Good morning, everyone. Welcome to day three of the Wells Fargo Healthcare Conference. I'm Larry Biegelsen, the Med Tech Analyst here, and it's my pleasure to host this fireside chat with the management team from Boston Scientific. With us, we have Mike Mahoney, Chairman and CEO, and Dr. Ken Stein, Chief Medical Officer. Gentlemen, thanks so much for being here.
Pleasure, Larry.
Thanks, Larry.
I'd be remiss if I didn't say we also have Lauren Tengler, Head of Investor Relations, also with us. Mike, let's start with the unfortunate cyber attack. Hopefully, most people saw the update last night, which was very positive.
Yeah.
Operations fully restored. Mike, I think people would love to hear from you, the status update and the impact. You put out an 8-K earlier this week that said you're unlikely to meet the Q3 and the full-year guidance. How are you thinking about the financial impact and the recovery?
Yeah. So certainly, unfortunate event. Very proud of what our team has done the past eight days, to secure the IT systems globally, to secure distribution, to secure manufacturing. It was an eight-day impact, where we were not able to ship or manufacture. Obviously disappointed there, but really impressed with what our team did to recover very, very quickly, working around the clock over those eight days to ensure that. Also to ensure the integrity of the system with all our third-party suppliers, hospital connectivity, all the EDI capabilities. So it is all back to normal after that. It is fully restored. I was at our distribution center yesterday, and they are cranking through, working very hard, and manufacturing is back up and running. So that is all the really good news.
The unfortunate news with the eight-day impact, we did indicate that it is unlikely that we would meet our third quarter and full-year guidance. A big part of it is we just have to sift through what the recapture rate is, and that is still what we are working through now. We obviously lost procedures that day. Some areas or some regions or some businesses would have adequate supply. Many did not. Hospitals were unsure, as we were at the time, how long it would be.
So some hospitals likely ordered from others during that time, which would be understandable. So it made sense for us to indicate that in our Form 8-K on the unlikely piece of it. But are very impressed with what our team has done to recover. Now our focus is on working closely with these customers to try to recapture as much as we can, b ut it is hard to pinpoint that exact dollar amount at this point. By the earnings call October 28th, we will certainly be able to give more precise information there.
The impact was broad-based across Boston Scientific.
Around the world, yeah.
Any areas impacted more than others? Geographies?
No. All of our plants were shut down. Distribution centers were shut down globally.
I know it is really early, but implications for 2027, you talked about 2%-4% similar growth.
I think the big thing is the whole themes of the business, which we can talk about, are unchanged based on the cyber attack. We just have to get a better handle on your question on the recapture rate and the financial impact. We will know a lot more in the next 45 days.
We-
Then we will be able to give a better sense. We will not give our official guide in October. We will probably provide a better framework for 2027 at that time.
All right. Let us move on to the business.
Okay.
There's a ton of questions I could ask on the cyber attack, but I think there's-
It's back to normal.
It's good to hear.
Yeah.
Yeah. And sorry you guys had to go through that. It's unfortunate.
I would say on a positive note, maybe it doesn't help, but the industry does help each other out on this one. There's a lot of competitors that we compete with, but we're all kind of under the same cyber risk, despite all of our great efforts and investments. A lot of companies share best practices, share information. It's a nice thing to see.
That's good to-
We're very thankful for that.
Yep, good to hear. Let's touch on WATCHMAN, or start with WATCHMAN. I guess the question really is, the guidance, I think, implies in the U.S., mid to high single digit year-over-year decline in the second half. You said you expect the market to decline in 2027 by a similar amount. I guess so the big picture question is, what needs to happen for the market to grow again? The LAAC market.
Sure. I'll touch on it. So in 2027, we really don't want to call the market improving until we see it improving, based on what's happened this year. Our aim, obviously, is for the market overall to improve based on the great clinical evidence of WATCHMAN in general and totality, the safety profile, the amount of patients who are unprotected who have AFib. So we think it's going to be a stronger market, but we don't want to call it until we start seeing that improvement. The last eight days haven't helped that visibility, but we'll recapture that. So the big efforts we're doing is first is med affairs and education to our implanters, to our referrers, based on the totality of evidence of CHAMPION because it's a bit, with those three trials that are out at the same time, some conflicting information.
