Good morning, and Welcome to the Boston Scientific 4th Quarter 2022 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Lauren Tengler, vice president, Investor Relations. Please go ahead.
Thank you, Drew. Welcome, everyone, and thanks for joining us today. With me on today's call are Mike Mahoney, Chairman and Chief Executive Officer, and Dan Brennan, Executive Vice President and Chief Financial Officer. We issued a press release earlier this morning announcing our Q4 and full year 2022 results, which includes reconciliations of the non-GAAP measures used in the release. We have posted a copy of that release, as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading Financials and Filings. The duration of this morning's call will be approximately 1 hr. Mike and Dan will provide comments on Q4 and full year performance, as well as the outlook for our business, including 2023 guidance, and then we'll take your questions.
During today's Q&A session, Mike and Dan will be joined by our chief medical officers, Dr. Ian Meredith and Dr. Ken Stein. Before we begin, I'd like to remind everyone that on the call, operational revenue growth excludes the impact of foreign currency fluctuations, and organic revenue growth further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales. Relevant acquisitions excluded for organic growth are Preventice, TheraSphere, and Lumenis Surgical, which closed in March, August, and September of 2021 respectively, as well as Baylis Medical, which closed on February 14th, 2022. Divestitures include the BTG Specialty Pharmaceuticals business, which closed on March 1st, 2021.
Guidance excludes the previously announced agreements to purchase a majority stake in M.I.Tech and Acotec, as well as the acquisition of Apollo Endosurgery, which are all expected to close in the 1st half of 2023. For more information, please refer to our financial and operating highlight stack, which may be found on our investor relations website. On this call, all references to sales and revenue, unless otherwise specified, are organic. This call contains forward-looking statements within the meanings of the federal securities laws, which may be identified by words like anticipate, expect, may, believe, estimate, and other similar words.
They include, among other things, statements about our growth and market share, new and anticipated product approvals and launches, acquisitions, clinical trials, cost savings and growth opportunities, our cash flow and expected use, our financial performance including sales, margins, and earnings, as well as our tax rates, R&D spend, and other expenses. If our underlying assumptions turn out to be incorrect or if certain risks or uncertainties materialize, actual results could vary materially from the expectations and projections expressed or implied by our forward-looking statements. Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K and subsequent 10-Qs filed with the SEC. These statements speak only as of today's date. We disclaim any intention or obligation to update them. At this point, I'll turn it over to Mike.
Wow. Thanks, Lauren. Thank you to everyone for joining us today. 2022 represented a return to more durable and consistent procedural growth within the markets we serve, which provided a stronger base for our innovative portfolio. I'm very proud of the resiliency and winning spirit of our global team, delivering on our sales and EPS goals despite the ongoing macroeconomic and supply chain challenges. Importantly, I deliver strong performance across all geographic regions and believe that most all of our business units gained or maintained market share throughout the year. In 4th quarter 2022, total company operational sales grew 9%, and organic sales grew 7% versus 4th quarter 2021, which was the low end of a guidance range.
It's very important to note that these results include an unplanned sales reserve of $60 million established for an Italian government payback provision, which resulted in a headwind of approximately 200 basis points for the quarter. The underlying 4th quarter performance was strong of both sales, operating margin increases, and earnings per share. Without the impact of the Italian sales reserve, we would have achieved the high end of our organic sales guidance range of 7%-9%. Full year 2022 operational sales grew 11% versus 2021, while organic sales grew 9% in line with our guidance of approximately 9%. Fourth quarter adjusted EPS of $0.45 declined -2% versus 2021, and full year adjusted EPS of $1.71 grew 5% versus 2021, both achieving the low end of the guidance range.
Once again, without the impact of the Italian sales reserve, we would achieve the high end of the guidance range for both 4th quarter and full year of $1.71-$1.74. We generated full year free cash flow of $950 million and adjusted free cash flow of $2.1 billion in line with our expectations. For our outlook for 2023. We are guiding to organic growth of 6%-8% for both 1st quarter 2023 and full year 2023, which excludes the acquisition of Apollo Endosurgery and the majority stake investments in M.I.Tech and Acotec, all of which are expected to close in the 1st half of 2023. Our 1st quarter 2023 adjusted EPS estimate is $0.42-$0.44, and we expect our full year adjusted EPS to be $1.86-$1.93.
Despite the ongoing macroeconomic pressures and supply chain headwinds, we remain committed to our goal of +50 basis points of operating margin expansion and double-digit adjusted EPS growth in 2023. Dan will provide more details on our 2022 performance, the Italian sales reserve, and our 2023 outlook. I'll now provide some additional highlights on 2022 results along with comments on our 2023 outlook. Regionally, on an operational basis, the U.S. grew 10% versus 4th quarter 2021. Full year 2022 grew 11%, inclusive of a 300 basis point tailwind from acquisitions, with particular strength in our WATCHMAN, Endo and Urology business units. Europe, Middle East, and Africa grew 11% on an operational basis versus 4th quarter 2021 and 12% on a full year basis.
This above-market growth was supported by ongoing investments in emerging markets, new and ongoing product launches across the portfolio, pricing discipline and strong commercial execution. We're excited about the year ahead with ongoing momentum across the region, particularly with our innovative EP portfolio and further opportunity with Baylis in the access solutions franchise. Asia Pacific grew 10% operationally versus 4th quarter 2021 and 12% for the full year. On a full year basis, six out of eight business units grew double digits, supported by ongoing innovation across the region. Full year Japan growth was driven by new products, including POLARx, which has approximately 50% share in open accounts.
