Welcome, everyone. I'm Blake Jacobson with the J.P. Morgan Investment Banking team. Very happy to announce our next session with LivaNova. We're going to have the CEO, Vlad Makatsaria, presenting today. And then after, we'll be joined by Alex Shvartsburg for the Q&A session. So I'll leave it to them.
Thank you, Blake. And it's two difficult last names to pronounce, and you did a great job. So good afternoon, everyone. Great to see you. Thank you for joining us today. I'm Vlad Makatsaria, CEO of LivaNova. And today we prepared some brief overview of LivaNova for you, highlighting some information that we presented at our Investor Day back in November. And at the same time, I also want to discuss some of the events that occurred after that. And that includes improvement in reimbursement in our epilepsy business. It includes presentation of core VNS data at the American Epilepsy Society. And it also includes publication of manuscript covering durability data for the RECOVER study in difficult-to-treat depression. So before we begin, I just want to remind everybody that we will be making forward-looking statements. And some of the information will include certain non-GAAP financial measures.
And then for more information, please refer to our presentation.
So for those of you newer to LivaNova's story, let me give you a quick snapshot. So LivaNova is a global medtech company that has generated around $1.3 billion in revenue in the last 12 months as of September of last year, with nearly five decades of experience in market and market-leading positions in the areas that we serve. So our cardiopulmonary business provides heart, lung machines, oxygenators, and other technologies that make life-sustaining open heart surgery possible. And today, over 70% of all open heart procedures around the world use our technologies. Our epilepsy business delivers neuromodulation therapy for patients with drug-resistant epilepsy using a small implantable device that stimulates the vagus nerve to help control seizures in the instances when medication by itself is not enough.
VNS Therapy has already transformed the lives of more than 175,000 epilepsy patients around the world.
We use the similar technology for neuromodulation to enter the obstructive sleep apnea market with proximal hypoglossal nerve stimulation, or what we call PHGNS. We're poised to deliver rapid growth as we scale this new business with a differentiated technology. Finally, we have an upside opportunity using similar VNS Therapy as we do in epilepsy, but to treat difficult-to-treat depression. This is gated by CMS reimbursement decision, which we're currently in the process of. Over the past 11 quarters, we've made some strong progress on our financial performance. We delivered 10% organic revenue growth, 17% EPS growth, and generated over $400 million in adjusted free cash flow.
In order to achieve these results, the company has undergone significant strategic evolution as well as an evolution in our culture. From 2019 to 2022, LivaNova reshaped its portfolio. We made a deliberate choice to divest or exit several low-growth cardiovascular assets and to refocus our investments on a set of promising early-stage portfolio opportunities. This shift in strategy also led to a transition period that slowed down the pace of our innovation in the core businesses.
Can you mute everybody?
In recent years, we've refocused on core innovation and on the areas we have a clear right to win. As part of this refocus in 2024, we completed the wind-down of the heart failure program and the advanced circulatory support business. These actions reflect our commitment to regularly review our portfolio and optimize it. And they allowed us to reallocate financial resources, leadership attention, and operational capacity back onto our core businesses. This renewed focus, combined with targeted strategic investments, key talent upgrades, and improvements in operational excellence, has led to a recent track record that we're very proud of. And so as we continue to invest in the core, and we also leverage our neuromodulation expertise to commercialize obstructive sleep apnea while preserving an upside opportunity to enter the difficult-to-treat depression market, this serves as a foundation for our next chapter.
How do we get there? The leadership position in our epilepsy and cardiopulmonary businesses gives us a strong foundation that provides durable growth, market expansion, and consistent cash generation, allowing us to invest in our future. This enables us to grow our leadership position in our core and at the same time allows us to invest in a transformative pipeline and enter high-growth markets with attractive margin profiles. Over time, these programs will shift LivaNova's overall weighted average market growth upward, positioning us for sustained acceleration. What does this look like in more detail? Today, we have leadership in epilepsy and cardiopulmonary businesses, two attractive markets that currently grow at mid-single-digit. Our strategy is winning in those core markets to sustain above-market growth while also entering high-growth segments grounded in a clear right to win.
Our core, while unique in terms of customers and patients we serve, has something in common, and that's a significant unmet need and an opportunity for innovation, so let's start with epilepsy. It's a $700 million market today, it is significantly underpenetrated. And so that gives us a good opportunity for growth, and given low penetration for non-drug therapies and significant delays in the care pathway to get to advanced treatment options. So fewer than one out of 10 eligible drug-resistant epilepsy patients today receive non-pharmotherapy each year. And that is kind of, that's when I was talking about underpenetration. In cardiopulmonary, it's an over $2 billion market today. And it did experience accelerated growth in terms of procedures over the last few years, surpassing its historical low single-digit run rate due to an aging population, increasing surgical complexity, and also expanding global access.