That's a big effort in that area, and Ken can talk more about that. Secondly, we're putting a lot more dedicated focus on the WATCHMAN product with our commercial team. Sometimes they had shared responsibilities, so we're allocating more direct allocation of resources to that to deliver that message in the right way and the right level. We've increased our DTP, our direct-to-patient activation quite a bit, because we've seen a benefit of that.
Then hopefully in 2027, based on the CHAMPION data, we'll have a label update, which will provide some additional support and confidence in the therapy. It's an amazing therapy. Probably family members in this room have had it. It's safe. It protects patients. Many patients don't want to stay on oral anticoagulation. It's well proven. We have a big global opportunity over time if we can unlock that as well, b ut I don't know, Ken, if you want to add anything.
Yeah. Really just to put a little more color around what Mike said, I just want to come back to what the key data point is. The key data point is, no matter who you ask, somewhere between 30% and 40% of high-risk AFib patients in the United States and Western Europe today are left completely unprotected. There ought to be no doubt, but that those patients are better off with some kind of protection against stroke. WATCHMAN is by far and away the best proved option that there is out there. We just need to do a better job of articulating that. That's on us. I think, these professional societies, SCAI/HRS, released a draft guideline update that we see as a positive. Again, reinforces the very high weight of evidence now that WATCHMAN provides equivalent stroke protection as compared to oral anticoagulation.
Reinforces the notion really, that every patient who is high risk at AFib needs to have a conversation with their treating physician. Are they patients who cannot? Are they patients who will not? Are they patients who should not take long-term oral anticoagulation? And for those patients, they need to have an educated conversation with their physician. Is WATCHMAN the best option for them?
On the label change that you hope comes in 2027, what does that look like versus the label today? What would be a good step forward?
Yeah. Again, I first just want to reiterate. Our view is that the totality of the data and the accumulating data around WATCHMAN do support an update to the label in 2027. To me, the key is what I just said. That to make it clear that WATCHMAN ought to be a consideration for every high-risk patient with atrial fibrillation, if they cannot, they will not, or they should not take long-term oral anticoagulants.
How is that different from today?
I think today there's still a lot of confusion. The label today is for patients who have an appropriate medical rationale to seek an alternative to long-term oral anticoagulation. Now, I almost feel like I'm playing lawyer here and parsing semantics, but I think the issue here is that what that means is not very clear, both to implanting physicians and to referring physicians. So there's a tendency here that people believe that means that this is only second-line therapy, that you need to have had a life-threatening bleed on oral anticoagulants before we're going to consider you for this.
I think what to us would be a win and to us we think is a win that the therapy deserves would be, again, to clarify, no, that this ought to be something that every patient needs to consider and that they need to have a discussion with their treating physician. Again, are they someone who either can't or won't or shouldn't be taking drugs over the long term?
Okay. Thank you. There's a couple other crosscurrents in the market. You have a new competitor coming. So it sounds like it's safe to say that you think at least in 2027 you'll grow below market. I'm sure you're not going to say, "Hey, here's how much share we're going to lose. Here's how much below market.
Right.
But you would imagine you would expect to grow below market. Is that fair?
Yeah. With a new product coming out, it is fair to say we would grow below market in 2027. Our job is to get the market stronger again. We are very confident in the data of WATCHMAN, the safety profile, the comprehensiveness of our support team, and confidence that doctors have with it. New product will come out, will take some share. We have 90% share. Our job is to drive the market to be strong, healthy again like it used to be and like we aim for it to become. Then we have product reiterations and new platforms coming. So we expect to be the very high strong leader in this market for a long time. But 2027 with a new product coming, likely to grow below market.
And to be fair, the first time the competitor came to the market, I think investor expectations were for you to lose more share than you did.
Yep.
So you definitely retained more share the first time.
Yeah.
Than investors expected. And I would put myself in that camp.
Okay.
Congratulations.
Well, thank you.
