All right, perfect. We're going to get going here. Welcome to the 2025 Piper Sandler Healthcare Conference. My name is Adam Maeder. I think we're live. Okay, clock's not running, but, but we are live. I'm one of the analysts here at Piper Sandler. Introducing the management team from LivaNova. With us, we have Alex Shvartsburg, CFO, and Phil Kowalczyk. Hopefully I said that correctly.
Very right.
Chief Strategy and Corporate Development Officer. Gentlemen, thanks so much for joining us.
Thanks for having us.
Thank you.
So maybe a good place to start is just, you know, on the outlook for Q4, coming off a very nice Q3 print, a successful investor day. But as we look ahead, you know, Q4 2025, just wanted to kind of frame up, you know, the outlook there. So when I look at, you know, the implied Q4 outlook, it suggests a little bit of revenue deceleration, a little bit of margin step down in 4Q. You do have the HLM investment for the circuit board, which hits in Q4. That's a headwind. Perhaps some conservatism too. But it feels like you guys are pretty happy with the underlying momentum in the business. So are there other considerations you'd like to call out? Any comments you want to make on 4Q?
Look, let's start with our year-to-date performance, has been stellar. Very pleased with how both businesses have performed. And, you know, I don't get too bent out of shape about quarters. So we guided to a very healthy, you know, 9.5%-10.5% growth for the full year. And, we expect to deliver that. The comps in Q4 always become challenging, especially, when you sort of rewind the clock back to 2023 when we launched Essence in the fourth quarter. You know, that's all, you know, just sort of trickling through. And, I think that our, you know, our performance for the full year is representative of the momentum we've seen and will continue to see.
Yeah. Okay. Perfect. Well, let's talk about 2026, obligatory question there. You know, you gave us the LRP at the Investor Day. Models, you know, have some more color out through 2030. You also broke apart the framework into two pieces: 2025 to 2028, 2028 to 2030. Haven't guided for 2026. But should we kind of apply the framework for 2025 to 2028, mid-single-digit revenue, mid-single-digit adjusted EPS, kind of growth CAGRs to, you know, to 2026? I mean, is that the right way to think about it? I'm sorry, I said mid-singles. I think it's mid-singles to high- single- mid- to high singles.
Yeah.
both on the top and bottom line. Is that the right kind of framework for 2026? And you're not really going to be building the OSA sales force in 2026. So why couldn't earnings be better than that?
Right. So, first of all, let me just, for those who haven't been following us, the framework that you're referring to as far as our LRP goes is essentially two phases. The first phase is we're going to grow top line at mid- to high-single digits. As you said, we're going to grow EPS in line with top line. And we drew the line at a 20% operating margin. So we're going to continue to see margin expansion in our core. Both CP and Epilepsy will deliver margin expansion. That will go towards funding our entry into an exciting OSA opportunity for LivaNova. The second phase of our LRP is when OSA begins to contribute meaningfully to our growth as well as our profitability.
We expect OSA to break even by 2029 and then start to generate a healthy, kind of mid-20s% margin, operating margin. So that's what where we'll see the acceleration of our performance.
Any additional thoughts around 2026, you know, as it relates to earnings? Again, just, you know, I'm thinking about you have a first half, you know, soft launch for OSA in the U.S., full launch in the back half of 2027. Presumably, you won't hire for a while in terms of, you know, sales reps. So.
Correct.
Maybe that spend doesn't really fall in 2026, or at least, you know, the first couple quarters in 2026. So just any more kind of a framework you want to give us at this point?
The only other nugget I'll provide is, we're running as fast as we can in terms of, you know, investing and delivering on our next-generation OSA device. So that will, you know, we'll continue to spend heavily in the first half of the year. So although the, you know, the commercial ramp, or the commercial hiring won't begin until the second half of the year, we're still going to be investing heavily in R&D to get that, you know, commercial-ready product for launch in the second half of 2027.
Okay. Okay. That's helpful. Maybe we can transition to CP, which has been, you know, the biggest bright spot in recent quarters. You know, I guess I actually wanted to kind of ask a question about the outlook for the next couple quarters in the sense that you have Essence launching in China, which is your second largest end market for HLMs. And it didn't seem like there was much contribution from China in Q3. Please correct me if I'm wrong.
That's right.
How do we think about the uptake there going forward and the implications for HLM growth?