Namely, emerging markets are playing a bigger part of the overall global pie today. This underlying procedure growth, combined with price increases, has led to a durable mid-single-digit market growth in the cardiopulmonary business, and this market has a well-defined unmet need around better perfusion outcomes, data, and insights to inform clinical decision-making and consistent and reliable product supply. The next phase for LivaNova's strategy is entrance into the high-growth obstructive sleep apnea market. The neuromodulation market for OSA is rapidly growing to reach $1 billion, and we expect that the double-digit growth of the market will sustain moving forward. This growth will be driven by increased awareness and rates of diagnosis for OSA, as well as increased penetration of neuromodulation solutions. Today, less than 10% of patients who fail first-line OSA therapies receive an implant.
This market has remained underpenetrated, enlarged due to the limitation in its current availability of technologies when it comes to treating difficult patients. Our ability to treat more challenging patients, such as those with higher BMI, more severe OSA, and other constraints like complete concentric collapse, will differentiate us in the market, so beyond OSA, we have significant upside potential, like I said, in our difficult-to-treat depression program. VNS and depression hold significant promise to address critical unmet need around the lack of durable and efficient solutions for the most severely depressed patients. Receiving a positive coverage decision from CMS would unlock another billion-plus dollar market growth market opportunity. We have the right to win in these high-growth neuromod markets due to the competencies developed by our epilepsy business. We can use these capabilities to both accelerate growth and shorten the path to profitability.
For example, neuromodulation product development expertise, supply chains, global footprint, and market access capabilities are well developed in LivaNova. Long-term, LivaNova has the capabilities to expand into additional attractive neuromodulation and perfusion adjacencies with a strategy grounded in our right to win and unique ability to create value. So let me double-click on the core businesses first, starting with cardiopulmonary. So cardiac surgery remains the gold standard for treating the world's most critical cardiac diseases. And as a market leader, we play a central role in delivering those lifesaving solutions to patients around the world. We're competing in a $2 billion market with a leading position in nearly every category of this market. Our growth has been based on three drivers. The first one is gaining share in the oxygenator market.
Today, over the last two years, we've increased our market share from low 30s to now high 30s in terms of % share, and our plans moving forward call for additional 800 basis points share gains over the horizon of the Strat Plan. The second growth driver is an upgrade on equipment, and the essence is our new heart-lung machine, and so an upgrade from old generation to new generation machine is leading to one of our key growth drivers, and then finally, it's using the large installed base of heart-lung machines around the world. Like I said, we have over 70% market share globally to generate continuous revenue, and this includes things like services and software upgrades. In our epilepsy business, we are the market leader in today's $700 million neuromodulation market to treat drug-resistant epilepsy. We expect to continue profitable growth in this business supported by three key levers.
The first one is impactful clinical evidence. We recently published a real-world evidence study called CORE-VNS that shows significant improvement in the results versus our pivotal study years ago. And that makes this minimally invasive therapeutic option very attractive for patients. The second one is innovation. Our connected care platform and Bluetooth-enabled generator are removing barriers to access and improving both patient experience and physician workflow. So we will have a cadence of new products coming to the market in this space. And then finally, it's sustained commercial excellence, including reimbursement and market access, where we recently have a very tangible example, effective January 1st of this year, providing reimbursement for VNS Therapy procedures under Medicare, increased significantly, close to 50% for both new patients and replacement batteries.
So we expect that this shift will improve hospital economics and help increase procedure volumes and improve penetration in this space. Next is our entrance in the sleep apnea market. Our two core businesses enable us to invest behind this big driver of growth acceleration, obstructive sleep apnea. So for patients who fail CPAP, durable second-line options are limited. Many do not qualify for HGNS, particularly patients with complete concentric collapse, who represent nearly one-third of the OSA population. We believe that this unmet need creates a compelling opportunity for a differentiated second-line neuromodulation option. Let's turn to how we will enter the space with the proximal hypoglossal nerve stimulation and the differentiated therapy designed to provide more complete control over the tongue and airway. PAGNS leverages LivaNova's in-house neuromodulation expertise across R&D, manufacturing, and commercialization.