We look forward to 2023 with ongoing momentum for both new products and are excited about a recent approval and reimbursement received for AGENT DCB, which is a coronary drug-coated balloon for in-sitent restenosis in small vessels. On a full year basis, China grew more than 20%, fueled by 13 new product launches, ongoing portfolio diversification, and the team's resiliency and execution. We continue to expand our presence in the China market with the recently announced acquisition of a majority stake in Acotec. We believe this investment can create strategic value for both companies with opportunities to collaborate in R&D, manufacturing, and commercial strategies. We also continue to expect China to be a double-digit grower in 23 despite ongoing VBP pressure and potential impact to procedure volumes in Q1 from COVID.
In Latin America, the momentum continued with operational sales growth of 16% versus 4th quarter 2021 and full year growth of 28%, with all business units growing double digits versus 2021. On the business units, starting with Urology sales grew 12% both operationally and organically versus 4th quarter 2021 and on a full year basis. They grew 15% operationally and 10% organically versus 2021. Within the quarter, all franchises grew double digits, fueled by new and ongoing product launches and continued global expansion. On a full year basis, global growth was driven by key products such as LithoVue, Rezūm, and SpaceOAR, as well as the acquisition of the Lumenis MOSES laser technology, further complementing the Urology portfolio. Endoscopy sales grew 7% organically in the quarter, and on a full year basis, grew 8% organically versus 2021.
In 2022, we had global success with innovative products such as AXIOS and Single-Use Imaging, both growing over 20% and supporting strong growth across the globe. In 4th quarter, we announced our intent to acquire Apollo Endosurgery, which will add a complementary and innovative endoluminal surgery portfolio. We look forward to closing this acquisition as well as our previously announced majority stake in M.I.Tech, which includes the innovative... Wow.
HANARO...
HANAROSTENT in the 1st half of 2023. Neuromodulation sales grew 5% organically versus 4Q 2021, and on a full year basis, grew 3% organically versus 2021. Globally, our spinal cord stimulation business grew 4% in 4Q with continued physician enthusiasm for WaveWriter Alpha and FAST. We continue to invest in clinical evidence to expand indications and present a three month data from our nonsurgical back study, SOLACE, at NANS earlier this year. The study comparing SCS to a conventional medical management met its primary endpoints, and we anticipate FDA approval for nonsurgical back indication by the end of 2023. Our brain franchise grew double digits in the quarter and low double digits on a full year basis. This strong performance was aided by continued momentum from new product launches in 2022 as well as the recent launch of the Vercise two-in-one lead extension.
Peripheral intervention sales grew 9% organically versus both 4th quarter 2021 and full year 2021. Within arterial, we are pleased with the performance of our drug-eluting portfolio, growing strong double digits for the full year and achieving the number one position within the SFA in the U.S. On a full year basis, our Venus franchise was flat versus prior year, with Varithena, our market-leading varicose vein offering, growing over 20% in 2022. Our interventional oncology franchise performed well in 2022, growing low double digits, led by our portfolio of innovative cancer therapies and suite of embolization tools. We continue to invest in expanding the potential applications of TheraSphere and enrolled our 1st patient in our early feasibility study, FRONTIER, evaluating of safety of image-guided intra-arterial delivery of TheraSphere GBM in patients with reoccurring glioblastoma.
Cardiology delivered another excellent quarter with operational sales growing 13% on organic sales growing 10% versus 4th quarter 2021. On a full year basis, sales grew 14% operationally and 10% organically. Our newly aligned cardiology group delivered strong growth across its four businesses as we continue to invest in the higher growth segments and differentiated offerings for our customers that address the areas of greatest cardiac need for patients. Within cardiology, interventional cardiology therapy sales grew 5% organically in 4th quarter, and on a full year basis grew 8% organically versus 2021. On a full year basis, the coronary therapies franchise, which includes both drug-eluting stents and complex PCI, grew 7%, driven by strong performance in our international regions and our imaging franchise.
Our structural heart valves franchise grew double digits in both 4th quarter and a full year basis, outpacing the market in Europe with our ACURATE neo2 Aortic Valve. Ongoing clinical evidence has supported growth throughout 2022 and in the 4th quarter. Data from the ACURATE neo2 PMCF study was presented as a late-breaker at PCR London Valves, demonstrating positive safety and 30-day outcomes with low PVL rates and best-in-class pacemaker implantation rates. Additionally, we enrolled our 1st patient in the ACURATE Prime XL Nested Registry, assessing the safety and efficacy of the ACURATE Prime Aortic Valve XL to treat patients with severe aortic restenosis who need a larger valve size for their TAVR procedure. WATCHMAN sales grew 22% organically versus 4th quarter 2021. On a full year basis grew 24% organically versus 2021.
Q4 finished with record sales, strong utilization in the U.S., supported by the DAPT label expansion. Importantly, we completed the enrollment of our CHAMPION-AF trial way ahead of schedule. This head-to-head trial versus novel oral anticoagulants has the potential to more than triple the number of patients indicated for WATCHMAN FLX in 2027 and beyond. We remain excited about this outlook for this business and expect double-digit growth in 2023, fueled by innovation, ongoing clinical evidence and strong commercial execution. CRM sales grew 6% both operationally and organically versus 4th quarter 2021, and on a full year basis grew 8% operationally and 7% organically. Our diagnostics franchise had a strong year growing double digits versus 2021.