Yeah. So HLM growth is going to be a big contributor to our 2026 ramp. We're going to continue to advance our placements in terms of Essence mix relative to the legacy S5 platform. So we're going to exit the year this year at 60% relative mix, and then go into 80% by the end of next year. So, you know, that's going to continue to be a meaningful driver in terms of the overall sort of price mix effect. Yeah. So, you know, I think that Essence, or China in 2026, it's going to be a meaningful contributor, but we're not solely dependent on China to get us from that 60% - 80%. So we're still selling the legacy systems in the developed markets kind of earlier this year. We've stopped that now.
And so it's largely Essence, but the comps are going to enable us to get us to that 80% mark, you know, with confidence.
Okay. Okay. Perfect. And then, you know, one other, related question on HLMs. You talked about some new potential revenue streams at the Analyst Day. I think a lot of that was on the software side of things, though I think you also talked about some future hardware upgrades as well. Just flesh those out for us in a little bit more detail. How do we think about kind of layering those growth drivers into models?
Yeah. So look, as a market leader in HLM, right, we have a significant install base that we'll be able to leverage. So, roughly 10,000 units in our install base enables us to drive ancillary equipment or hardware upgrades. So next year, we're looking to launch the Essence Air Manager and the new heater/cooler. So that's those are meaningful growth drivers for 2026, and then as we get further out into the replacement cycle and so on, we are going to launch software upgrades. So these are sort of algorithms and sensing technologies that will enable much more effective and efficient workflows for perfusionists and informing perfusionists and sort of guiding the perfusionists in terms of their ability to you know to optimize the procedure.
Okay. Fantastic. And on the hardware side, so the Air Manager, I think is what you called it, and then the heater.
Heater/cooler.
Heater/cooler.
Yeah.
Any ASP details you can share at this point in time?
I mean, it varies, right? So it depends on the customer, the country. So there's nothing to really share at this point in time. But, you know, we think they could be meaningful growth drivers, in the near term.
Okay. Okay. Perfect. And I'm going to flip over to oxygenators, which has been another, you know, fantastic business for you guys. At the Investor Day, you talked about a next-gen oxy, I believe, commercializing in 2028. Wanted to clarify, is that both U.S. and OUS? And then I also recall you all mentioning it's going to be priced at a premium. So wanted to test my luck and see if you could put a finer point on the ASP uplift.
You want to take this one?
Sure. Yeah. I think, you know, when we go out and we talk to our customers about where they'd like to see us innovate in cardiopulmonary, actually, the answer we get the most is in oxygenator. And so the opportunity to bring an oxygenator to market that improves kind of the gas transfer, that reduces kind of blood trauma as part of it, we view it as a real step change clinically. So, of course, we'd want to price that to reflect that clinical value prop. So we won't share the details of that today. But, we do see it as a meaningful driver, both in terms of price as well as continued share gains in the market.
We're going to continue to sell Inspire in, you know, sort of targeted more towards the more price-sensitive market for, you know, for a little while, until we were able to scale the next-gen oxy and take costs out and, you know, price it accordingly for those markets.
Great. In 2028, that's U.S. and OUS commercialization?
Correct. So CE Mark will lead with CE Mark and then followed by the 510(k).
Okay. Fantastic. And Phil, you just touched on share dynamics so oxys have had a really nice move over the past two years in terms of share capture. You know, I know you're investing in capacity. You have the next-gen oxy coming in 2028.
Yeah.
You gave, I believe, a target of 45% in 2030 at the Investor Day. That seems conservative given that we're kind of high 30s right now.
Sure.
Maybe just help kind of square that for us.
Yeah. I mean, so if you look back 24 months, we were at kind of the low 30s% in oxygenator share. I'd say kind of our investment in capacity and some of the other market dynamics have led us to kind of higher 30s%. We're continuing to invest in capacity in a market that is very supply-constrained today, and then obviously with the launch of the next-generation oxygenator, we see continued upgrades. We are building capacity to make sure that we run an appropriate level of safety stock. I'd say right now, this market is very much kind of hand-to-mouth in a way where you know, we're running and we're selling everything that we can make. And so we're building capacity to that buffer, but also for the opportunity to take more share if it's available to us.
We do think an appropriate number to put out there now is that 800 basis points of share increase that we take from now to 2030.
Okay. Fair enough. Let's pivot to epilepsy. And it feels like I have to start with reimbursement. CPT code 64568, which covers de novo implants for your VNS technology for drug-resistant epilepsy that was reassigned to New Technology APC 1580. Big step, increases in terms of facility reimbursement, 40%-50% range, effective January 1, 2026. You also have a replacement code that you use that was up-mapped to level 5 APC from level 4. And so, you know, a very sizable increase in facility reimbursement for your replacements as well. You know, what do we make of this? How do we think about the impact to models? I'll kind of just leave it open-ended and then we'll jump in with some more questions.
