Good morning, everybody. Travis Steed, the Medical Device Analyst at Bank of America. First up at the B of A Conference, welcome to have Boston Scientific. We've got Dan Brennan, and we've got Joe Fitzgerald, CFO and Head of Cardiology. Thanks for joining us. I did want to start out and say this is Dan's last investor conference, so that's going on my resume.
Mine too.
Right. I just wanted to kind of set the stage here. You joined Boston Scientific on January 1st, 2014. Since then, Boston Scientific stock's gone up 750%. The S&P is up 285%, including dividends. That is a 20% annual return, 20.7%, almost 21% annual return there. Healthcare has returned 10%. The S&P has returned 12.6%. I think very impressive career. I just wanted to kind of set the stage and say you've created a lot of shareholder value. Very honored to kind of do the last presentation with you.
I appreciate the kind word. It takes a team. We have 55,000 global team members to make that happen every day.
Good. Thank you. Maybe we could start with the transition. Anything you want to kind of say on the transition, kind of why you picked Jon as a succession plan? Do you expect much to change with the CFO transition?
I will tell you, in terms of CFO transitions, I think this one will be about as smooth as you can imagine. If you look at a resume of someone you want to pick to put into the to succeed me, 25 years at the company, he knows the business, he knows the team, he has the support of the board, the team, the Executive Committee, the global organization. He knows investors, spent the last year in investor relations. I've known Jon 25 years. Everything he's ever done, he's done exceptionally well. He's crushed it. There's no reason to think he's not going to do the same in this role. I'm excited to see what he and the team will do.
Great.
I'll mention his handicap.
Golf.
Right. That's a good skill to have. Maybe we'll just kind of level set. You just reported Q1 results. And I think it was essentially 18%, closer to 20% growth, excluding the selling day and the very high end of MedTech. I don't think anybody else really grew faster with this revenue size. Anything you kind of wanted to call out, where the strength came from, anything that surprised you in the quarter, just kind of sustainability of some of this growth?
Sure. I mean, what a great quarter, right? As you said, 18.2% organic revenue growth, 28.9% adjusted operating margin for the quarter, 34% adjusted EPS growth. Really, one of my favorite numbers in the quarter was the gross margin, 71.5%. You think back for those that have followed Boston for a while. In 2019, we were 72.4%. The team is maniacally focused on getting back there. When you're at 71.5%, you do not have to adjust the aperture of your lens that far to say, wow, maybe we could get back to that 72.4%. That has been a long road from 2019, but exciting to see the earnings power and the gross margin power of the company really shine through in the quarter. It came from the places you would expect, right? FARAPULSE continues to be the PFA system of choice.
You look at the launch in Japan is going extremely well. China, albeit probably a little bit longer and more of an evolutionary launch over time, that's going well. Agent or drug-coated balloon in the United States is going extremely well, as well as outside the United States. WATCHMAN grew 24% for a franchise that size to grow that level. I'm sure Joe will get into more of the details there. The concomitant procedural success there is real. We talked about that on our earnings call a couple of weeks ago. Really, just a fantastic way to start the year and allowed us to increase guidance from what was 10%-12%. Last year, we did 16.4% organic revenue growth. It was a bit of, what are you going to do for an encore? We came out at 10%-12% in February.
A couple of short months later in April, we were able to raise that to 12%-14%. I think off to a fantastic start and really couldn't have asked for a better Q1.
You absorbed $200 million in tariffs. Since then, we've had somewhat of a trade deal with China. Things have gotten better on the China rates. Curious how you're thinking about the impact of that.
Yeah, we laid that out very clearly on our earnings call a couple of weeks ago where we said we have a $200 million net headwind from tariffs, unanticipated. It started the second day of April. Really proud of the team getting together in a few short weeks and being able to offset that. You do not want to let that get in the way of the momentum of the company. We were able to offset that $200 million of net tariff impact unanticipated with, call it half of it with revenue upside and a penny of foreign exchange favorability, and then about $100 million of targeted smart discretionary spend reductions. Obviously, the news of yesterday with China, the China back and forth coming down to lower rates, we will have a little bit of relief on that $200 million.
It is still obviously a number that we need to offset. We will do that in 2025 and let the strength of the business shine through.
When some of the trade deals come through and the tariff rates get better, how much of that gets kind of reinvested in the business, like some of the discretionary spending savings that you might go back towards or versus kind of let it flow through to the upside?