In core CRM on a full year basis, our high voltage business grew low single digits and our low voltage business grew mid-single digits. We expect that all major markets were in line or slightly above the market. Electrophysiology sales grew 76% operationally and 25% organically versus Q4 2021. On a full year basis grew 69% operationally and 18% organically versus 2021. Importantly, our international EP business continues to outpace the market, growing over 40% organically versus Q4 2021. POLARx continues to perform well in both Europe and Japan, has now been treated to treat over 25,000 patients since launch.
Momentum in FARAPULSE continues with another strong quarter of growth in Europe. We continue to invest in clinical evidence and look forward to the readout of the randomized ADVENT U.S. IDE trial in the 2nd half of 2023. We are planning to initiate our ADVANTAGE AF trial studying the use of FARAPULSE for patients with persistent AFib imminently. We've been very pleased with the performance of our Baylis acquisition and the innovative VersaCross platform, which grew two times faster than the market in 2022. We launched our VersaCross Connect in 2022, improving efficiencies in our WATCHMAN procedure. Earlier this year, we shared our strategy consistent with years past. We continue to position ourselves to win in the markets we play through meaningful innovation by balancing our financial commitments.
In 2022, we announced four acquisitions, invested 10% of our sales in internal R&D to fund sustainable growth and advance patient care. We're extremely excited about the year ahead and remain focused on our people and sustaining a culture that is motivated to drive differentiated performance and achieve our long-term goals. Continuing to grow sales faster than markets, continuing to expand operating margins and delivering double-digit adjusted EPS growth and strong adjusted free cash flow generation. Before I turn it over to Dan, I want to share that with the retirement of Dr. Ian Meredith, Dr. Ken Stein will assume some of the global responsibilities that previously fell under Ian, including total company investor engagement, in addition to his CRM, EP, and WATCHMAN roles. Please join me in congratulating Ken and thanking Ian for his many contributions. With that, I'll pass it off to Dan to provide more details on the financials.
Thanks, Mike. Fourth quarter consolidated revenue of $3,242 billion represents a 3.7% reported revenue growth versus the 4th quarter 2021 and reflects a $158 million headwind from foreign exchange, slightly favorable to our expectations as the U.S. dollar weakened throughout the quarter. Excluding this 500 basis point headwind from foreign exchange, operational revenue growth was 8.7% in the quarter. Sales from the acquisition of Baylis contributed 160 basis points, resulting in 7.1% organic revenue growth at the low end of our guidance range of 7%-9% growth versus 2021, including an approximate 200 basis point impact associated with an unplanned sales reserve related to an Italian government payback provision, which was recorded in the 4th quarter of 2022.
With the goal of recovering spending above the government's medical device budgets, this payback provision requires companies that have supplied medical devices to public hospitals in Italy to pay back a portion of these overrun amounts. While we and others in our industry have appealed and will continue to challenge the enforceability of the law through the Italian court system, we established a sales reserve of $60 million in the 4th quarter, representing our best estimates of amounts we could be required to pay back. Without the reserve, we would have achieved the high end of the organic revenue growth guidance range. Flow-through on the Italian sales reserve resulted in Q4 adjusted earnings per share of $0.45 at the low end of our range, representing a decline of 2% versus 2021. Without the reserve, we would have achieved the high end of our range for the quarter.
Full year 2022 consolidated revenue of $12,682 billion represents 6.7% reported revenue growth versus full year 2021 and reflects a $524 million headwind from foreign exchange. Excluding this 440 basis point headwind from foreign exchange, operational revenue growth was 11.1% for the year. Sales from closed acquisitions contributed 240 basis points, resulting in 8.7% organic revenue growth in line with expectations and inclusive of a 50 basis point impact associated with the Italian sales reserve. Full year 2022 adjusted earnings per share of $1.71 represents 4.8% growth versus 2021, achieving the low end of our guidance range of $1.71-$1.74.
Without the unplanned Italian sales reserve, we would have been at the high end of our full year guidance range. Adjusted gross margin for the 4th quarter was 70.5%, resulting in full year 2022 adjusted gross margin also of 70.5%, in line with our expectations. Full year adjusted gross margin improved versus 2021, driven by an FX tailwind of approximately 100 basis points related to our hedging contracts, partially offset by continued macroeconomic headwinds. These headwinds were approximately $375 million versus 2019 and are predominantly from increased freight costs and unfavorable manufacturing variances, primarily related to direct material cost and availability. Our 2023 guidance assumes macroeconomic and supply chain headwinds will be similar to 2022.
Different from prior years, we expect 1st half 2023 gross margin to be higher than the 2nd half, largely due to the timing of foreign exchange movements that occurred during 2022. Fourth quarter adjusted operating margin was 25.7%, resulting in full year 2022 adjusted operating margin of 25.6%, improving 30 basis points versus 2021, inclusive of a 30 basis point negative impact from the unplanned Italian sales reserve. As we look to 2023, we continue to focus on our goal of annual operating margin expansion.
