Boston Scientific Corporation (NYSE: BSX) Jefferies 2020 Virtual Healthcare Conference Call June 2, 2020 8:00 AM ET
Joe Fitzgerald – President
Ken Stein – Chief Medical Officer
Mark Bickel – Vice President, Finance
Susie Lisa – Investor Relations
Conference Call Participants
Raj Denhoy – Jefferies
Thank you so much for joining us today at Jefferies 2020 Virtual Healthcare Conference. I'm Raj Denhoy from the medical device research team. Now, we realized that it is a kind of time without unprecedented time, so we appreciate everyone joining us this morning for the presentation. We have Boston Scientific this morning. We have Rhythm Management and the EP team, Joe Fitzgerald, the president; Ken Stein, chief physician; We have Mark Bickel who is CFO and also Susie Lisa, who does IR. Now, before we take any questions, I think Joe and Ken had some comments I would like to make. And then I'll pass it on to you, Joe.
Thanks, Raj and thank you for having us. Wish we could be there personally, but I guess 12 weeks now in the virtual world is that we're getting a little used to this. Just a few quick statements about some of our current product launches. I will cover them for a few minutes and then Ken will talk about the clinical scientific summaries and late breakers that came out of HRS.
I would say it is only qualitative to follow our analyst, call it, pack Q1. We have seen what we expected, that is, when the country opens and when certain parts of the world open up. Qualitatively, we have seen very nice sequential growth in procedures as our laboratories around the world and the United States have begun to open up for delayed or more selectable procedures. And we've seen that in both our CRM implant business and our EP ablation business, and I'm sure we will have a question about that. Later we can give a little more color. Obviously, we don't get mid-quarter or two-thirds of the way through quarterly guidance, but we've seen what you expect is really nice qualitative returns each week, which improves itself. So that's good news.
I want to talk a little about the launches that were either smashed in the middle or launches that we expect here over the next few quarters. So first of all, let me talk about our 3300 programmers. This is the core of data, which allows us to interrogate program-diagnosed all of our active implants across brady and tachy. We continue that launch. A key feature of it, which was really opportunistic was a big thing, even though we put this in 5 years ago when we started the project, but this is a connected programmer where we can see and help either implants or interrogate with one click on a button to proprietary software system inside the heart – inside 3,300 programmers called Heart Connect, and we're really in full launch mode in the US, and we'll soon launch that launch in Europe.
In addition, we received approval for our next generation INGEVITY + easily. We got that approval in the US for a few months from launching it, it's going very well. We have approval in Japan for that, and we will start than launch in the middle of summer and then expect to go through an MDR filing for Europe, and that is likely to be pushed – it will be pushed into 2021 for that launch. LUX-Dx, which is our implantable heart monitor, which is still awaiting 510 (k) clearance, had we previously said we would get it – we expected it to be cleared in Q2, which is still our expectation. And then we start a limited market release in Europe – I'm sorry in the US once in July.
On the EP side we are very excited. We received additional approval from PMA for our DIRECTSENSE local impedance lesion assessment tool in the United States. Along with that, we have a software 4.0 that really improves our workflow in AF ablation cases. So we got that approval earlier in the quarter and we started our limited market release over the last 2 weeks, really super excited about it. And that also applies to Japan, Europe and many other markets around the world that are very important to us. At POLARx, which is our cryo balloon for AF PVI ablation. We expect to begin in early July. It slipped a little. It was not, I would say it is appropriate to try to launch that IDE during the months of March, April and May or June given the COVID impact on enrollments for clinical trials, etc. So we have targeted that for a July 1- start, as well as our European limited market release, did not really want to try to launch POLARx in the COVID crisis when looking at the Europe trends in case volume. So we move it to a July 1st target date.
And I think the latest news, I'll leave it to Ken for some clinical scientific updates. We completed our Stablepoint Power Sensing Catheter Project. We are in the process of negotiating our IDE for that with U.S. FDA. We expect that the CE mark will really be any day now, and have already submitted for approval in Japan. So when this product really becomes available, you complete the IDE that will complete most of our AF mapping and portfolio ablation. So we are very happy to have the technical call it confirmation, validation work completed with it, and now we are only suing approvals and IDE approvals.
So with that, Ken, I know you're chomping to talk a little about our late breaker and key abstract at HRS. So I want to hand it to Ken.
Yes, please. Thanks, Joe. Thanks Raj for having us. Yes, as you said, Raj, exceptional times, so I came to this, but also came to HRS from the basement of my house in New York and not there personally.