Yeah, I hope that's a problem we have coming up. It'll be a nice problem to have if that happens over the coming months and quarters. It's a problem we've had, a nice problem we've had in the past. I think we do a nice job as a team of looking at ways to reinvest, to continue to fuel the top line, to make that durable and consistent for the long term, as well as dropping some relative to the margin in the moment. I love, so 27%, we were adjusted operating margin last year. Despite $200 million of unanticipated headwinds, we're still going to deliver 50-75 basis points this year. So 27.5-27.75%. A nice problem to have, and we'll approach it as we always have.
When you think about we talked about strength in the quarter and margins with EP and WATCHMAN. What's kind of the durability of those businesses, especially EP's now accretive, FARAPULSE's accretive, the durability of that margin going forward?
Yeah, the margin expansion journey at Boston Scientific is alive and well. And it's really, you'd have to walk the halls with Joe and myself and the team. It's just part of the DNA of the company. When confronted with $200 million of an unanticipated headwind on April 2nd, you could have said, geez, maybe we won't expand margins as much as here. It just doesn't enter the room with us. We just said, you know what, we're going to offset it. We're going to continue to do the 50- 75 basis points, and we'll find ways to offset that. So the margin costs 27.5-27.75 at the end of this year. We've talked for a long time about 30% plus as our longer term goal. And there's plenty of room from where we are today to get to that and beyond.
The margin expansion journey, which is a critical part of our success looking backwards and also going forward, alive and well.
I wanted to kind of switch gears to revenue growth. Boston is kind of growing in this low double-digit revenue growth range now. I still get the question, like how sustainable is that? I think a lot of people do not fully appreciate that your weighted average market growth rate now, I think at JP Morgan said in January, 9%. It was 5% in 2019. Do not fully appreciate how your markets have shifted. When you think about kind of the long term here and your visibility in the pipeline and the investments you are laying, just the durability of kind of this double-digit revenue growth rate at Boston as the revenue base gets bigger.
Yeah, I mean, we're obviously not going to talk about 2026 and anything specific to that. If you look back and you go 2023, 2024, 2025, you'd be 12, 16, and then 12 to 14. That's three pretty good years. The increase in the [WAMDR[ has been completely intentional. I would even go back further than 2019. If you go back another five years, back when it was low single digits, every year continuing to increase the [WAMDR], that was a very intentional strategy that the company's had. It's been very successful. Relative to 2026 and beyond, I will say, look forward to September 30th in New York. We will host an Investor Day. Jon and Mike and Joe and the team will give you a sense, as we always do, of what we think we can do for the out years.
September 30th in New York. Mark your calendar.
Yeah. So we'll have a new LRP in September.
That would be the goal. That is up to Jon Monson. My guess is if he maintains the same blueprint as the past, which I am sure he will, you will get a sense of what we think we can do going forward.
Right. It'd probably be no surprise. It's kind of the same philosophy on kind of setting LRP and outlooks.
Yeah, I think, as I said, 2023, 2024, 2025, really successful years. I mean, again, we got three quarters left and excited about the rest of 2025. If you think back, we had a conference. We were at a conference in January. The last slide that our CEO, Mike Mahoney, presented was a really critical slide that shows all the new areas that we want to get into. We are super focused on Q2 2025. We are focused on full year 2025. We are also focused on 2026, 2027, 2028, 2029, and yes, 2030, like those years.
When you look at that slide and you look at all the areas that we either are already in or can get in because we have a VC investment or we're working on it internally, that really, I think, lends confidence to the ability for the company to continue to grow at the high end of the peer set for a long period of time. Lo and behold, holding us accountable when you look at that slide, we've already done Bolt for IVL, and we've done SoniVie for RDN. We're working hard to continue to check the boxes on that slide.
How are you thinking about any changes to the M&A strategy now that your weighted average market growth rate is a lot faster, your revenue base is bigger? How does the M&A strategy change or does it not change? Just trying to think about how you're thinking about M&A from here.
I think it's been extremely successful over the last decade. We've done almost 50 deals over that time frame. They've all been tucking deals. They've all been deals from $40 million to a little over $4 billion. Has every one of them been successful? No. That means we take the right amount of risk. A lot of them have been really successful. You could point to a variety of those deals as to fueling our growth today in addition to the internal R&D that we do. I wouldn't anticipate any change. If it isn't broken, don't fix it.
Maybe just remind us how you define tuck M&A and kind of capacity for M&A.