Despite our expectation of continued macroeconomic headwind, our goal is to achieve approximately 26.4% adjusted operating margin for the full year 2023, representing 80 basis points of improvement versus the 2022 adjusted operating margin of 25.6%. Importantly, 50 basis points of expansion compared to the full year 2022 adjusted operating margin without the impact of the Italian sales reserve. On a GAAP basis, the 4th quarter operating margin was 12.4%, including $131 million in litigation related expenses, which I'll provide detail on in a moment.
Moving to below the line, 4th quarter adjusted interest and other expense totaled $88 million, resulting in full year adjusted interest and other expense of $362 million, slightly higher than our expectations, driven in part by an FX loss from certain unhedged currencies. On an adjusted basis, our tax rate for the 4th quarter was 11.9% and 12.7% for the full year 2022, including discrete tax items and the benefit from stock compensation accounting. Our operational tax rate was 12% for the 4th quarter and 13.5% for the full year, slightly favorable to our expectations of approximately 14%. Fully diluted weighted average shares outstanding ended at 1,442 billion in Q4 and 1,440 billion for the full year 2022.
Adjusted free cash flow for the quarter was $776 million. Free cash flow was $597 million, with $807 million of operating activities, less $210 million of net capital expenditures. Full year 2022 adjusted free cash flow was $2.1 billion, in line with expectations. Free cash flow was $949 million, with $1.5 billion from operating activities, less $576 million of net capital expenditures. For 2023, we expect adjusted free cash flow in excess of $2.3 billion. As of December 31st, 2022, we had cash on hand of $928 million.
We continue to expect to close the acquisition of Apollo Endosurgery and the majority stake investments in M.I.Tech and Acotec with cash on hand or available credit lines in the 1st half of 2023. Our top priority for capital allocation remains high quality tuck-in M&A, we'll continue to assess opportunities in conjunction with our financial goals. As of December 31st, our leverage was 2.57x , in line with our expectations, we were pleased to be upgraded to BBB+ with a stable outlook at both Fitch and Standard & Poor's within the quarter. Our legal reserve was $443 million as of December 31st, an increase of $139 million from the prior quarter, primarily related to our mesh litigation.
While our U.S. case count has remained materially the same over the past three years, we've increased our reserve to account for our latest estimates of the time and cost to resolve these claims, as well as remaining probable and estimable global claims. I'll now walk through guidance for Q1 and the full year 2023. As a reminder, guidance excludes any acquisitions that have not yet closed. We expect full year 2023 reported revenue growth to be in a range of 5%-7% versus 2022. Excluding an approximate 100 basis point headwind from foreign exchange based on current rates and a 20 basis point contribution from closed acquisitions, we expect full year 2023 organic revenue growth to be in a range of 6%-8% versus 2022.
We expect 1st quarter 2023 reported revenue growth to be in a range of 3%-5% versus Q1 2022. Excluding an approximate 350 basis point headwind from foreign exchange based on current rates and a 70 basis point contribution from closed acquisitions, we expect 1st quarter 2023 organic revenue growth to be in a range of 6%-8%. We expect our full year 2023 adjusted below-the-line expenses to be approximately $340 million.
Under current legislation and forecasted geographic mix of sale, we forecast a full year 2023 operational tax rate of approximately 14%, with an adjusted tax rate of approximately 13%, including the benefit of the accounting for stock compensation, which we expect will largely be recognized in the 1st quarter, resulting in a Q1 2023 adjusted tax rate of approximately 12%. We expect a fully diluted weighted average share count of approximately 1,447 billion shares for Q1 2023 and 1,464 billion shares for full year 2023, which includes the shares we expect to issue on June 1st this year related to our May 2020 mandatory convertible preferred stock offering. We expect the impact to adjusted EPS to be neutral, with the preferred stock dividend ending at the time of conversion.
We expect full year adjusted earnings per share to be in a range of $1.86-$1.93, representing 9%-13% growth versus 2022. At current rates and existing hedging contracts, we anticipate a neutral impact from FX on full year 2023 adjusted earnings per share. We expect 1st quarter adjusted earnings per share to be in a range of $0.42-$0.44. For more information, please check our investor relations website for Q4 2022 financial and operational highlights, which outlines more details on Q4 results and 2023 guidance. In closing, I'm very proud of the results that our global team achieved in 2022, with top-tier revenue performance and differentiated operating margin expansion despite a challenging macroeconomic environment. I'm looking forward to continued momentum during 2023. With that, I'll turn it back to Lauren, who will moderate the Q&A.
Thanks, Dan. Drew, let's open it up to questions for the next 30 min or so. In order for us to take as many questions as possible, please limit yourself to one question. Drew, please go ahead.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star than one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two. At this time, we will pause momentarily to assemble our roster. The 1st question comes from Rick Wise with Stifel. Please go ahead.
Good morning, everybody. Great to see another excellent year from Boston Scientific. I guess, to focus on one question, I'll start with your 2023 guidance. Obviously, the 6%-8% guide is right in line with your long-term philosophy. You started the same place in 2022. You're obviously, excluding the Italy issue, finished above 9% organically. Why again stick with the 6%-8%? Is this conservatism respect for lingering macro pressures or both? Maybe just as part of that, why model macro headwinds similar to 2022? The large cap companies reporting to date, they're not Boston Scientific, they're all in some way, shape, or form highlighting the improving or less pressures from macro as they finish the year and start 2023. Thank you very much.