The physician fee is going to be cut again, and you have highlighted that this year as a factor for, I think, negatively impacting standalone procedures, that there is a 20% proposed cut. Do you think that goes through, and does that have an impact on the standalone procedures which have been declining?
I think Ken can answer as the physician. I think maybe marginally. I think most physicians, when patients are asking and they are right candidate for a WATCHMAN, they do the right thing. Obviously you would like to have more of a tailwind there on physician reimbursement. The hospital reimbursement is quite strong and continues to get stronger, so there is a lot of momentum from the hospital to build WATCHMAN programs and AFib programs and concomitant programs, add labs, invest in the team, all that kind of stuff.
Marginally it is not a tailwind for sure, b ut we typically see that most physicians do the right thing, and whether they'd rather have 15% premium, we typically don't see as the major stumbling block has been this confluence of confusion on data, I would say, and just some of the procedural inefficiencies that we've talked about with concomitant, which has been a boom for us, but also a bit of a lag in terms of productivity.
How important, Mike, you talked about getting the market to grow again. How important is that label update to achieving that? Or is it more the education process around the data?
I think it's all that stuff. More data comes out, longer term data on CHAMPION comes out over time. More real-world evidence comes out. Your mix of concomitant and standalone gets better every quarter. That's helpful. New platforms help. So I think it's really the combination of all those things.
And maybe just to add, it helps guideline update, and we do see the proposed guideline update from HRS and SCAI as positive. I think the bigger unlock then would be when CMS revisits national coverage determination. I think by the time that gets finalized, that's not going to be something that has any material impact in 2027.
In terms of the data, we had a lot of data come out in the last year, PALLON-AF, OCEAN, CLOSURE, and obviously CHAMPION-AF. Which data set is having the most impact on the market? I have heard from you maybe OCEAN and this ablate and wait. CLOSURE AF was not helpful a week before CHAMPION-AF. Which data set, or is it the totality that is causing the issue?
Yeah, I think it is what you just said. It is the totality, and it just takes people time to parse, how do I put all these conflicting pieces of data together? Ablate and wait, by and large, the biggest impact that has is on patients who were never WATCHMAN candidates to begin with. The lower CHA2DS2-VASc risk patients. But in that sort of CHA2DS2-VASc 3 category, it is having an impact. Again, CLOSURE, I just wish we could get people to get beyond the headline and actually look at the data. Because again, it failed its endpoint because the rate of complications was an order of magnitude higher than what we see in the U.S., and it was a trial where the minority of devices were WATCHMAN FLX. But even in spite of that, it convincingly showed equivalence in stroke.
Again, CHAMPION, the haters worry about the difference in stroke rate. Again, it is something I do not understand because the appropriate comparison is not to the drugs. The appropriate comparison is what would happen to patients if they were getting nothing. And that is why I just keep coming back to the size of that population that is currently left unprotected, that 30%-40% of high-risk patients. That is the patients who deserve some degree of protection, and that is the population that would, if we unlock it, get us back to the level of growth in WATCHMAN we aspire to.
Got it. Okay, let us transition to EP. Obviously Dr. Ken Stein will stay involved in this conversation too, as its CMO and a trained electrophysiologist. I guess the question is, well, there has been questions on the market, and I guess let us get that out of the way. We have heard you-
Healthy market.
I've heard secondhand you've talked about maybe pricing having an impact on the market, which has been super robust, the growth. How are you thinking about the outlook for the market?
It'll continue to be healthy. It's been hypergrowth, given the conversion of RF to PFA with pricing benefit there, and the conversion to PFA has been very rapid in the U.S., approaching 90% or so now. Less so in Europe, less so in Asia-Pac for sure, so there's more room to grow on conversion outside the U.S. In the U.S., it's more highly penetrated. Over time, maybe that additional 10% falls as products get better. We still think this is going to be a very strong market. Will it grow mid-teens? Not clear. With a lot of competition out there will be a bit more pricing pressure likely, and you won't have that adoption curve.
Again, I don't think this is a business where electrophysiologists make certain vendor selection. It's not a price declining in this marketplace. Doctors are still choosing which catheter they want to use, which mapper, which clinical system they want to use. It's still a very high physician preference item, so I don't think you'll see significant price decay, but likely some pressure on price. We still think it's going to be a very strong market.
