Get started. My name is Mike Pollard, Medical Device Analyst here at Wolf Research. Welcome to day one of the Wolf Healthcare Conference. I'm pleased in this session to be joined by LivaNova. Full crew on stage, CEO Vladimir Makatsaria, Chief Innovation Officer Ahmet Tezel, and Head of Investor Relations Brianna Gotlin. Squad, thank you for being here. Look forward to the discussion. Investor Day last week, of course, I'm sure sigh of relief. I was just joking with Vlad. Now the hard work begins to go deliver the numbers. I want to start bigger picture, Vlad. A couple of years at LivaNova, I'm rounding. You know, in March will be the two-year mark. You seem energized. It seems like it's been fun so far. I'm curious relative to the expectations you set for yourself taking the job for the organization, the broad portfolio, the risks, the opportunities.
Biggest positive surprise and biggest challenge?
First of all, Mike, great to see you, and thank you for the opportunity to join you today. Can you hear me okay?
Yep.
Okay. Maybe I'll start with a challenge. You know, when I joined two years ago, one of the negative surprises for me was the fact that we've deviated and reduced our focus and investment in core research and development. Under Ahmet's leadership and his team, we completely had an overhaul of our innovation agenda in the core businesses, both from a talent point of view, from an investment point of view, from process and governance. I'm sure Ahmet can talk more about it. I'm very pleased with our progress now, but we went through a challenging situation with core innovation. On the positive surprise, it has to be the team. I'm really energized and privileged to work with an incredible team of leaders, both at the senior level, but also across the organization.
We work well together, but it's also kind of, you use the word fun, energized. It's intellectually and from a leadership point of view, energizing to work on a transformation. We are working on a portfolio transformation to build a durable, accelerated growth of both top and bottom line at LivaNova. That's what we've communicated at Investor Day a few days ago, how we are transitioning LivaNova to be in faster growth markets and bigger markets and more profitable markets and using our strong core to get there. That was our story and how we continue to be at the benchmark levels of growth for the industry.
Good. There's always a lot of topics with LivaNova, so we're going to try to get to all of them, maybe not as deep on some. We're going to start with epilepsy. I found this kind of interesting last week. Great presentation, but in Q&A, you know, as pesky analysts, not a lot of time on epilepsy. It's two-thirds of your profit. It's probably 20–35% of the discussion. On the topic of returning to core innovation, like for the first time in a while, I'm hearing about clinical evidence. I'm hearing about software investments. I'm hearing about hardware investments. This seems like part of your clear refocusing. What gives you confidence in that market to turn the investment back up? It's a product that's been in the field for decades.
You know, what's it going to take to, what did you see that led you to believe these investments are the correct ones to kind of breathe growth back into epilepsy?
Yeah, I think this is a really good example of us refocusing on core innovation and in general on our core. I think in order to build a portfolio of the future, we need to have a very strong foundation. Epilepsy provides that foundation. If you step back and think about the market, it's a highly underpenetrated market. In fact, it's difficult to find an analog in the clinical world where there's such a large underpenetration. You know, of all patients with epilepsy, one-third of them don't react to drugs and become drug resistant. I think the ultimate goal of the innovation community is to create technologies that treat drug-resistant epilepsy that are minimally invasive and highly effective. That's what we're trying to do with our agenda. There's a number of drivers behind it. Number one, as you mentioned, innovation.
We continue to build on the current platform, but build a more digitally connected system, access to data so that both patients and physicians can make better decisions on their treatment. Number two, within innovation, it's also looking at new technologies outside and bringing innovation from outside of the world. I think that's also an important element. The second big driver is reimbursement. Today, we have kind of 70% of our business comes from replacement battery, 30% comes from new patients. We recently had a decision by CMS to upgrade reimbursement of replacement devices to Level Five, CMS reimbursement, so similar level as new patients. I think that's a major step in improvement on reimbursement. We continue to work with CMS and with private payers on this journey. The third big element is clinical evidence.