Hey, good morning, Rick. Mike, thanks for the compliments. Just to summarize your points, I guess, we're really happy with 4th quarter, excluding that 1 time Italy reserve, you know, grew +9%, basically high end of sales, high end of EPS. As Dan said, really pleased that delivered top tier revenue growth, and I think one of the few companies that actually improved margins as well in 2022. We have a lot of momentum, and we're excited, very bullish on 2023 and the future here. Guidance, you know, you don't win the day in February here, we think the 6%-8% guidance for full year is appropriate. For the full year, we're coming off a 9% growth comp in 2022.
We obviously plan to grow as fast as we possibly can while continuing to invest in the company. You know, there are a couple things that will be, there are pluses and minus. We're very bullish on the EP business, our momentum with WATCHMAN with FARAPULSE
There's a couple tail or headwinds. We do believe on the CRM side, we grew, you know, about 6% or 7%, I guess last year, 7% in a market that's, you know, low, low single digits, when you include diagnostics. We expect a little bit of a headwind there based on comps. China performed terrific for us in 2022, and we expect them to deliver, again, excellent, double-digit growth, but potentially not quite as fast as they did in 2022. Also, the underlying markets we compete in are about 6%. We think, you know, coming off a 9% comp, a 6%-8% full year estimate, this time of year is the smart, prudent guidance to give. We're going to push like heck to beat it.
Relative to the macroeconomic environment, Rick, we kind of reiterated that 375 that we saw in 2022 as being a similar headwind in 2023. As you saw through 2022, we have a pretty high performing global supply chain organization that has been on top of this all through it, and which is the reason that we've been giving the updates at the level of spec-specificity that we have. As you would imagine, as we went through our annual operating plan process and guidance preparation process, you know, they really dug in at a detailed level to try and understand what 2023 could bring. There are some elements that look better, right? Freight does look better.
You see, you know, fuel prices and oil prices coming down, so, you know, we're optimistic freight costs will be less. The supply of materials and the cost of materials is still a bit uncertain and choppy. That direct labor piece that we had that in 2022, you got to annualize that in 2023. I think the prudent case right here, the prudent course for guidance in February is to assume that we don't get a lot of macroeconomic help in 2023. I'd love to be surprised as we go through the year that we get that help, but I think as we sit here in February, prudent to assume a similar headwind to what we saw last year.
Thank you so much.
Thanks, Rick.
The next question comes from Robbie Marcus with J.P. Morgan. Please go ahead.
Oh, great. thanks for taking the questions and congrats on a nice quarter.
Thanks, Rabbi.
Maybe to start, Mike, at our conference last month, you were really bullish on FARAPULSE. You know, we saw EP have a nice beat in the quarter, particularly outside the U.S. where you have FARAPULSE and POLARx going now. Maybe you could talk about your expectations or what you saw in the quarter, for FARAPULSE specifically and your expectations for it in 2023, especially after we get the data later in the back half of the year, assuming it looks good.
Sure. Yeah. You know, our EP business in the quarter grew 25%, and it grew, what is it, 40% or 50%? I think.
40% internationally.
40% internationally, poorly in the U.S. because we don't have these products approved in the U.S. That really drove the growth down to 25%. I really look at the outside the U.S. growth as the key barometer for us. We're continuing to see great pickup with both our Cryo platform and FARAPULSE. Cryo is a platform that is competing against a product that hasn't changed in a decade. Physicians like the ease of use and the features of the Cryo platform that we have in Japan and in Europe. That's doing quite well. We're hopeful to have approval for that 2nd half of 2023 in the U.S. here.
FARAPULSE is just doing extremely well for both Cryo users who have adopted FARAPULSE and point-to-point RF users. You know, Dr. Stein's on the phone, so he can make some comments. The utilization enthusiasm for FARAPULSE is extremely high, and we're very bullish as we look at 2023 in terms of our EP performance and outlook, especially in Europe and Japan. If we can get some the approval of the Cryo platform in the 2nd half, the U.S. will perform quite well as well. We expect to see a big impact from FARAPULSE in 2024. The future of our EP business is very bright. We know it's a competitive field. We believe we have unique platforms in both FARAPULSE and Cryo that are differentiated and showing that clinically where they're launched.
We have an excellent commercial team ready to bring these to the U.S. You know, we won't give specific guidance for EP, but it's clearly a critical growth driver for us in 2023 and well beyond that. Dr. Ken Stein, if you have any other comments.
Yeah, absolutely. Again, thanks, Mike. Thanks, Robbie. Again, just, you know, we do believe that FARAPULSE is differentiated relative to other PFA technologies out there. I think it's important to reiterate that, you know, all PFA is not created equal. You know, because it's a field effect, results that you're going to see with any of the technologies are highly dependent on the way, actual catheter design. FARAPULSE is the only system in evaluation right now that was designed from the ground up to deliver PFA, dependent on the waveform that's delivered and dependent on the dosing strategy.
You know, as you said, we are, you know, really looking forward to presenting the results of our randomized FARAPULSE trial ADVENT in the 2nd half of this year, as well as to initiate our persistent AF trial Advantage imminently. The only thing I'd add to what Mike said is I also think if you think about EP, you know, I think it's really important also to consider the really extraordinary momentum that we've got with our transseptal access solutions from Baylis. You know, continue to see above market growth with that and continue to see increased use of, you know, the Baylis transseptal access solutions, the energy needle and VersaCross access, you know, both in ablation procedures and in WATCHMAN and other structural heart procedures.