Double digits?
We believe so.
Mike, I guess I want to ask you a big picture question on EP. You've said, I think, that there was a time where you considered getting out of EP, I believe, and FARAPULSE was obviously a big success. Your strategy has been category leadership across Boston Scientific, which has served you well. When you came into EP with FARAPULSE, you weren't a category leader.
Right.
Is there any lessons learned here? What's the path forward for EP with Pulse?
The lesson learned is if you can find a FARAPULSE, you do it. We had a crappy EP business. Sorry. We had a bad EP business, and now we have a strong number two global EP business. If you can find a diamond in the rough like that, you do it. At the same time, since we came from such a lack of girth in our portfolio, our focus 100% is on widening and strengthening that portfolio. We wouldn't have done it any other way, and now we have a cadence of products that are coming. We all want them faster, from our Ultra product, which will be here this time next year, to entering the ICE market, which we're not in, to FLX and other things that we want to do. We clearly want to widen, just like many of our peers do, our EP offering, and that's the goal.
The short-term issue has been your PFA share has eroded faster than you expected. You had a super high share.
Yeah.
We estimate maybe now it's about 50%. People are trying to figure out where it troughs, and we see all the competition coming.
Right.
I do not know if you will share with us where you think, if you can remain the leader, where you think it troughs, and how are you thinking about these competitive entrants in light of your pipeline, FARAWAVE Ultra, and then FARAFLEX?
We spent a lot of time on it. We undercalled the share erosion, or as you know, we have talked about that this year. But very proud of what we built, and we have built that capability globally now. When you are really relying on, for the most part, one platform with our OPAL Mapping System, which continues to make nice progress, we are confident with that. There is kind of one way to go with that share position. Despite that, more often than not, doctors are still choosing FARAPULSE. The work it does and the safety profile and the efficiency is very well proven out. That share will continue to decline a bit until we can widen that portfolio. That starts to happen the second half 2027 with our Ultra launch, which we think reinforces FARAPULSE as the ideal platform.
It will tie our physicians more closely to the OPAL Mapping System, providing more capabilities. It is a more efficient mapping catheter than FARAPULSE is today. We will not require doctors to use it if they want to use competitive mapping systems. But we think that will accelerate OPAL adoption. It will secure the beachhead more for what FARAPULSE has already secured, and then we widen the portfolio with ICE and FLEX.
FARAFLEX.
Yeah.
FARAFLEX, you just started the IDE.
Right.
There are competitive entrants coming before that, just from a pure timeline standpoint. I guess maybe the question is, there's excitement in the clinical community on some of those. Nano Pulse is one of those. What's your view on just that waveform? It's different. They've been very public, they're a public company, about partnering. Is there an opportunity to partner with them?
Sure. There's always opportunities to partner with companies. I think that the key is the market is going to be strong. It may not be as mid-teens, high teens growth market, but it's going to be strong for a long time. It's highly competitive, but we have a very strong share position and a very robust roadmap. We're never going to get back to the growth rates that we saw when we launched FARAPULSE. But at minimum, if you can grow back to at market and ideally above market with our product launches, you've got a very accretive growth business.
When do you think you can get back there? I mean, at market.
Well, we're aiming with the Ultra launch and the ICE launch in the second half of 2027 to improve our position.
Okay. And the competitive entrants, and you're not-
There's a lot of them. We obviously factor that in. That's why I think overall, it's a healthy market, and it's competitive. We have a cadence of launches that aren't too far away. As long as that market stays healthy, it'll be a nice accretive driver for us.
Okay. Sounds like you're satisfied with your internal pipeline, PFA catheters.
We're very happy with our internal pipeline, but as you know, we're always looking to make ourselves better in some way.
Yeah. You've never been shy about. You've been agnostic to technology, internal and external.
Right. Yeah.
Okay. Anything else on EP, Dr. Stein, you want to add?