From a tuck-in perspective, every deal we've done has been a tuck-in deal. We really don't define it by size. We define it by something that is high quality, innovative, and in a market with a growth profile accretive to Boston Scientific's WAMDR. If it meets that, then I think we're interested relative to adding it to the Boston Scientific portfolio. Again, I'm proud to look back at the 50 deals we've done, and they all fit that profile.
I would add to that too, what's the strategic fit with the commercial channel and R&D expertise that we already have? You take Bolt and SoniVie, right? Those are things that will be sold and delivered and supported right through our existing global channels in PCI cases globally. Like very strong strategic fit.
Makes sense. Maybe switching gears to electrophysiology. Maybe just help us, what's kind of the state of affairs in EP right now, kind of where you're seeing things play out in the market?
Yeah, so the advent of PFA into the U.S., which began about 14 months ago, has been quite disruptive. And FARAWAVE, our FARAPULSE system, has pretty much led that disruption. We did about $1 billion in the first 12 months post-FDA approval. We've said we put this at Investor Day, our last Investor Day, and we've talked about it. What will be the rate and pace of adoption and penetration of PFA into what in the United States, as an example, until January 2024 was a purely thermal ablation market? So if you say we were 40% penetrated last year at the end of the year, we see a path where PFA will get to 80%. So back to your sustainability, durability, we see that.
We can watch that with every new account we open, whether it be in the U.S. or Japan, the continued penetration and sort of penetration of the actual AF cases. We see that as a sustainability. We are a very nice attractive market share. Whether you look at Europe, the United States, or Japan, China is too early to call because it is like we are still in the batting cage getting into the first inning. Our share position and the assumed continued penetration for the EP market of PFA is right on top of our growth drive.
If you look at the kind of total EP share today, you're kind of a number three player. You kind of crossed over to number from four to three. Is there a pathway to be number one share player in EP in your mind? When you think about the market structure, historically, there's always been one player with 50% plus share. Is the market going to be that concentrated going forward, or is it going to be more fragmented? Just kind of think about how you think the market has changed structurally from here.
Yeah, it's an interesting question because if you look at the RF side of that market, it was a duopoly, basically, for the last 30 years. You had the cryo segment, which was a monopoly for one of our competitors. We've already seen in, call it the first 15 months of having a disruptive technology, not in the bag of number one or number two, just how quickly this can shift. I would say if you look out, the market's going to look dramatically different than the duopoly or the monopoly that I talked about. What we love is we have this fabulous FARAWAVE catheter that has served as like the foundation of our entry. Beyond that, you see multiple catheters that we're developing, multiple clinical studies, and then the ecosystem around it, whether it be mapping, ICE guidance, diagnostic catheters.
You look at the deal we just did, Cortex, which takes us into source mapping, which has been something that the EP market has been chasing for 15 years. When you look at all the things beyond the exact ablation catheter, we've got really good plays with our SoundCath acquisition, with Cortex. You just saw the data presented at HRS for our first PFA point catheter. We just announced that we have a large focal form catheter called FARAFLEX, which is in its EFS study. When you look at that ecosystem and stuff that's not really purely an ablation catheter, it's the ecosystem of the EP lab, we feel really good about the sustainability of our leadership.
I think so ultimately there's a pathway to being kind of a leading share player in EP, sounds like.
We'll probably give more on that at our long-range plan Investor Day. What day is it? September 30th.
September 30th.
Yeah. You've already seen us move out of last place. Depending on how you count, we've already become number two in certain markets. We are executing a play, including tuck-in acquisitions, to become long-term the clear number one in the EP space.
When you think about the % of the case that's kind of available to you today, there's a lot of ancillary stuff that you don't really have products, ICE, diagnostics. Can you talk about how you're kind of filling in the surrounding portfolio in EP a little bit more, kind of the pathway there? How much of that can kind of pull through with the case versus to actually go and win on technology there? And kind of what % of the case do you have available today versus kind of where you can be in the future?
Okay, so I could go on like a mathematics to answer that whole question, but I'll try to be really simple. If you look today, we have done a great job. We control the ablation catheter in a very large percentage of cases. That's FARAWAVE. In a market like the U.S., 100% of cases are mapped. And mapping up until September of this year was probably 99% control. The first step for us is to take FARAWAVE with our FERRONAV catheter. We got approval for that in Q4. We went to full marker release in February. It is now we're going to disrupt how mapping is done. In that mapping, you probably have $2,000-$4,000 of incremental revenue if you control the map of the procedure.
