two things here. 1, you had again really, really strong WATCHMAN FLX numbers and I saw in the slides you mentioned that The Accurate NEO-two trial is now going after all risk patients.
So just thinking about the outlook for Charlotte Lard here And any color you could give us on how you see 2021 playing out and how the updated trial protocol might help Railroad? Thanks.
Yes, Watchman is doing excellent. In the script there we talked about we've had over 90% conversion already to Flex. You're seeing same center utilization increase, which is probably the most important metric given the safety profile and the effectiveness of the device and the enthusiasm of electrophysiologist and cardiologist to implant it. And the growing acceptance of this from the referring physician community. So a lot of Hodgman And we think the consignment move with Flex was a smart move for us.
So that's all good news. And Doctor. Meredith can maybe comment A little bit on the ACURATE NEO2 IDE trial, if
you like. Yes. Thanks, Mike. Thanks, Robbie. I guess the extension of the trial, the FDA approval this week of the extension of the trial to all risk patient categories, Extreme, high, intermediate and now low risk is certainly a significant step forward.
We will have to increase the number of patients, but we don't The timeline for the trial to actually change. But come approval to have the approval for all patient risks will certainly increase the opportunity.
Thanks, Robbie.
The next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.
Good morning. Thanks for taking the questions and congrats on the really nice quarter here. 1 on the recovery, 1 on WATCHMAN. When you reported Q4 results, I think January was still declining year over year. February Didn't seem like it was a great month with the weather and all.
So it looks like you must have seen a pretty significant acceleration in March. Can you talk about the trends through the quarter? And what are you seeing in April? Apologies for the short term question, but obviously a lot of interest in that? And I had one follow-up.
Sure. I can take that one, Larry. Yes, I think it's probably pretty consistent with what you've heard from companies that are in our sector. January looked a lot like December, right? A lot of COVID impact globally.
And then February was a bit of a tale of 2 halves. So the first half was weaker. The second half, we saw some recovery, both from the anticipation of the weather, some increased vaccination rates and Just the strength of the overall procedure volume. And then March continued to recover beyond that. So largely in line with what others have said and I What you would probably expect, not going to get into specifics on April, but I think you heard Mike comment that our guidance includes continued recovery in Q2 and then into the second half.
So I think that's what we'll say on that.
That's very helpful. And then on WATCHMAN, nice acceleration here under 30%, 34% growth over about 18% in Q4. Just looking ahead, just wanted to give you guys an opportunity to meant new competition in the U. S. 2 things, 1, the streets kind of the consensus is about 30% share for them to take.
And My question is, can you still grow WATCHMAN in 2022 with new competition? Any high level thoughts on those type of metrics,
Well, sure. Our expectation is that we'll grow in 2022, the WATCHMAN business. It has a lot of momentum now, a lot of acceptance of the Flex device. And as I mentioned, utilization is growing. We've got a number of clinical trials that are also in process and we also have a robust pipeline for WATCHMAN in the future.
So there's more to come from WATCHMAN behind Flex. Also just the therapies as you know it's so early. The awareness with referring physicians, whether it be cardiologists, GI doctors, neurologists continues to expand. They're seeing great outcomes from their patients. So I think the acceptance level of WATCHMAN continues to grow and the market opportunity.
It's a multi $1,000,000,000 market in the future. And so we think the market will continue to grow very, very healthy and these positive outcomes are driving more momentum. So our expectation certainly to grow in 2022.
Thank you, Mike.
The next question comes from Vijay Kumar with Evercore ISI. Please go ahead.
Hey, guys. Congrats on the nice wins here. Mike, maybe one on cardio. I think there's been some noise around SICD recall, but in the context of your commentary on Lux ICM share gains and EP perhaps coming in slightly better. Are the positives more than enough to offset, I guess, in some of the CRM headwinds?
Thank you. Doctor. Stein will comment a little bit on SICD I think you really captured the full portfolio picture here. And so we did see a little bit of softness in CRM in the quarter. We think we may have lost a little bit of share, had sequential quarter over quarter growth versus 2020.
It's Very minimal share loss. And it's typically it's been common in the leadless pacemaker market where we Although the share loss I would say has reduced or more stabilized as we think that segment is approaching full penetration in terms of The single chamber. So although we lost share there, I would say that element is declining. And we had a little bit of softness in defib with the SICD actions, but that business is beginning to rebound and Doctor. Stein can comment on it.