I think maybe just to highlight for everyone, there is a very big difference in the dynamics, U.S. versus international. Again, a lot of what we're talking about is U.S., where PFA penetration is mature, where PFA penetration outside is very far from mature. I think that that's a much bigger opportunity for us. Then maybe the only other thing that I think gets back to Mike's comment about Ultra and about whether there's price pressure. One of the advantages of catheters like FARAWAVE Ultra is the ability, again, to do both high-definition mapping and do the ablation, so that you don't need to pull a second
Mapping catheter, which frankly right now more often than not is a competitive product. That enables us to maintain premium price for the ablation catheter while hospitals and physicians are able to control the total price of the procedure. What happens is the dynamics of just the ablation catheter market growth would get a little bit decoupled from the dynamics of total EP market growth.
FARAWAVE Ultra, what's the timing on that? I know it's a 2027 second half. What's the U.S. approval timing that you guys have disclosed?
Second half.
Second half.
Yeah.
Got it.
Is that right, Lauren?
Yes.
Yeah. Okay. There are other parts of Boston Scientific. Mike, Penumbra, just an update on the deal timing.
Yeah, really happy with Adam and the team. They continue to execute really well. Nice product approvals that you know about. They have a very strong pipeline. The benefit, if any, of a delayed closing is you get to know the team really well and get comfortable with both sides of it and secure their top leaders, and they continue to drive a lot of good momentum in the marketplace. We are very bullish on the transaction. We have learned a lot from history on the best way to integrate them without losing their magic with their commercial team and their R&D team, and we feel like we know how to do that. We still aim to close it by the end of the year.
Any update, or when would you know if divestitures are required? When will you know?
Well, we know what's going on.
Right
We're aiming to close it by the second half, by the end of the year, ideally. We'll update you more as we progress.
Okay, if divestitures are required, you'll disclose that.
Yeah.
Okay.
I don't know. Will we?
At the time of close.
Okay, at the time of close.
Okay. Got it. Okay. You have a new product coming in a big market, the SEISMIQ IVL for coronary. How are you thinking about your ability to take share from? There's a single player there.
Yeah. It's a great opportunity for us. I know you'll probably get to it, but we're really excited about beyond what we've talked about here, just the future of the company as you progress a little bit farther in time with about eight platforms that enter well over $25 billion of new market spaces in TAVR and lots of other spots, and this is a near-term opportunity that we're very bullish on. We created the technology. We spun it out, we brought it back. We really like the differentiation and capabilities. A good competitor there. But we're having nice success in the peripheral, below the knee and above the knee approvals. And the trial went well. It was presented at PCR this year.
We're ramping up supply, ramping up capital capabilities, and that should be a nice driver for us in 2027, and a more meaningful one in 2028 as we continue to enhance the product and continue to drive supply capabilities. It's $1 billion market plus growing nicely, and it fits right into the sweet spot of our very broad cardiovascular call point.
Beyond that, what are the opportunities you're most excited about? You've got renal denervation, TAVR. What are the ones besides IVL?
There's a bunch of them. I think as you look a bit more forward, the combination of our interventional cardiology business, our peripheral vascular business, our Penumbra business, once that's closed, a likely entry into TAVI, which we think will be disruptive if that clinical trial goes well. You said it. It's IVL in the near term. We'll finish enrolling our hypertension trial this year. As that market continues to strengthen over time, and reimbursement economics we think will improve and get better. We think that entry time is a good point for that one. We've got a big bet in circulatory support with shock. Penumbra will be organic. All those product launches and EP that you know about, which are markets that we're not playing in today. And then a bit longer term, the potential TAVR opportunity.
On Penumbra. You've been public about the challenges with Axonics. You've seen Stryker's been public about their challenges with Inari. What can you do to avoid that with Penumbra?
A lot of it is commercial. We had a lot of commercial disruption with Axonics. I can't speak to Stryker. You really need to lock down, because they're very strong relationships. You really can't afford to have much turnover in that commercial team. That's been a big focus with us with Penumbra, retaining their sales leadership, retaining their incentives. As I mentioned before, we add to Penumbra. If we're a bunch of Penumbra sales reps here, our portfolio is additive to their portfolio now. It'll be helpful to them. In accounts where they're not in, we likely have relationships with Silk Road and others. We're complementary to each other, and we're supportive of each other as long as we retain them, which has been our goal.