Like I said, demonstrating that we can do minimally invasive procedures, but also do them with clinical effectiveness. Recently, we published CoreVNS study. It's the largest real-world evidence study in neuromodulation in the field of epilepsy. It showed significant improvements in patients with drug-resistant epilepsy versus the pivotal study that was done many years ago when this product was launched. We believe it's due to all the improvements we've done from an engineering point of view on the device. Epilepsy is our core capability. It's a very important foundation for our business. It's also a very important space in healthcare for us to continue to grow.
Maybe follow up on epilepsy, and I'll try to bring this back to the Investor Day and the financial targets issued for epilepsy over the long-range plan through 2030, mid-single-digit growth, not a surprising algorithm. You know, I see, you know, the kind of reimbursement relief, a catalyst, your innovation, a catalyst, a large market catalyst. You know, on the flip side, there's neuromodulation competition. There's always kind of some pharmaceutical innovation that may or may not come. You know, as you assess the achievability of mid-singles for epilepsy over a five-year term, what do you see it as a balanced outlook? What do you view as the biggest risk on that list that I rattled off or something else to manage? And where do you feel like you've maybe built in some cushion on the upside?
We're very confident in our ability to execute this plan, the mid-single-digit guide on epilepsy that we gave. I'm going to split it in a couple of dimensions. You know, one is, like I said, about 30% of our business is new patients. 70% of the business is replacement devices. On the replacement devices, we forecast low single-digit growth moving forward. We have relatively strong analytics and relatively precise analytics on that moving forward. Now, while the replacement business pulls our overall growth down, it gives the business sustainability over the long term and very strong cash generation. On the new patients, which is about 30% of our business, we forecast mid to high single-digit growth driven by improved clinical data and improved reimbursement on the kind of replacement battery, which gives overall better economics over the lifetime of the patient.
I think the biggest upside to that would come if our work with CMS on creating Level Six Reimbursement for new patients, if that comes to fruition, that would be the biggest upside to the plan.
Maybe for Ahmet, Chief Innovation Officer, of the innovation roadmap in epilepsy, what are you most excited about?
Next year, we're launching our cloud platform. The best thing we can do for both the patients and the physicians is to make the titration of the device remote. Because right now, if you're an epilepsy patient, you're either a pediatric patient or you still need a caregiver because most epilepsy patients do not have a driving license. Once you have an implant, the first year, you have to go to a physician's office about 10 to 12 times just to get the device at the right setting. If you can do that remotely, it's an incredible benefit for both the patient and physician. We're launching the first part of that in 2026 with a cloud platform where we will be able to have the physician look at the data of each patient.
Later on, very quickly, we're going to follow that with a Bluetooth-connected IPG, which will kind of close the loop so that you can do remote titration. In epilepsy, super excited about that. The core data that Vlad talked about, we demonstrated that, you know, you get roughly 80% seizure reduction. In the most severe seizure types, we had 50% of the patients were seizure-free from most severe seizure types. You had a 15-fold decrease in sudden death with epilepsy. Excited about rolling out the data and excited about making new features.
Let's shift gears, cardiopulmonary. It's been a great story, capital and consumables. It's great execution, prudent guidance, overperformance, all you would want here. Mid to high single digits is the growth expectation through 2030 relative to low doubles or teens for, what, 10 quarters now? Just strikes me as conservative. Obviously, the SN cycle will kind of evolve over the forecast period, but still tons of room in oxys. I mean, the vanilla question first, what do you view as the biggest risk to that outlook? Is it the competitors potentially refocusing on the space beyond what you've underwritten your price mix assumptions? You know, SN's launch in China, perhaps. You know, help us think about that. You know, where do you think you've built in cushion to drive upside to what relative to recent trend looks to be a very conservative expectation?
Yeah, so like on epilepsy and cardiopulmonary, we're very confident in our forecast of mid to high single-digit growth over the next three and then five years. There are three drivers of growth in our cardiopulmonary business. You know, and the starting point is strong. Like you said, we are the market leader in this space. We continue to grow that leadership. The last two years have been a very kind of demonstrative example of that. The first growth driver is an upgrade cycle of SNs. There, it's interesting because, you know, it's a new technology that comes after 17 years of no upgrades in this market space. The previous capital equipment was launched 17 years ago. Think about it as a car that you can buy a base model, but you can also buy all the options with it.