Importantly, as you said, our full diagnostic portfolio with Preventis and Luxe and the acceptance of Luxe will be a nice tailwind for us in '21 and 'twenty two and our EP business was quite strong in Europe, softer in the U. S. Where we don't have some of these product approval. So net net as you said, the diagnostics business will help offset some of the softness in CRM and EP in Europe and Japan in particular will offset some of the U. S.
So those are certainly additive and beneficial to the CRM growth profile. And maybe Doctor. Stein, if you want to comment on SICD? Looks like Ken's Doctor. Stein is not available.
Let me come off mute, sorry. Thanks, Mike and Vijay. As Mike said, we did have a softer quarter With SICD related to the advisories, we fully expect that to recover. And I think the message is penetrated to physicians that The overall performance of the SICD system and the SICD lead in particular is at least as good as the best transvenous leads on the market. Having said that, we do have an enhanced lead in development that should help resolve any residual concerns and very excited, as Mike said in his prepared remarks to beginning our EMPOWUR trial, which is a trial of a leadless pacemaker designed to work in concert with the SICD and thereby preserving all of the unique benefits of the SICD in terms of reduced procedure complications, reduced risk of infection while bringing the capability to provide antitachycardia pacing and bradycardia pacing reliably to patients who need it.
That's helpful. And then Dan, one quick guidance question for you. I think the updated EPS guidance, One, just remind us that does not include Luminess, correct? I think we were expecting a couple of $100,000,000 of revenues and some EPS accretion and gross margin step up second half. What was the impact from manufacturing variances in Q1 and any sense on what the step up should be in back half?
Thank you.
Sure. So the Luminous acquisition is excluded from guidance that has not closed, so that you are correct, that's excluded. And the way We obviously think of operating margin at the bottom line with all the individual components of gross margin and SG and A and R and D. But it's specific to gross margin. We wanted to be approaching 70% in Q1.
We ended up, as I said, slightly short of that because of inventory charges and some lower sales in some of the higher margin businesses. Obviously, Neuromod has one of the best gross margins of our businesses and that was The most impacted by COVID. So confident that as we go into Q2, we'll get back to that approaching 70. And then as you get into the second half, We're not going to get back to the 2019 levels of 72.4%, but we should see improvement, partially because the COVID inefficiencies and some of the things that are specific to COVID should start to dissipate, but also that's normally what happens Where we have the first half margins from a gross margin perspective are almost always lower than the second half because we have The inventory revaluation that happens in the first half and if you look back over the last 4, 5 years, second half gross margin is always better than The first half. So we believe that trend will continue.
So if you think of second quarter approaching and then better than that in the second half. And that gets back to the overall adjusted operating margin commentary that says we want to get back to averaging 26 in the back half of twenty twenty one, which is in line with the overall full year 2019 levels, which should set us up well for '22 and
beyond.
The next question comes from Kaila Krum with Truist Securities. Please go ahead.
Hi, guys. Thanks for taking our questions. So first, we'd love to Here how the ProVenus integration is going and how our IT strategy with that business has changed at all just given the reimbursement updates in the extended wear Market a few weeks back. Just to be curious, will you still be able to service all categories of patients or do you plan to? And any thoughts on that would be super helpful.
Sure. Yes, we're quite pleased with that. It closed, I guess, March 10, is that right? Yes. And just met with the team last week in Minnesota.
So the business Formed quite well in the Q1 and we're quite bullish on that business going forward. You've heard the strategy before. We think we're differentiated. We're the only company that can offer the full range of diagnostic modalities, 4 different ones within the preventive portfolio and then combine that with the ICM business that we have and HeartLogic at our ICDs. So we think that provides a differentiated suite of diagnostic tools for physicians.
And the beauty of the Provetis platform is they're able to toggle between different diagnostic modalities within the same device. And so they have quite sophisticated algorithms that can all be done remotely. And so although there's some pressure as you mentioned in the extent to Holter in terms of reimbursements, The other parts of that business continue to grow and due to the inherent flexibility of the platform you're able to Modulate patients into these different modalities depending on what the patient need maybe or maybe the reimbursement circumstance. So I think that capability provides a lot of flexibility and you tie it together with our Luxe loop recorder which is doing quite well. It gives us a strong portfolio.