Great. Thanks for the color. Maybe just a quick follow-up. China's been an important growth driver for Boston Scientific. Grew 22% in the year, even with the difficult operating environment. How should we be thinking about China, coming out of the reopening here into 1st quarter, and what's your expectation for the year going forward? Thanks.
Yeah. Thank you. That team had a terrific 2022 despite all the challenges of COVID and all the different pricing tenders that occur over there. For China in 2023, we're very bullish. Again, we do expect double-digit growth out of the China team for the full year. There'll likely be some pressure in 1st quarter given the, you know, the challenges that they've had in China with COVID. We expect potentially some sales growth challenges in Q1. We do expect strong double-digit for the full year. Likely not the same level as the 22% that we delivered in 2022, but strong double digits nonetheless.
Thanks a lot.
The next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.
Good morning. Thanks for taking the question, and congratulations on a strong end to the year here. I wanted to ask a two-part question, also on FARAPULSE. Maybe for Dr. Stein. You know, you talked about your, you know, excitement for the ADVENT trial later this year. Can you help put the MANIFEST-PF data into context? You know, how did that compare to prior RF and cryo studies, and what would be a win for you in ADVENT, you know, for FARAPULSE? The 2nd part is we're gonna see the Medtronic PulseSelect data at ACC, the J&J inspIRE data at Boston AF, I guess, this weekend. You talked about how FARAPULSE is differentiated. What should we be looking for, in those studies that would support, you know, your comments earlier? Thanks for taking the questions.
Yeah. Thanks, Larry. You know, let me just sort of begin by reiterating what I said to Robbie. It's like, you know, as we look at the data, I think everyone just needs to bear in mind that every PFA technology really needs to be evaluated on its own. It's very much unlike RF ablation. You know, when you're doing RF ablation, if you've got the same size RF catheter tip and you've got the same back patch and the same power that you're putting through it, you get the same lesion. PFA is very different.
Because it's an electric field effect, what happens is just intimately related to actually the catheter design that tells you the shape of the field that you're generating, the waveform, which, you know, again, really tells you very much what kind of impact you're gonna have from that field, and then your dosing strategy. How many applications of energy do you put in and where do you put them in? We're, you know, very confident that FARAPULSE is industry leader in this, again, based on having a catheter that was designed from the ground up to deliver PFA based on a decade of preclinical and really high quality clinical data, validating the waveform and validating the dosing strategy with remap studies that creates durable isolation.
You know, as they say, the proof of the pudding's in the eating. We're really excited and looking forward to seeing the results of our randomized ADVENT trial. I'm glad that you mentioned MANIFEST. Again, it gives us a high degree of confidence in where we're going, right? MANIFEST is a registry study of the earliest commercial cases following our CE mark approval in Europe. You know, this is people's 1st experience climbing the learning curve. Vivek Reddy's reported out, you know, it published initially on the 1st 1,700 cases and then some limited follow-up in about 1,400 of those patients. You know, really what those data show really proves the advantages of using a system like FARAPULSE.
Certainly in, you know, 1,700 patients, the safety promise of FARAPULSE was realized. No cases of esophageal injury, no cases of persistent phrenic nerve injury, no cases of pulmonary vein stenosis. Certainly being able to avoid most feared complications of AF ablation. Seeing efficacy results that for paroxysmal AFib are at least as good as what's reported in high quality trials with conventional thermal ablation. Seeing remarkable procedure efficiency, you know, now in commercial clinical use. Now sort of routinely seeing these cases being done on the order of 30 min. You know, that kind of procedural efficiency is, it's good for the system as a whole, right? There are a lot of patients who need to be treated, dealing with staffing issues, et cetera, et cetera.
Anything we can do to increase throughput is good. It's good for patients, though, too. You know, the less time you're undergoing a procedure, the less number of things that can go wrong, honestly. Basically to sum, right, the MANIFEST data validates what we see as all of the differentiated advantages of FARAPULSE. A safer procedure, avoiding the worst complications.
A procedure that is at least as effective as what you see with thermal ablation and a really efficient procedure which benefits physicians, hospitals, and patients.
Thank you. The next question comes from Joanne Wuensch with Citi. Please go ahead.
Thank you very much for taking the question, good morning. I wanna spend just a minute or two on the urology and pelvic health business. I mean, that was up another 12% this quarter, 12.7% organically last quarter. What is, you know, what is driving that? Should we think of this more as a solid double-digit grower as we look forward? My follow-up question, I'm gonna just put it out there now, 50 basis points of operating margin expansion or at least 50 basis points this year. Where is that coming from? Thank you.
Great. Mike here. Thanks for asking the endo euro. You didn't ask about endo, I'll throw it in there. 'Cause they continue just to really outperform and are getting quite sizable within our portfolio, and both accretive nicely to margins and growth rate. The urology results, I mentioned in the prepared words, Excuse me. It's a strong global performance around the world. This business have been predominantly a U.S. Oriented business, you know, that grows faster in the U.S., accreted to Boston Scientific. Outside the U.S., it's been very underpenetrated. Now with all the investments that we've made, commercial and through R&D and through acquisitions, it's strengthening our outside the U.S. business in urology extensively.