There's another thing that's done in every EP case in the United States. is they use ICE-guided imaging, which is anywhere from a $1,500-$4,500 catheter in the case. That's where we did the SoundCath acquisition, the Anumana collaboration that we just announced before HRS. Those two things will help us penetrate. If you take ICE catheters globally, it's plus a billion dollar market. We have zero of that. I would consider it to be mapping, then ICE guidance, and then there's a whole host of other products that are used. Guide catheters, duodecapolar catheters that are not an insignificant amount of money when you times their ASPs times 400,000 AF ablations in the United States. We've got strategies in each of those. The first one that's coming to fruition now is the delivery of our mapping system called FARAWAVE on OPAL.
How's the initial feedback been with that?
I think it's been very good. I think if you think about mapping, you become addicted to your mapping system like you do your phone. If you're an Android or you're an iPhone, we can't talk about switching. It is a high preference, high sort of love for that mapping system. I would say in the first, let's call it six months of us introducing that, we are very pleased with the reaction to the type of map we create, the fact that it takes cost out of the procedure. If you use FARAWAVE, which is the FARAWAVE catheter with a NAV sensor shown on OPAL, you can pretty much get rid in 85% of the cases of a $2,500 mapping catheter. You also reduce exchanges. There is a safety, a workflow, and an economic benefit to that.
I would say thus far, we're very happy with the launch of OPAL and FARAWAVE.
Do you think the ablation catheter or is it the mapping system that really is kind of driving the ultimate decision of where share goes here?
I have two answers to that. What was happening before February 1 of 2024 and what's happened afterwards? I would say before the launch of FARAWAVE, you had a strong preference for mapping systems, which then led to the ablation catheter. Basically, FARAWAVE, the introduction of the pentaspline catheter, has completely blown that up. Now, it's, well, I'm using this catheter, which mapping system can best display? FARAWAVE can be shown on all three mapping systems, but each of those mapping systems are on a different journey in terms of how do you get a high utility, a high usability of the mapping system to get maximum advantage from the PFA ablation catheter.
Your competitors have had in mapping have had years of innovation cycles in mapping. You're much further behind in mapping. Do you feel like you're kind of caught up to the innovation cycle? Is there more innovation to be done on the mapping side? Just trying to think about.
There is a ton of innovation. I mean, what people don't realize because our share was so low is we jumped into mapping 15 years ago. So we purchased RHYTHMIA in 2012. I would say that's one of the acquisitions Dan referred to, not the most successful one that we did. Had we not done that, we would not be in a position today to both disrupt the ablation catheter side and to disrupt the mapping side.
Okay. Any changes in how you're thinking about the market growth in EP pricing, holding with some of the newer technology like PFA?
Yeah, I mean, historically, the EP market has been like the polar opposite of like the DES and the pacemaker market. Most new technologies come with a price uplift. That's been pretty steady over the past 20 years- 30 years. Reimbursement, especially like in a country like the United States, half of the ablative market, we've seen really good movement on both inpatient and outpatient reimbursement. Could that change? Sure. The technology, the better the technology, do customers perceive it as safer and leading to a higher level of efficacy? That has driven decision, not price, historically in the EP market.
Maybe talk a little bit about the China and Japan opportunity, how that's going. Is that where we're going to start to see that in growth rates here?
Yeah, so Japan launched Q4 last year with reimbursement, which means you get pretty much access to the entire Japan market pretty quickly. Our rate of penetration and account opening in Japan looks very similar to what we executed in the United States. Fast and deep. Now, if you juxtapose that, China, where you have to go province by province, I mean, it's going to be a while. I think the acceleration of the China penetration of FARAPULSE, that's more of a 2026. We're getting all the building blocks in place, and you have to do provincial tendering. That's just going to be slower than either of the three Europe, U.S. , or Japan markets. Still, both of those are billion-dollar markets. Super attractive.
I think it's just well known that penetrating China because of the provincial tendering, a little bit of a delayed approval cycle compared to those other three markets. Again, it's a billion-dollar market. You just got to be patient.
Has Europe surprised you at all in kind of where we're at today in Europe?
No, I would have said it surprised us back in 2021 when we launched in Europe, the pace and rate of adoption, which then we prepared for for U.S. and Japan because those came three and four years after Europe. I would say back in the early days of launching FARAWAVE, we were in a little bit of a wow. Like this is even better than we knew it was in the clinical trials that have been done to date. The customer desire for a safer, more predictable, higher efficacy potential was very high. Therefore, the adoption became very fast.