Yeah. Sure. And this is a really exciting milestone, not just for LivaNova, but for patients in what is an underserved drug-resistant epilepsy market. Currently, a significant barrier to adoption is the economics for VNS. So hospitals are operating at a loss when they make the decision to implant a VNS Therapy device. This change, both in the new code as well as the end of service, because a customer looks at not just the initial point of implant, but the lifetime value. And so having this 45%+ increase on both NPI and EOS changes that conversation fundamentally and eliminates that as a barrier to making that decision.
And so we don't see this as an opportunity for LivaNova to come in and have a step change approach in how we think about price, but we think about this rather as unlocking, potentially significantly more volume, around, you know, kind of the removal of the barrier for reimbursement. The other piece I'd add is we do have new technology coming to the market in the future. So 2027, we're launching our next-generation IPG that's Bluetooth-enabled that'll allow for remote programming. And obviously, with kind of a different economic story associated with the code, it'll allow us for more flexibility in how we think about price as we launch new innovation into the market.
Just a, I guess, clarification on pricing. So it doesn't sound like you intend to take price. Did I hear you correctly?
I mean, historically, we've taken 2%-3% annual price increases in line with kind of the inflationary increases allowed by CMS. We're going to continue to do so. Where we potentially have some tailwind in terms of pricing is today, certain accounts who are sort of call it economically disadvantaged with this therapy, you know, have negotiated call it volume-based discounts. I think some of that will go away as a result of this reimbursement increase. So that might be a nice tailwind for us.
Okay. Perfect, and the economics, Phil, you mentioned that they've been a barrier to adoption.
Yeah.
Uptake for the technology. You know, maybe can you just kind of spoon-feed us, you know, where how the economics look today and compare and contrast how they'll look in 2026 in terms of the facility?
Sure. So the increase that you mentioned, this 47% and 48% increase, on the NPI piece, for example, right now, hospitals on average will lose about $10,000-$15,000 per procedure, with an NPI device. That, with this increase, essentially goes away. And that's on the Medicare side. And then you layer in, we're 40% Medicare, 40% Medicaid, 20% commercial, where we have the premium and commercial. The net effect of eliminating that delta will actually have a positive the procedure of VNS Therapy will actually be a positive in the aggregate across the different payer types. And so that's similarly on the EOS side. It'll also kind of move the needle from that decrease to kind of parity to slight positive for the procedure.
So, the price of an NPI or a de novo IPG, $40,000? I mean, is that the right zip code? $40,000?
Yeah. Yeah.
Okay. Great. You know, I think one of the other topics that, you know, at least got my attention at the Investor Day was on the epilepsy side of things, the core data.
Yeah.
I think that this is the first time I've covered the company for, I think, 5+ years, first time I've heard you guys talk about data for epilepsy. So, you know, maybe just talk about kind of how you use that to your advantage. How do you drive penetration into advanced therapies like VNS? You know, how do you plan to kind of use the data?
Yeah. Yeah. No, absolutely. So the epilepsy strategy has three key pillars. The first is around commercial execution. And underneath that, I would lump in, you know, health economics and market access and, and this topic we've had here. The second is around innovation and our ability to drive next-generation products that, improve access is our initial focus. And then the third one is around the clinical data. And so, you know, we've had a long history, 175,000 patients, across epilepsy across 30 + years. And this is the single biggest real-world study, 800 patients, 16 countries, dozens, I think, over 60 sites, right, that's showing the true efficacy of the product. And the efficacy has evolved over time. So, you know, historical data from decades back would cite a number less 40%, 50%, but a number of changes have actually occurred since then.
You know, we've had heart rate biomarkers introduced to the technology. We've had day-night programming. We've had a better understanding of kind of the stimulation parameters required to generate efficacy. And all of that has gone into what the headline number is, which is a 76% median seizure reduction. And that is a very meaningful change in, I'd say, the broader perception of the efficacy of epilepsy. And it's going to be on LivaNova to educate the community and bring folks along to use that data to help physicians and patients kind of shape how VNS could be used as a therapy going forward. So it is an important part of the strategy, in terms of, positioning VNS correctly within the care pathway.