The combination of that global performance and a, I would say, a highly differentiated portfolio. We talk about category leadership within a service line, and we really have that with urology and with endoscopy. They have a very differentiated portfolio that's very comprehensive versus our competitive set and contracting capabilities with customers who wanna work with us. Urology continues to do quite well, and we expect similar results, you know, over the next few years here, and the integration of Lumenis has done well. That's a terrific business. I would say along the same lines, most of those same words with endoscopy as well. In terms of margin improvement, Dan, do you wanna hit that one?
I can do that. Yeah. The commentary again was 50 basis points on top of the 2022 results, excluding the Italian sales reserve. That would be more like 25.6 was the actual, and then there was a 30 basis point impact. Add 50 basis points to that is where you get the 26.4, just to give you the math there. Where does it come from? The short answer is, we believe all lines of the P&L. Gross margin will have a slight headwind from FX this year. Again, we said neutral to the EPS line, neutral to adjusted EPS for the year. At the gross margin line, we're largely hedged for the year 2023.
With what we see with where rates are today, we think we'll have a slight headwind from FX in gross margin. We still think gross margin itself can go north through a lot of the good activities that we have from our global supply chain team in terms of reducing costs and other volume improvement programs. Then tightly managing our discretionary spend within SG&A to ensure it's helping us achieve our strategic plan. As we've always talked about, just really focused on R&D efficiencies and leverage. It all starts with a healthy top line. We think that 6%-8% guidance versus that nine comp last year is a good, solid, healthy top line that gives us leverage opportunities throughout the whole P&L. We think each line of the P&L has the opportunity to contribute towards the goal in 2023.
Thank you.
The next question comes from Vijay Kumar with Evercore ISI. Please go ahead.
Hey, guys. Thanks for taking my question. Just some cleanup questions here on the guidance assumptions. Mike, the 68% organic, it is what it is, but can you just remind us, you know, what are the incremental, you know, tailwinds, positive tailwinds here in 2023, and any incremental headwinds versus 2022? You know, some things I can think of, you know, FARAPULSE becomes organic. Maybe China is a little bit of a headwind. Can you just go through some of those drivers? Dan, on, you know, share count up, you know, $20 million, that seems egregious just given how we've seen share count progress throughout the year. Curious why, you know, what's behind the share count assumption for the year?
Yeah, sure. On the share count, just to take that clean up quickly, and then Mike can take your revenue question. It's just a simple math of the converts that we have during the year. The increase is from the share count that will increase when we convert the mandatory preferred. Recall, we then lose the preferred dividend. It's neutral to EPS, but the share count increases as those preferred holders will get common shares. That makes sense, Vijay?
That's helpful. Yes.
Okay. Yeah. I mean, the takeaway should be neutral EPS impact from share count related to the mandatory preferred conversion this year.
Sure. On the headwinds and tailwinds, maybe just some of the headwinds. We like the fact we did 9% growth in 2022, but that's a bit of a, you know, a bit of a tougher comp than normal. That's one. I had mentioned China would be expect double digit growth, but likely not the same growth as 2022. Also CRM coming off of a really exceedingly market growth quite a bit in 2022, likely to grow more in line with market in 2023. Those are a couple of the headwinds. Clearly a bunch of tailwinds. You know, the company continues to perform extremely well across the globe, Europe, LATAM, Asia Pac, and U.S.. You saw really impressive growth across the company. You know, WATCHMAN growing 2024 for the year.
Cardiology as a whole grouping grow 10%, PI grew 9%, Endo 8%, Euro 10%. We have just very strong momentum across the businesses, which is obviously a bit of a tailwind given the momentum we have commercially. We have incrementally to that, some of the questions today on EP. We expect to have a very strong year in EP outside in Europe and in Japan. Potential tailwind would be dependent on when Cryo gets approved in the U.S. Unsure how much of an impact that will have in the U.S., depends on the approval date there. Other products like WATCHMAN continue to do extremely well. You know, we're really proud. We actually think we gained share in 4th quarter with WATCHMAN.
End of the year, you know, just over 90% market share. That business continues to do really well. The one that gets very little discussion, by analysts, but lots internally and by physicians is ACURATE neo2. We now have a large size. That business is doing extremely well in Europe, actually building momentum each quarter, and we're anxious to finish that U.S. trial, shortly.
That's extremely helpful. Thanks, guys.
Thank you, Vijay.
The next question comes from Travis Steed with Bank of America. Please go ahead.
Hey, good morning, everybody, thanks for taking the question. I guess, I'll ask a question on the Italy impact. Just curious why we're only hearing about this from Boston. I don't know if maybe it's you're taking a more conservative approach and taking a reserve, and it seemed like a big number. I don't think like Italy wouldn't be that big of a country, so maybe it's calculated on more than a year of sales. Just wanted to confirm no impact on 2023. Then I'll ask my follow-up now as well, which is on op margins. I think, you mentioned gross margin 1st half higher, lower in the 2nd half on currency, just want to make sure if there's any puts and takes to consider on the op margin side, 1st half versus 2nd half. Thank you.
Sure, Travis. I'll take the Italy one 1st. Can't speak for other companies. I can speak for on behalf of Boston Scientific. It's been a evolving situation, particularly over the last few weeks here, because what you have is the Italian government passed a provision back in 2015, with regard to what I mentioned, to trying to claw back some excess spending over the allocated budgets within the public hospitals in Italy. For the last 7+ years, It's been dormant. There's been limited implementation guidance. There's really been little or no activity around that. That changed, you know, again, over the last few weeks, with some events that put a little more teeth into their desire to collect those monies.