You know, when we launched the product, we kind of assumed that not every customer is going to buy a fully loaded machine. To our positive surprise, customers saw significant value proposition in the optionality of SNs. Since the launch in 2023 until today, we were able to maintain kind of full optionality of the machine. That gave us significant price upside. We see that trend so far continuing. To your question, you know, on a short-term basis, one of the upsides would come from our ability to maintain full optionality on SNs machine. That growth driver kind of tapers off in 2028. Then, you know, oxygenator and market share gains and growth in oxygenator and disposable engineer takes off as the main growth driver for cardiopulmonary business.
We gained 10 share points in this marketplace over the last two years, which is very significant for the mature market. This momentum continues. We've put in our plan additional 800 basis points of share gains. However, we are building capacity to make sure that we can operate at 60% market share. The third big growth driver is upgrades to our current installed base of HLM machines with additional hardware and software. That growth driver will also continue to deliver acceleration of growth of our cardiopulmonary business in this segment. I think we have a prudent forecast on this business. I would say the biggest upside opportunity to it would be a faster scale of manufacturing capacity in oxygenators.
Getting to 60, being able to serve 60% of the market faster, sooner. Okay. Two follow-ups here. One is along those lines and you kind of, I asked this question last week, but I just think a lot of great information shared, a lot of great tidbits for all of us to pick up. This stood out. Oxys is what, 20-25-30% of total revenue. It seems to matter. Your forecast has you getting to, call it, 45% share of that market, up to 800 basis points, but you are building to be 60%. The 15% is just cushion.
Yeah. I'll answer this question in twofold. One is when you look at a mature product portfolio with this level of growth, it's, you know, a benchmark in MedT ech industry to have your output at roughly 80% capacity. That kind of gives you opportunity to capitalize on additional share gain if it comes and scale down if necessary and do it in a financially responsible manner. Now, to your point, you know, we've gained 10 percentage points of share over the last two years. Our forecast moving forward is more conservative than that. In a market where now we have only three players and in a market where it's a life-saving technology, it's not a nice-to-have technology, we also have a responsibility as a market leader to be able to supply the market in an accelerated manner.
I think there's a, obviously, there's a financial side in this, but there's also a public health responsibility that we have.
One more on SNs, and then we'll shift gears to the sleep apnea update. This is, I think this hits on, it's a short-term question, but it hits on maybe the innovation mindset. In the fourth quarter, my understanding, technicians going out into the field and upgrading the guts of the 1,000 SNs, give or take, that are in the field, and this kind of future-proofs them, if you will, from a chip perspective. That's my very generic understanding. My question is, why didn't those SNs have this hardware in the first place? Why do this now?
Yeah, I mean, so we didn't have availability of the PCBA board at the time of the launch. Remember, it was launched in the end of 2023, which means it went into verification, the R&D process in early 2023. We simply didn't have the capability to make that PCBA board. The general idea here is that we have aspirations for SNs to go from where it is to where it provides guidance to perfusionists. Right now, perfusion is an art. If you watch a perfusionist in the OR, they have, you know, a screen, they're monitoring multiple parameters, and they're constantly tweaking dials. We want the machine to provide some guidance. To be able to do that, you need much higher computing power. This PCBA board allows us to have a much higher computing power.
We will upgrade what's in the field, but everything leaving the factory will be with the new PCBA board. It is a one-time cost to the company. It does not impact the cost of goods of the device.
Feel good about, I'm just imagining it's very kind of one-off. You have a bunch of folks go out in the field, do the swap. The device, you're comfortable that once this happens, everyone's going to be super careful and the machine doesn't skip a beat on the back end. Just, it's kind of a regulatory quality technical question.
Yeah. When you do an upgrade like this, you essentially repeat the verification process of the device. We repeat it, demonstrate that it's equal to the existing device in performance. The machine will go through a natural software upgrade cycle when this board is installed. Moving forward, everything that is in the field will have the latest software version equal to what's leaving the factory that day. Through that upgrade in the software, you're actually ensuring that they work comparable.
You are doing this now and your team is out there.
It starts late this year, very late this year. We need to first complete exactly what I just said, the verification process, so that we are confident that there's absolutely no missing the beat, to your point.