Our approach enables treatment of a broader, more challenging patient population, including 30% of OSA patients with complete concentric collapse, through a simple procedure, a 15-year battery, and a future path to remote titration. The OSPREY study trial demonstrated the strength of our six electrodes proximal nerve architecture, which enables access to additional airway muscles affecting the tongue and airways. Triple C patients were not excluded. Approximately 45% of all participants of the trial were high-risk. Yet responder rates were comparable to pivotal studies that screened these Triple C patients out. Building on OSPREY's differentiated result, we advanced our titration algorithm called PolySync, a proprietary technology that fully leverages six electrodes to optimize therapy for each patient. In a follow-up evaluation of prior non-responders, eight out of 10 patients converted to responders, underscoring PolySync's potential to unlock unmatched efficacy and broaden market penetration.
This clinical differentiation drives our confidence and informs our commercialization strategy: lead with science, target the right physicians, and scale efficiently using our proven neuromodulation infrastructure. And then finally, difficult-to-treat depression. While DTD is excluded from our company's long-term financial projections, given the pending CMS coverage reconsideration, it represents a significant upside opportunity. For every 1% penetration of the patient cohort identified as strong candidates for VNS Therapy, we would expect $400 million-$500 million in revenue from the US alone. If CMS grants coverage, we have the ability to control pace and scale to support a commercial launch. Our pursuit of CMS coverage is based on the strong clinical results from the RECOVER trial. The RECOVER study was the biggest of its kind, involving the most severe depressed patients ever studied. It was co-sponsored by CMS through their CED program.
The study provided compelling evidence of clinically meaningful and, very importantly, sustained benefit. The RECOVER durability manuscript was recently published, demonstrating this unprecedented durability in this markedly ill patient population. So let's talk about financials and how these pieces come together in the results through 2030. So in the cardiopulmonary business, we expect mid- to high single-digit revenue growth. And moving to CP P&L, we forecast adjusted operating income margin expansion by more than 300 basis points. In epilepsy, we project maintaining a mid-single-digit revenue CAGR, and we're confident that we can expand adjusted operating income margin by 200 basis points. OSA will accelerate our growth and profitability in the long run. Our full commercial launch will take place in the second half of 2027. We will invest in building the necessary commercial infrastructure and new products over the next several years to ensure success in this space.
We expect to rapidly scale OSA revenue to between $200 and $400 million, achieving a gross margin in excess of 80% and an adjusted operating margin of 25% plus by 2030. We are also modeling an OSA break-even P&L by 2029. And although DTD is not reflected in our long-range plan, pending CMS coverage reconsideration, it represents a significant upside optionality. We recognize that delivering on this five-year plan requires a milestone-based investment strategy in the near term, aligned with market conditions. So let's step back and look at what this means for the total enterprise. As you can see, there are essentially two phases in our strategy. Phase one reflects 2025 to 2028, where the core business continues to drive mid to high single-digit revenue CAGR and margin expansion while we invest into scaling the OSA business.
During this time, we are committed to maintaining our annual adjusted operating margin above 20%. We also forecast EPS growth in line with revenue growth. The second phase captures 2028 through 2030, and during this phase, we expect OSA to begin to contribute meaningfully to enterprise margin expansion. As I stated, we expect OSA P&L to break even in 2029 and deliver a robust 25% plus operating margin by 2030. This results in a compelling financial profile over the long-term plan. From 2025 to 2030, we expect to deliver high single-digit plus revenue CAGR, exiting with adjusted operating income margin in the high 20s. This model translates into a low double-digit to mid-teens EPS CAGR. In short, we're using the strength of our core to enter the higher growth, higher margin business while capitalizing on our neuromodulation capabilities. This strategy doesn't just deliver strong financial outcomes by 2030.
It sets a foundation for us for sustainable, diversified growth and margin expansion into the future. We communicated this long-range plan at our investor day on November 12th, and since then, we had a couple of positive updates that I mentioned that further increase our already strong confidence in achieving our commitments, so as a result, these include increased reimbursement by CMS to our epilepsy business, positive reception of CORE-VNS study results, and recent publication on durability data for difficult-to-treat depression patients, so in closing, a few words. I'd like to say that I'm deeply confident in LivaNova's path forward. We're well-positioned for transformative growth and sustained value creation for our shareholders. We have the right team. We have the right strategy. And we have discipline to execute effectively. Our cardiopulmonary and epilepsy businesses together provide a stable, profitable foundation with mid-single-digit or better growth and attractive margin profile.