You mentioned Silk Road. We've seen kind of some of the news on that. What's the update? When is that product coming back? What's the status?
Yeah, I think that's a good example of how you can bounce back. That integration went poorly initially with commercial disruption. Again, this was more of a startup-y company with Penumbra as a more mature company with many commercial leaders who have worked for larger companies and so forth. Silk Road will be fine. We're in the midst of moving manufacturing to Minnesota. That's in place. It's an immaterial impact on the company, and the team's done a really good job of rebounding there, which gives us hope with Axonics. With the right commercial hiring and training, that business has done quite well.
That is good to hear. Mike, on 2027, I do not know if it is kind of I do not know, off the table at this point, but the 2%-4% for the second half 2026 you said was a good starting point for 2027, 2%-4% organic growth. I guess the question is really, what are the factors that would drive you to the upside or downside in that?
Yeah, we clearly have to do some more work on that based on what has happened with the cyber incident. Once we get through the recovery and get a better sense of some of the numbers, we will give a bit more of a framework for 2027. I think overall, the business dynamics are similar. We aim for our CRM business to get healthier with a launch of a defib platform, ideally in the second half of this year. We talked a lot about the EP products that are coming as you get into the second half of 2027, which all point to a stronger 2028. We do believe that our urology business will be better in 2027 based on the product launches that we have, based on the more maturity of the commercial organization. But we do have some headwinds. We talked about WATCHMAN.
We want the market to get better for all the reasons we talked through and all the actions we are taking. We have a competitor coming there, so WATCHMAN will likely be under some pressure, and EP will be under some pressure until we get those product launches out. But we should be able to give you a better idea at the October call. Not our official guidance, but-
Right.
...more general.
No LRP. Given the cyber attack, I imagine you are not going to give us a new LRP on the October call.
Probably not.
The defib platform is second half of 2026 or second half of 2027?
2027.
2027. EMPOWER, any update? The leadless pacemaker.
That's similar timing.
Second half 2027.
Yeah.
Got it. Maybe a finer point on EPS. Again, I don't know, because of the cyber attack, maybe everything's going to change. But the minimal EPS growth from the Q2 call was unclear if that was with or without the Penumbra dilution, which I think you've said year one is $0.06-$0.08.
Yeah. Lauren and John will have to help me out on this one. We did say EPS growth essentially will be more of a challenge, we said on our earnings call last year, and that dynamic hasn't changed. We have some gross margin pressure based on the WATCHMAN and EP trend. We do expect these other business to get healthier. At the same time, Penumbra does have some additional dilution, but we've also in the midst right now of executing a pretty significant restructuring plan. That will provide some benefit as well. So 2027, we'll give a guide in January, but we expect to have minimal EPS growth in 2027. Then we expect to get back to a more traditional growing closer to WAMGR, if not better, in 2028, and traditional margin improvement that we delivered and traditional EPS growth in 2028.
Closer to your WAMGR in 2028.
That's the goal.
Mike, you had an amazing run. You've had some short-term challenges. Are these challenges having an impact on how you manage the company?
I would say the challenges are healthy, not financially. The challenges are healthy just to bring additional muscle to the team. You learn a lot when you go through challenges. You learn less when things are going so great. Our team is very, very resilient. They're very talented, and they're highly committed, and you saw that with the cyber response. We've got a very, very strong platform that we invest for the long term of the company. We want to make the company incredibly special for many, many years. We are protecting those growth drivers despite the restructuring. Restructuring is not fun, but it's needed to do.
We feel like we're doing all the right things for the company, for patients, and for long-term shareholders to ensure that we have a differentiated pipeline for the future and a team that's highly motivated to execute. Nobody likes to have a bit of a frustrating year, to say the least. You either respond to that by getting after it, or you go into shell. Our team is very aggressive on proving the skeptics wrong.
Okay. Well, we're just about out of time. I want to give you the last word if you want to make any other concluding remarks, but I appreciate both of you being here.
Do you have anything else? No, I think that's it. Thank you very much.
Okay, good. Thanks for being here.
Thank you.