It is an activity and a cost that carries into the first part of 2026.
We had the cost accounting-wise.
Okay, I see. Good color. Okay. Good. Let's transition to sleep apnea. New news last week. You're interested in the market. The plan is together. A lot of great information introduced. Let's just start simply. You're excited about this. This is the right path.
Yeah, we're very confident on the path and that's why I started. I always say it ticks a few boxes for us. One, it's a larger and faster growth markets versus for epilepsy, in which we compete today. It's the market where we have the right to win for a number of reasons. You know, A, we have neuromodulation capability already. B, our clinical data is differentiated. And as, and it's a more profitable market. As a result, you know, it shifts our portfolio to larger, faster growth markets with a higher profitability. We believe we have a strong right to win in this market. At this point, we see this as a de-risked opportunity from, you know, clinical point of view and then a differentiated opportunity as well from clinical and technology point of view.
The data, we've all seen it. I presume more will turn over. It absolutely looks competitive. I kind of completely understand the commercial synergy given the epilepsy heritage. The regulatory path seems straightforward, two steps, you know, first and then supplement to get the MRI device. Manufacturing, you know, how to make these IPGs. This feels close enough. The rechargeability, I don't want to like dwell on a single component, but this will be one that I could imagine the incumbent will, you know, kind of counter detail. So your device will have 15 years of battery life, but it will require, you know, a little bit of patient recharging each week. The incumbent device has 10-11 and doesn't require that action. How do you work through that? And what's the pitch?
Is it simply, this will last longer and all I need is 45 minutes twice a week? Or remind me on recharging interval. Let's start there. What is the recharging interval today? What can it be?
It's a total of one hour per week. You can do it the way you want. You could do three, 20 minutes. Actually, you don't really need one hour, but we got market research feedback that you have to have some sort of a routine for the patient. So it's actually less than one hour, but it's just such a simple way to communicate one hour per week. That's what it is.
Okay.
Do you want me to address the rechargeable piece, the battery piece, or?
Yeah, just, yeah, or, you know.
Yeah, I mean, so there's always give and take in these types of engineering decisions. The reason we chose rechargeable battery is it's really not just because of the 15 years. It's actually when you have a rechargeable battery, energy doesn't become a constraint for you. You can do as much therapy as you want, but more importantly, you can connect with the device as frequently as you want. When you have Bluetooth connection, as you all know from your cell phones, if your Bluetooth is on, your depletion is faster of the battery. In our case, you will be able to connect as a physician with the device as often as you want, as a patient as often you want, without worrying about the battery life throughout the patient's journey. That was the primary reason to have no energy constraints.
Also with Polysync, we can deploy as much energy as we want without thinking about, again, energy constraints.
That's a good segue. Over the years, as I've tried to work on this device and understand the original data and what changed, programming was kind of the, this is the challenge and maybe it goes to six electrodes and where the cuff is placed. At a high level, you know, newer folks here, like, do you agree with that? Then why, what have you figured out on programming to make this straightforward for physicians and patients in the future when you launch?
Yeah, I mean, first thing I'll communicate, the program is not done by the physician. It's done by the clinical specialist, which will be a LivaNova employee. So the people who are trained to do programming will be the ones doing the training. We don't see a big risk there. In the original trial, we didn't have enough data sets to be able to maximize a true potential of the six electrode design. With the 100 patients that we did in the study, and they were titrated more than once, so we had actually 200 patient data, we were able to develop the algorithms that enabled us to develop the Polysync titration that essentially maximizes for that patient the treatment algorithm. Now you can use multiple electrodes simultaneously or sequentially, and we know the algorithm predicts what will work for the patient.
You can actually test that during the titration at the sleep lab. That is what Polysync really is. In the beginning, we did not have the algorithms to be able to fully maximize the potential of the device. Despite that, we generated the OSPREY trial results with the most severe patients, not excluding Triple C, highest AHI, highest BMI, still got very strong response. That was without Polysync. Polysync makes us even more excited.
Would the base case in the real world be you move everyone to the six? Or if you can do it on four, you do it with four?
No, it will be Polysync. You will have your first titration with Polysync. Not every patient will need all six electrodes to be turned on. You might be two electrodes, three electrodes, four electrodes, but Polysync allows you to have that full freedom with a customized titration, again, done by the clinical specialist. The physician burden is not there.