In fact, when we look at their calculations, we actually believe that large late breakers probably got more exposure, because it was held roughly in contrast to the usual encounter with three large late breakers as well as another really important abstract. And just to quickly review what we showed two very important studies, regarding S-ICD PRAETORIAN, which is the first randomized head-to-head study ever of S-ICD versus the transvenous ICD showed very convincing non-inferior, the transvenous ICD and clear evidence of superiority in reducing long-term lead-related complications. And then it was complemented by the data from our UNTOUCHED trial, which is the largest trial ever of S-ICD in its latest iteration, the EMBLEM and the EMBLEM MRI unit in a standard primary prevention population. And in that trial, we found inappropriate shock rates, below 3% with the current EMBLEM MRI device and our Smart Pass technology. And it's actually better than the best inappropriate shock rates reported and contemporary exercises with transvenous devices. So two studies that I think went very well together when it comes to the message that S-ICD should be high on the list and probably the first choice for patients with primary prevention who do not need stimulation or CRT.
The other late switch was our PINNACLE FLX data. It was the IDE trial for our next-generation Watchman device, the FLX. This lawsuit showed the lowest complication rates ever seen with the Watchman device and an IDE-type sample, and hit a landmark that I will never ever exceed during my lifetime with Boston Scientific. We actually hit 100% on the impact endpoint the FDA requested, and again, we had 100% of patients with an effective left atrial appendage seal on a 12-month backup, so never going to pass that bar again. The other one, Raj, to talk about, because it matches what Joe mentioned about DIRECTSENSE, was reported on the results of our localized study, which studied the use of our DIRECTSENSE technology to predict durable lesions for the isolation of the pulmonary veins for afib. But it turned out to be, based on the latest calculations we saw from HRS, the highest-ranking abstract of the entire meeting, beating second by a margin of 100%.
And what we found in localized was that using our DIRECT sensing technology, if you had adequate impedance that fell during ablation, over 95% was predictable to have a durable lesion and that's miles ahead of all the technology that's there outside, one of the reasons we are so excited about the DIRECTSENSE launch in the US. And then just a few comments about clinical trial cadence that Joe mentioned, we had to push the start of our frozen AF study, that's the IDE trial for our cryoballoon POLARx pending the trial in July. I mean, we also pushed the start of our modular ATP trial, which is the trial for the use of our unleaded pacemaker, the Empower system, both as a pacemaker in interaction with S-ICD. And the goal now is to start registering for that trial early in the first half of 2021.
Question and Answer Session
Q – Raj Denhoy
Great. It is very useful and thorough overview. Maybe Joe I can start with you, I mean, I have some kind of background COVID question, and we'll talk about RM and EP. At a high level, however, I believe that what you described there was an encouraging kind of improvement that is taking place. Maybe the question may be is it better or worse than maybe you thought it would be, and I know you guys provided some guidance, and I don't expect you to update it today, but by the beginning of April, things have gotten better than did you originally think they would do it at this time?
No. I want to tell you that it is very close to what we thought back to when we started thinking about what Q2 was going to look like, right. What we could not time for was when the serious closure was really the same across Western Europe, the United States and arrived late in Japan, but it was very similar, not true, with really most of the delayed and most elective procedures, hospitals was just not doing them. So, I think if something just qualitatively assesses me, I think the move to open, my opinion was maybe a week or two earlier, so you started looking at the last week in April and you saw many states, counties, municipalities the US is starting to talk about what our reopening plan looks like. So trying to share it between weeks is really tough. I think we did a pretty good job of assessing what Q2 was going to look like. I think we talked about the conversation, May looks better than April, June, as we are 2 days into June, June hopefully looks better than May. So I think if anything I would say that the move to reopen and start again may have come a week or two earlier than we thought. That's about as good as I can give you.
Understand. However, are there other metrics that you think of or look at other than just open court, whether hospitals do procedures or not, things like surgery, something you can offer sort of qualitatively around other metrics that can inform the pace of recovery?
Yes. I mean, we're watching, and we spent a lot of time with customers watching, it's the clinic back to something that looks like full operation, isn't it. Can they bring the same number of patients each week? These are the patients they evaluate and then move through the test and hopefully towards some kind of therapy. So we spent a lot of time evaluating it. You also look at what it is – we look at what is the pipeline, isn't it, you take the referral chain, whether it is doctors from primary practice, general cardiologists, but what happened to that pipeline to patients during the severe closure weeks in March through Call it mid to late April. So it's probably the two biggest ones. And then Ken, we're trying to get hold of what the patient's reluctance is. Ken, would you mention any thoughts on that?