So We're very bullish on the business and excited for the rest of the year.
Right. And then just mean with Provenis locked in and Luminess expected to close in the 2nd part of this year, how should we think about just appetite for M and A going forward? Thank you.
Well, the good news is, as I said, we have $2,000,000,000 of cash on the balance sheet today, and our number one priority remains high quality, high growth tuck in M and A. Really pleased with the Provenus and Luminus acquisitions, Obviously, prevents having closed Luminus closing hopefully later this year. So we have the appetite and we have the balance sheet in place to continue to do that and that feels like maybe 1 or 2 more of those tuck in acquisitions that we could get done here in 2021.
Great. Thank you.
Sure.
The next question comes from Cecilia Furlong with Morgan Stanley. Please go ahead.
Thanks for taking our question. I guess I wanted to start off with the EP business, your comments around PolarX, but really what you're seeing early days of adoption of PolarX in Europe as well as Just overall portfolio performance there.
Doctor. Stein, do you want to take that one if you heard it on Polarex in
Yes. I am happy to take that one. We are very pleased with the commercial uptake of PolarX in Europe to date. Again, likewise, on track right now with our ID clinical trial in the United States, which It's called Frozen AF. And it's been interesting launching a new product into a pandemic.
But in spite of everything with COVID, I think it's I'm clear to physicians using it that there are really quite a few competitive advantages versus the 1st generation cryo system that's out there. And we're pleased with the safety results and very pleased with the efficacy and ease of use
What you've seen with Sentinel and protected TAVR post LOTUS removal from the market? And then just any update on Millipede and the EFS you've talked about in the past? Thank you.
And Doctor. Merritt, do you want to take the Sentinel question?
Yes. Thanks, Mike. Thanks for the question. Sentinel continues to do well. We are Operating in more than 800 accounts or over 800 accounts worldwide.
The protected TAVR trial is recruiting very well despite COVID. And as you know, that's a 3,000 patient definitive randomized trial against standard of care. So we feel that the results of that trial should provide good evidence for long term use and standard of care for cerebral embolic protection. So the trial is recruiting very well at present.
There's a question on the Millipede early feasibility trial.
Yes. Thank you. That's right. The Millipede early feasibility study is underway. We received FDA approval to for the EFS study for the U.
S. We currently have 5 sites screening and recruiting, trying to identify appropriate patients for that early feasibility study. So we expect to have patients recruited in the first half of this year over the next couple of months.
Great. Thank you.
The next question comes from Rick Wise with Stifel. Please go ahead.
Good morning, Mike. Good morning, Dan. One big picture question and then a product question. When I look at the regions, the organic growth, obviously, U. S, Asia Pac, Emerging Markets strong.
EMEA, clearly The Ligard, that's not shocking or surprising, but how are you thinking about the recovery in those regions? And what do you how are you thinking about it and offering up your guidance now second half recovery or it takes a year, any incremental thoughts there?
Yes, I would say just maybe a couple of other insights there. Our Middle East North Africa business, Which historically had been not prioritized enough in terms of capabilities. We business Eric Toupot and the team, the past few years and you're seeing that business begin to scale up and that actually did quite well in Q1. So we expect continued momentum from that Mideast North Africa region. But in and more the general European business, we do expect improvement in that business throughout 2021.
And add softer business as Dan mentioned more broadly in January, February. Some countries Italy and others have been more on lockdown, but we do anticipate those regions strengthening throughout the year. So overall, I'm quite bullish. If you look at that European business versus our peer set, we've done quite well in terms of share taking in most of our businesses. And despite the lockdowns, they did put up positive growth in the quarter.
And we do anticipate that improving throughout 2021.
Great. And on the product front, Mike, you mentioned that Axalti momentum is, I think your words were gradually improving. Maybe you can help us understand a little more. At the end of March, we spoke to 9 or 10 gastroenterologists. They all highlighted their strong interest, but also indicated that there is they had questions about meant 1st gen technological limitations, the lack understandable lack of it's early clinical data.
Just How should we think about those concerns? How are you addressing them and where from here with Axalti? Thanks so much.