We booked that incremental reserve. We had a reserve on the books. We booked an incremental reserve to cover what we believe will be the amounts that we'll owe as part of that. We're obviously challenging it vehemently through the Italian court system as are other industry participants. We disagree with it. You know, that outcome will be uncertain, but we picked a reserve that we think is a reasonable reserve given the time frame.
You also mentioned, do you see an issue in 2023 with more of a reserve?
The 2023 amounts are included in guidance. The amount of the reserve relates to prior periods, 2015 to 2022. Anything that's 2023 and beyond is included in guidance. With respect to op margin, actually, I'm glad you asked that question because it's a bit of a juxtaposition with gross margin, right? I mentioned that gross margin will be higher in the 1st half and lower in the 2nd half, which is a bit of a bucks the trend we normally have, which I wanted to make sure I got that point out there. Relative to operating margin, though, I think you'll see a similar trend where it builds throughout the year.
The gross margin higher in the 1st half, lower in the 2nd half, but through the rest of the P&L and netting down to operating margin, I would expect you to see a very similar trend starting in Q1 and building to higher amounts as you go 1st half, 2nd half. Hopefully that's clear, Travis.
It is. Yeah. Thank you.
Yep.
The next question comes from Cecilia Furlong with Morgan Stanley. Please go ahead.
Great. Good morning, and thank you for taking the question. I wanted to ask on WATCHMAN, specifically what's underlying the double-digit growth outlook that you called out for 2023, how you're thinking about market growth as well as Japan and China contributions. Then just a quick follow-up on ACURATE neo2 with the PRIME XL registry, how you're thinking about approval timelines at this point in the U.S.
Sure. On WATCHMAN, we had a terrific year in 2022. As I said, maintaining, you know, call it 90% share, potentially slightly above that, grew 24% for the full year. It's a very healthy market. Lauren, what did we say on the market? 25-ish. Call it 25% growth we expect in 2023. You know, two companies in the marketplace today. Similar to previous comments, the success of WATCHMAN's really manyfold. The safety, consistency and proven effectiveness through clinical trial and everyday practice at WATCHMAN, physicians are extremely comfortable in using the device. They're very comfortable with the support team they have from Boston, in the lab with them. The referring physician community is seeing such strong benefits from the LAA procedure. That is helping to drive that market growth.
It's an excellent market. It's also a product that's a procedure that's profitable for hospitals. The procedure time today continues to improve, which is really important for hospitals. The overall market context is very good. We have a leading platform, and we have a new product, new steerable sheath coming this year and the next-gen WATCHMAN platform coming about a year from now. We have a differentiated pipeline as well. Neo2 is doing extremely well in Europe. We just launched or just having some implementation of our XL valve that's part of the U.S. trial. There was, I think a bit of inaccurate reporting on that one. We do not expect that XL to slow down the approval process for the U.S.
That does not have an impact on U.S. approval. That XL Valve is important because it's about a 3rd of the procedures are using that size valve in Europe. We're doing quite well, growing faster than market in Europe without that, and eventually we'll be adding that to approval. We're excited about that. ACURATE neo2 expected to be approved in 2024 in the U.S.
Great. Thank you for taking the questions.
The next question currently I have is Josh Jennings with TD Cowen. Please go ahead.
Hi. Good morning. Thanks for taking the questions. I was hoping to start off with just your Apollo acquisition and get you into the diabetes, the obesity segment. Just wanted to hear about your outlook for that portfolio, but also just the device-based intervention opportunities in obesity from a higher level, and whether this portfolio could become a long-term growth driver for the endoscopy franchise. The follow-up is just on your neuromodulation business. Congratulations on SOLIS trial results. You know, I think three of the big competitors in the space have a peripheral diabetic neuropathy indication now with different levels of evidence. I was hoping you could just review Boston's plan to generate clinical evidence for that indication going forward. Thanks a lot.
Yes. On Apollo Endosurgery overall is really consistent with our overall strategy of category leadership, you know, which is driving above market growth and continuing to advance new therapies where we can be the leader. When we look at endoluminal surgery, we think that is really the next frontier for our endo business. You see terrific uptake of endoluminal surgery, I would say, outside the U.S., particularly in Japan, a bit more so in Europe and less so in U.S. We think endoluminal surgery will really continue to build momentum over the next coming years. Apollo is the platform that's most used by physicians, particularly outside the U.S., to perform these procedures with a product called OverStitch and X-Tack.
You know, we think the addition of Apollo into our current platform will obviously make us the number one strongest endoluminal surgery portfolio, but also put us in a position, as Dr. Duncan would say, to help train the field. 'Cause these are procedures that require, you know, significant physician training to get great outcomes, and we'll be able to do that with the Apollo platform.
On Neuromod, you asked about SOLIS.
On SOLIS, with SCS, which is again, we did see some improvement in that overall SCS business in the 4th quarter, growing 4% in the quarter. SOLIS, we're pleased with the three-month results that we expected. We expect indication and approval for non-surgical back by the year-end of 2023.
We're in early clinical work for PDN right now, and haven't announced any timelines, but we'll look to continue to invest in that space.
Great. Thank you.
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