Okay. On the Polysync topic, this was the new data, the new clinical data introduced last week. If I have the number, 35 non-responders in the trial, they were all invited back to, you know, essentially try again. 25 have opted in. You've completed 10, eight of those 10 that once were non-responders have responded. Is this, so sounds great. Should we expect as you prepare to launch commercially, this is stuff that will be published and kind of manuscripted so that it's kind of entered into the evidence armamentarium? Or is it just on investor calls we hear about how it's going?
We will most definitely publish it. We will ensure that it's on our label as well. We will have the data of 25 patients. The other thing we will do is that quickly we will generate data where patients are titrated at time zero with Polysync, and we want to see how they perform at 6, 12, 18 months. Clearly, the physicians really, when they look at HENS, they are curious about the 12-month period, but you can get a really good idea about where a patient is going to end up at six months. I mean, our trials show that too. We will design a study very quickly when we're in market to implant new patients with Polysync, which will be the commercial approach. We'll release the six-month data as well.
If you see that the Polysync results are much higher than our pivotal trial, you can confer that 12 months is going to be even better as well.
Two more on sleep, and then I want to wrap on just, and we might have to miss depression, but we'll have time to talk about that at a later date potentially. Okay, we're trying to run the numbers you laid out on sleep, and if we've stitched them all together correct, in 2030, this plan or, you know, the $200 million–$400 million wide range, it's kind of like you're implying in the U.S. you have 20% share of the wallet of the accounts, the centers that you would open, maybe 15% of the overall market. Does that, it's not a number that was in your deck, but it's a number I'm trying to apply to imply. Does that sound about right?
Yeah, we looked at some analogs outside of OSA. And when you have differentiated technology, and we kind of went on the more conservative side of it. So yeah, on the lower side of the range, we're looking at teens in terms of share on the higher range, 20+ . But what is important also to know that our technology is not contraindicated with, or Triple C is not contraindicated with our technology. And completely concentric collapse patients today, you know, represent anywhere from 25%– 30% depending on the literature. And that is excluded today from the market calculation. So when we launch our product and Triple C is not excluded, this will be within the range of the market.
You can think about even if we just look, we look at broader market, but even that, you know, when you add the Triple C patients into that market calculation, it makes our market share estimates very prudent.
Will you rename this from Aura- 6000 to something different when you launch it?
We will, yes.
Okay, figured. All right, let's wrap it all together.
Since you're such a great writer, maybe we can also use your advice on how to name it.
Okay, you have my email. I'll have a think. It's holiday season, good time for things like that. All right, let's wrap it up. EPS, you had, you issued a five-year vision, mid to high single digits through 2028 and then 25% earnings growth in the couple years thereafter. Essentially, I look at this, you bless the street. It's kind of, you know, we can debate the specific number. You essentially bless the street model in 2026 and 2027. In doing that, you've created room to invest against sleep. Is that what you think you did last week? Kind of the numbers are fine. It's going to include kind of a generational investment cycle to make sleep a thing. In the back half of the next five years, those investments will start paying off and you'll see kind of the leverage.
I'll take that one. What we did say was that 2026 and 2027 fit within that phase one profile of mid single to high single revenue and EPS CAGR over 2025– 2028 while maintaining an annual AOI Margin of 20%. Keep in mind what our AOI Margin is in 2025. It's like 20.5% Alex talked about. What that shows is that we're going to leverage our strong core and continue investing in this opportunity in OSA, which is a high growth, high margin business while leveraging our neuromodulation capabilities. With respect to 2026 specifically, we'll provide guidance on our fourth quarter call.
I think your strategic frame is absolutely spot on. This is the reason why we've guided over five years because we wanted to provide a long-term view of why we're investing over the next three to scale OSA and ultimately how that would look, you know, when that investment is realized.
Sleep has milestones, right? If something doesn't turn over in the way you had envisioned, you have an ability at those moments.
Turn on and off, yeah.
Okay. Good. We're a minute over. That was excellent. Thank you for the discussion. LivaNova, thank you for being here.
Thank you for the great.