Okay. That's helpful. Just in the interest of time, I feel like we have to move on to obstructive sleep apnea. I know there's a lot to talk about certainly here. And maybe if we have time, we'll hit on depression quickly as well. But, OSA, you know, I guess I'll start with the question: $200 million-$400 million revenue target for OSA by 2030, you know, fairly large range, which I think is fair. But if we look at the high end and we look at the low end, how did you all arrive at those ranges? Maybe walk us through some of the assumptions, whether it's size of the end market, end market growth, share capture, those things.
Yeah. So, let me start and Phil will fill in along the way. So first of all, we assumed a continued, sort of, low double-digit growth market, right? So that the market growth is a variable in terms of the 2030 revenue range. We think it's the smallest variable, you know, of the other components that I'll mention shortly. But, you know, the other piece is we talk about PolySync and, you know, how much of a game changer it potentially is for us in terms of the efficacy of our technology. So, you know, PolySync could potentially drive higher levels of penetration that contributes to the range. And then, you know, the timing is probably the biggest factor that we looked at in assessing the 2030 range here.
We don't control the timing of FDA approvals. And so, you know, any delays, and I'm talking about, you know, months, not years, could have a meaningful impact on that range. And we're not, you know, we have a high conviction in the trajectory of this business where we were simply trying to frame kind of the guardrails of what it could look like for 2030.
Sure. Yep. Okay. That's really helpful. You know, I'd be remiss if I didn't ask about the news this morning, related to obstructive sleep apnea. You hired a global head of commercialization. You know, kind of just keep it open-ended. You know, maybe just talk about the person that you're bringing into LivaNova, you know, what attracted the company to him or her and, you know, kind of what they're going to be tasked with doing.
Yeah. Sure. Yeah. No. I mean, I think it's a statement on our conviction to the market is, you know, now, in addition to great clinical data and a great product, we're starting to build out a great team. And so we brought Lucile with 25+ experiences from an industry leader in the space. And what was important to us was really prioritizing somebody with domain expertise. And so bringing in someone that understood commercialization within the sleep and ENT space. And we brought someone over that led global businesses, for a market leader in ResMed. And, you know, we're excited to have her join and start to bring her expertise as we start to, you know, scale out the commercial organization.
Okay. Fantastic. At the investor day, you outlined, I think, 150 territories for OSA by 2030, one-to-one ratio territory managers to field specialists, so headcount of 300. But I don't think you really talked about kind of how we should think about the size of the, the team, on the, on the ground at, at the time of launch in 2027. So I guess I'm going to take the opportunity to ask you, how should we think about the number of, folks that are going to be selling the product in 2027?
Yeah. So our model is, first of all, we're going to sort of administer this in the, you know, in a fiscally responsible way, right? We've, you know, said that we'll invest accordingly, right? We've modeled the opportunity relative to the market growth and share. And, you know, we obviously size the sales force, you know, to address our assumptions there. And if I think about it, you know, we don't have to have 150 in place day one, right? So it will take some time to get there, get us to scale, by 2030. And, you know, I think we're going to be investing appropriately in accordance with our kind of the strategic framework that we laid out.
Okay. Okay. Perfect. I'm going to try and sneak in one or two on depression. I guess I'll ask the question this way in the interest of time. You know, like, let's just say you get a favorable coverage decision from CMS, you're pleased with, you know, the level of coverage, even if there's some sort of restrictions in place. You want to push forward with commercialization. You know, what does that mean for the level of OpEx spend, in the P&L? And then conversely, you don't get the answer you're looking for from CMS. You know, what does that mean for the P&L?
Okay. So let me start out with the positive assumption that we do get CMS coverage. And you know, the way we thought about it is, you know, given the fact that we have a small infrastructure in place, in terms of the commercial organization, this team has been in place since the inception of the RECOVER study. They were tasked with recruiting patients into the study and now have sort of been in this holding pattern awaiting, you know, the results from CMS. So we have a small infrastructure in place. And we can control sort of how we scale that organization, you know, based on the market reaction. So we feel good about, you know, from an economics perspective, how we could deploy the organization against the opportunity.
The one thing—and I kind of mentioned this during Investor Day—is I get excited about the opportunity that we have, the synergies that we have with our neuromodulation business today with epilepsy. We have the R&D organization, manufacturing, back office. All of the commercial operations are already in place. So we don't have to build that out, for, you know, for OSA or DTD. So, you know, we have a ton of leverage opportunity here, as we scale the both businesses.
Okay. Perfect. Well, we're out of time. A lot more questions, but clock is blinking red. So we'll conclude there. But thanks again, Alex, as well, for joining us.
Yeah. Thanks for having me.