Our entry into OSA is de-risked, backed by compelling data and differentiated technology that addresses significant unmet needs and increases our portfolio growth. And our DTD program, which is not included in our targets, represents a pure upside. DTD would be a natural extension of our neuromodulation platform and a potential game changer pending favorable CMS reimbursement decision. So I thank you for your time and look forward to continued conversation. And with that, I'd like to invite Alex Shvartsburg to join me on the stage. And Blake will lead us in a Q&A. Thank you.
Thank you, Vlad. Very exciting.
So for you both, I want to start on the sleep apnea side. It seems like that's a very important driver of acceleration in the back half of the financial plan.
Can you walk us through some of the key elements of the commercialization strategy and how you plan to drive adoption there?
Yeah. So our focus over the last couple of years was on generating clinical evidence and then on engineering in terms of building the right product. We're now in the process of getting and receiving FDA approval for our OSA device. Now moving forward, our focus now is shifting or adding our commercialization efforts. We recently brought into LivaNova Lucile Blaise, who is a very experienced leader in the sleep space, to lead our OSA commercialization efforts, and this effort will consist of two stages. First, it will be a trial stage where we will focus on key opinion leaders, key centers. We did a study with about 150 physicians, and 97% of physicians in that study were positive about trying out our new device, and we believe that now, with more compelling clinical evidence and with more compelling and simplified procedure, we will get very good traction right away.
And then the second stage will be full launch, obviously, when we will deploy broader sales force and continue to focus on commercialization, scientific publications, market access efforts, and accelerate adoption of this procedure.
Very good, so the early PolySync results were pretty compelling, the algorithm. Could this be a true game changer for patient outcomes? And when should we expect to see that full data?
Yeah, it's a great question, and if you'd ask me about what was the one most exciting point of our investor day that we came in terms of news, that was PolySync data. So the main endpoint in the Osprey study was responder rate, and our responder rate in that study was 65%. So we've learned from the data that was used in titration during this trial, and we applied that data to fully utilize our architecture of our technology, namely six electrodes that we have in our device. And using this new algorithm, what we've done is we brought in, so we opened it up for 35 patients that were non-responders in the trial. 25 of them agreed to come back and get retitrated, and what we announced at investor day, at that point, we had 10 patients in that group. 8 out of 10 became responders.
So eight out of 10 non-responders that came in for retitration became responders. And those are the most difficult patients in the trial. So since then, we continue to bring in more patients. We haven't made the results public yet, but we will. And we will continue to study this. And when we launch our OSA device, we will launch it with PolySync titration methodology. And I believe that this is, from a clinical point of view, a complete game changer.
Great. And on OSA as well, just turning to the financial side, we can probably get Alex involved too, as you laid out a plan for OSA break-even by 2029, deliver kind of operating margins of 25% plus that following year. And you're committed to the overall company having an operating margin above 20% throughout the forecast. So just digging into that a little, and you're also investing during that time. So just digging into that a little bit, how do you plan to kind of execute that profile and also with competitors in the space?
Yeah. So let me maybe start, Alex, and I'll turn to you. So there are two dimensions in this. One is growth dimension. And we believe that clinical differentiation, the results that I talked about, and at the same time, the fact that we're going to expand the market to Triple C patients, which is roughly a third of all the patients that are currently not treated today with HGNS. So that will help us accelerate growth. And then there is kind of, I would say, the cost side of it. So within LivaNova, we currently have all the capabilities that will help us launch. So we're not launching a new company. We're launching a product with the infrastructure that already exists. And I'm talking about manufacturing capability, R&D capability, market access capability.
So those platforms that already exist in LivaNova to help other neuromodulation technologies, we can utilize them to maximize our path to profitability.
I would just add, I think Vlad said it well. Obviously, OSA has tremendous synergies with our epilepsy business. We have built a substantial infrastructure and capability, again, in manufacturing, R&D, innovation, commercial operations, health economics, and market access. These are all capabilities that exist today at LivaNova. Those are significant synergies in terms of cost synergies that accelerate our time to value. So I'm super excited about OSA because it gives us an opportunity to drive substantial growth at a high gross margin profile and get significant leverage in the middle of the P&L. Great. So switching gears a little bit on the topic of financial discipline, can you walk us through the priorities for capital allocation and what we should expect there?
Absolutely. So we talked about this at investor day. We have a high conviction in our core business in epilepsy and CP. And that is our first priority in terms of our capital allocation. We believe in those businesses will continue to grow, as Vlad just described. There's tremendous growth potential and margin expansion opportunity there. And we're going to continue to invest behind innovation. We're going to continue to invest in infrastructure such as IT, as well as our manufacturing capabilities to drive growth. Second, OSA is top of the list in terms of our capital allocation priority. We will invest behind OSA in standing up a commercial channel while leveraging the capabilities that I just described. And then thirdly, we see tuck in M&A as a third priority for us. M&A is certainly part of our toolkit.