Yes. So this is a long term investment for us. As you know, it started off with lithoview and SpyGlass that had some similar commentary to Exalt D and that had similar commentary 3, 4 years ago, if you recall. And so we're quite committed to this segment. We've seen the benefit of Lithoview and SpyGlass And we expect similar results over time with the Axalti.
And we're really just kind of chunking these out and make enhancements all the time. You've seen improved reimbursement in the outpatient setting. There's been some news recently just last night on the NTAP for Axalti that just happened I think it was just published yesterday or early this morning, which will help with reimbursement in the inpatient center. So you're seeing stronger improved reimbursement capabilities in general for the Axalti with the PPT and now the NTAP, which is exciting news. And on the device itself, it's a 510 device.
And so with that, the team will We continue to make enhancement to that platform like we've done with Liftaview and Spy too. So you'll see some additional enhancements to the product In the second half of twenty twenty one. And the other piece, as you mentioned, is impacted by COVID. And so now we are seeing some improvement in there, Placing more capital and you're seeing some stronger uptake in March than we had earlier. And so We're bullish on it.
It's not going to be a we expect a steady improvement and a steady growth cadence of this rather than a hockey stick. But the improved reimbursement, COVID subsiding over time
The next question comes from Matt Miksic with Credit Suisse. Please go ahead. Mr. Meiksek, your line is open.
Next
question, Andrew.
We'll go to the next question. Thank you. That will come from Josh Jennings with Cowen. Please go ahead.
Hi, good morning. Thanks for taking the questions. I had a follow-up on the Millenpi question. Just wanted to see if Mike or Doctor. Meredith could be willing to just give us an update on your views of the transcatheter catheter mitral opportunity.
Just the market, do you believe it's a multi $1,000,000,000 opportunity? And then any updates on Boston strategy? You may hear more in the September Investor Day, but you have Millipede here, any other internal investments or development programs that are in And then just what is the strategy from here to get involved in the mitral space, transcatheter mitral space?
Okay. Thanks First, the mitral valve disease, particularly mitral regurgitation is at least 3 times more prevalent This is a huge global opportunity and indeed a multibillion dollar opportunity. So I think the prevalence and the global demography really point to this being a significant opportunity. The mitral valve and the aortic valve are very different in that the mitral valve as you well know is complex structure, so there's no one single device that will actually serve to treat mitral valve disease. As we often say, the only similarity between the aortic and the mitral valve is the word valve.
The rest is is completely different. So, mitral requires a toolbox approach if you like in order to treat that. So, The foundation though, the most important foundation for treating mitral valve disease, particularly functional mitral regurgitation is an neoplasty device and that's why we have focused on a transverse transseptal mitral endoplasty device. This is a permissive technology that allows you to add in whatever other strategy is needed to tailor the solution for the mitral valve disease. So we have a thoughtful strategy as to how we can build out the toolbox approach to effectively trade what is the largest single valve condition on the planet.
One final question, please. Thank
you. And that will come from Danielle Antalffy with SVB Leerink. Please go ahead.
Hey, good morning, everyone. Thanks so much for taking the question. Congrats on a really strong start to the year. I just have one high level question and it's around you've heard a lot of your large competitors talk about COVID sort of Putting them in a stronger competitive position than they were pre COVID. And I suspect some of that has to do with sort of strong relationships with your hospital customers, purchasing or breadth across the portfolio.
Mike, I'd be curious to hear about how you think Boston's competitive positioning has changed with some of the shifting trends to COVID if it's changed at all. Thanks so much.
Sure, hi. Pre COVID, I've come in the script. We had grown faster than most of the years, not all of them, but most of them for About 6 to 3 years and obviously our portfolio was hit COVID. So now that it's weighing back to that above peer group growth, supported by our strong positions in many of our markets in this quarter, we gain share in many segments, not everyone, but most of our segments we gain share and our pipeline of launches from We're left over from 2020, which our team did a nice job, which we can launch in 2021 and beyond. The other thing like many companies, we really beefed up our digital capabilities over the past 12 months.
That's been a benefit of COVID. Everything from training to proctoring our internal training and efficiencies that we have there. So we made pretty significant in our all things digital over the past 12 months which will serve us well. And you see besides Our expectation to grow faster than peers supported by the pipeline. Ongoing You saw great results out of FerroSphere in the Y-ninety and the BT acquisition results there And now recently you supported new acquisitions with Preventis and Luminous.
So
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