One last one on EP, some of their competitors are now launching multiple ablation products moving into the market. How do you expect the dynamics to change with the market more competitive?
We were just at the HRS meeting, and they had PFA live the day before. I think there were like 25 cases, probably 7-10 different technologies. It seems like all multinationals, all startups, no matter what they were doing, have flipped to a PFA strategy. The thing I always like to remind investors is FARAWAVE is unique in that it's been on the market for four plus years. We've treated more than 200,000 patients. More than 20,000 patients have been included in some type of clinical study. We have very large registries going. The experience with, and again, if you've seen one PFA system, remember, you've only seen one PFA system.
The combination of our FARASTAR generator, our FARADRIVE sheath, and our FARAWAVE, the clinical evidence and the commercial experience with that, compared to somebody who might be getting approval in the U.S. after having done 300 cases in total pre-market, it's just dramatically different. Behind that, you have our new catheter form factors, which are pretty deep. If you look at our FARAPOINT catheter, we just announced the results for Advantage phase II. That will bring a point catheter into the FARAWAVE workflow for persistent AF. That's a twofer. You get the expanded indication, and now you get a preferred form factor for things like CTI ablation. I think that's underappreciated as well.
Before we run out of time, there's another product that you guys have that's pretty important to WATCHMAN.
Oh, yeah, I remember that one.
The label expansion for the option trial coming later this year, how do you expect, now that you've had time to talk to customers after they've seen the data, how do you expect kind of the procedure volumes to kind of change once this becomes on label going forward?
Yeah, I would say today we do not think concomitant is off-label because we're taking two approved procedures, left atrial appendage closure with WATCHMAN and ablation with anything that is market approved. That, number one, is reimbursed. Number two, neither of those are contraindicated. I think the two things have happened, which have accelerated concomitant. You had CMS proffer a new DRG to reimburse hospitals when they're done in the same setting. That hit October 1. At AHA, we presented the OPTION data, which showed the safety and efficacy of concomitant procedures and also sequential procedures. As Dan and Mike talked about on the call, we've already seen 50% of our EP ablationists now do a concomitant case. We're what, six, seven months post-approval? That's going well.
I'd just like to remind everybody that I forget the number, but let's say we do plus 100,000 WATCHMAN this year in the United States. There are 400,000 patients who end up getting ablated, which means there's probably a couple of million patients that are seen in clinic to be evaluated for their AF on whether or not an ablation should occur. Our belief that concomitant, especially in the United States, can be a near-term growth driver. If you don't look any further than Q1, our growth went up to 26% from, let's call it 20% on average in 2024. A lot of that growth was due to concomitant growth. We're very bullish, and we're still in the very early innings of driving concomitant.
Any big change in EPs versus interventionals doing the procedure? If there's the capacity for these doctors to have to do these procedures, or?
I mean, over the 10 years that WATCHMAN has been approved, we've launched hundreds of accounts. We've trained thousands of doctors. We're super proud of the safety profile of WATCHMAN. If you look at WATCHMAN from its first clinicals, now up to the introduction of the 3rd generation WATCHMAN FLX Pro, our actual procedural safety profile has gotten better. That usually doesn't happen when you launch something broadly commercially. We think that's good. We have lots of users. I think we're still taking the 4 million patients that the current label and CMS payment scheme covers. We're still in the early penetration rates of that. We will see CHAMPION, let's call it first half of next year, which is the first head-to-head 3,000-patient randomized study with two very important endpoints. Is it non-inferior for the prevention of stroke? Is it superior for bleeding?
Because a very high percentage of WATCHMAN patients come off anticoagulants. People on anticoagulants must stay on them for life, for protection against. What we showed in OPTION was we were not inferior for prevention of ischemic stroke, and we had a really good superiority margin. Time will tell, but that's our hypothesis for doing CHAMPION.
Does the OPTION trial give you more confidence in the CHAMPION outcome? Is that going to be at ACC or HRS?
It's TBD. I feel very confident we can say first half. It depends on when the last patient gets followed, how much time do we have between that, and when you have to follow for a late breaker, but 100% confident, I should say 99% confident first half of 2026.
Perfect. I think that's all the time we have. I did want to, I think Dan Brennan deserves a standing ovation for the last decade, plus the CFO at Boston Scientific. We'll end with that.
Sounds good. Yep.
Thanks a lot.