We are absolutely ready and open to move decisively into tuck-in opportunities. It is not a critical priority, but we view it as a tool set to continue to drive growth and margin expansion in our business.
Great. And so I want to touch on epilepsy as well. You highlighted the positive news from CMS regarding the reimbursement of VNS Therapy for DRE, the drug-resistant epilepsy. How should we be thinking about the impact to your business in 2026 and the coming years of the financial plan?
So, I'll start with during the investor day. We've guided to mid-single digit growth in our epilepsy business. I was asked the question, "What is the biggest upside to that business?" And I did say that improved reimbursement would be a potential upside to it. So, the reimbursement changes that you're talking about happened on the new products, on new patients, happened after the investor day. So, just to give you a perspective, what happened over the last few months. We saw the decisions to improve reimbursement of replacement battery from level 4 to level 5. It's close to 50% improvement in reimbursement. And then we saw improvement in reimbursement on new patients from level 5 to new product category, which is also close to 50% improvement.
Now, you're rarely seeing in the med tech market 50% price reimbursement improvements on technologies that have been for a long time on the market. So we see this as a very positive sign for providers. Average patient has four replacements over their lifetime. And so if you look at economic impact on providers, it's about $40,000 additional for each epilepsy patient. So it's a significant improvement in terms of economic viability for those providers who are doing VNS procedures for epilepsy. We're in the process of assessing what this means from our growth perspective. And as we learn about this, we will communicate the news to the market. But one thing is clear for me that this was a driver, was a barrier to higher penetration. Because historically, VNS procedures for epilepsy were economically non-viable. So the hospitals were losing money on these procedures.
So now it becomes a viable economical procedure that should drive procedure penetration moving forward.
And we're essentially addressing three kinds of tactics in the near term. The first one is trying to drive expanded penetration in accounts where we already have strong relationships with. So just continuing to drive expansion of implants. Second is going after accounts that have essentially exited VNS practice because of the economics, the unfavorable economics. So that's number two. And number three is, given the unfavorable economics over time with hospitals, we've had to offer volume-based discounts to enable them to continue their practice. And so now we're going back and we'll be renegotiating those contracts again. So it presents a big opportunity for our commercial team to drive excellence in extending penetration in this category. Okay. Yeah. And I also want to touch on the strong real-world evidence from CORE-VNS you presented at the American Epilepsy Society. How is CORE-VNS changing behavior in the market?
How do you think about the financial impact it'll have as well?
Yeah. So one barrier to penetration we talked about was reimbursement. The other barrier for improved penetration is the fact that there is a perception in the medical community and some data supported it that higher efficacy from a clinical point of view is delivered by more invasive solutions for treatment of epilepsy. And ultimately, where science is going is the goal is to create less invasive solutions with higher efficacy. And this is a very important space because patients don't want devices inside their brain. And so this is kind of a very important direction for us from a science point of view. And what CORE-VNS, this was the biggest real-world evidence study that we had.
Basically, the data shows a few things, that the results today with the kind of new device that we have on the market are significantly better and comparable to the clinical evidence for more invasive therapies. That's number one. Then second is that the results get better with time. So the more you have effect of VNS Therapy, the better the results get. So we're very excited that we received very positive first reaction from the scientific community on this. And we will continue to educate the medical community and patients on data from CORE-VNS study.
We're coming up on time here. I just want to, probably the last one, I just want to talk about depression. Where do things stand with CMS? What's your latest expectations for submitting a formal NCD?
It's a great question, so first of all, I want to step back and say it's 1.2 million patients in the U.S. alone that today do not have an effective solution for treatment, and we believe that that population of patients could benefit from VNS Therapy, and so if CMS reimbursement is granted, we would be the first technology to address unmet needs in this patient population, so I'm very excited from the clinical point of view on this. We are in discussions with CMS. We chose to be very collaborative with them, and so we are working with getting their feedback on what the reimbursement request statement should be like, and so they are now reviewing it with the clinical community, and we expect over the next few weeks, we expect to receive final feedback from them on what our request should look like.
After that, we will submit a formal request for reconsideration.
Great. It was a pleasure to have LivaNova at the conference this year. Thank you very much, Vlad and Alex.
Thanks, Blake.
Thank you, Blake.
Thank you for great questions. Thank you, everyone.