Yes, yes. Thanks, Joe. Yes, Raj, as I am sure you do, we have reached out to our advisers. We have had a number of conversations with advisors from a variety of regions both in the US and internationally. One of the things is remarkable with many regional differences in what has happened. I'm in New York. I mean, obviously, we got really bad. If you were in the Northeast, it's probably the furthest behind regionally, and there are other parts of the country where we've talked with documents that have never seen a patient with COVID. So the tempo development is very different. I think what we have heard from people, first and foremost, especially when you look properly at the EP and Rhythm Management procedures, the procedures that are delayed, but they are not necessarily optional. You can set them off for some time, but you can't set them off forever, either because it's for a life-saving therapy, it's a generator change that needs to be done at some point over the course of a few months or even afib- patients. I mean, patients are just very symptomatic. And so people will postpone for a while, but don't think to postpone these procedures forever. And the other thing I think we've seen that you knew was a kind of tracking reluctance from people to come into the hospital, again very regionally dependent. And I think one of the things we like to point out when looking right outside the EP and Rhythm Management, right, I mean as a whole, one of the strengths of the BSC portfolio is the large number of procedures that can be done in an outpatient setting, Where this problem, at least a patient's reluctance is much less significant.
Understood. Yes, I'll get to that in a moment. One last question about the kind of COVID situation of the time, Boston, I think was one of the companies that was perhaps most aggressive maybe in cost reduction or at least talking about cost reduction, and there have been reports of 40 work weeks and pine hair and those kind of things . Even some of your competitors have noticed that they might try to take advantage of retreating here a little, maybe you can just throw us into what is actually happening on the Boston right. I mean, are these kinds of activities going on, and if you feel you are losing momentum, maybe because of the cost reduction and how long do you think these programs will continue?
And so I think you think about it like this, we saw in the second quarter back in March and obviously similar to many people, there was going to be a pretty significant decline in revenue. At the highest level, I would say that we did three things, and we did all three of them to maintain our ability to take full advantage and provide all the services and have the entire supply chain in place as each recovery begins. So obviously we took management salaries, CEO, named executive staff. We took a 50% pay cut. We took most of the United States exempt employee base and moved them to a 4-day work week and a corresponding 20% pay cut, and then put programs in place for our field employees who obviously had no intention of earning the kind of commissions and incentive payments provided the significant impact we saw in March and what we predicted in April. And – but I will tell you that we have done a good job. We haven't had any furloughs. We have not had any layoffs. We have the entire workforce in place. And that is very important, because once we have seen the recovery start, we have 100% capacity both on the workforce and both on the supply chain in our plants. So I think we took the necessary actions for our company. I don't really want to comment, Raj, on how long they will last, I think we said in our conversation that we saw – we expected a sequential improvement from April to May to June and a similar sequential improvement that happened in Q3 versus 2. quarter. So I think Susie, unless you want to make the comment, I think we took the actions we needed to resolve our 2nd quarter and I will stop there.
And I just want to add cards that I think are also lead by example right from the top, with Mike giving away the salary or others doing the same. Our board member cut by 50% and actually had a voluntary program in Europe to reduce wages, and you saw extremely high levels of participation there. Again, the messages I think have been very clear and transparent in that this was done in an effort to save capital to cut costs and to make sure we don't have to go to layoffs or furloughs like Joe it. And I also think with the communication that was probably a Q2 action. I think the level of engagement is very high and that kind of criticism is just off base.
And then Raj, another comment, let Mark Bickel comment on just the actions we took on what I would call variable consumption across all our businesses, geographies, divisions. Mark, do you want to talk about that?
Yes. I know, I mean, it's a couple of buckets. I mean, in addition to what Joe mentioned with the furlough figure, it's the obvious savings you get from things like T&E clinical trial releases, really just things that are directly related to COVID and to be quite honest, that's probably what happens with our competitors. And then the other buckets we thought were justifiable to look at our plant capacity, our stock levels, some of our exposed CapEx. Then again, I think these are very responsible reductions that we did, and then really nothing in the long run.
Understood. Yes, and I don't want to elaborate on the point, so maybe we only have about 5 or 6 minutes left, kind of such short sessions, but of course I want to spend some time on CRM, especially on RM, and EP. May Joe turn it against you, so even towards the end of last year, your core of the CRM business, pacers and I think, especially, defibrillators a bit. And there were some comments maybe around the end of the replacement cycle, heavy battery replacement cycle. Maybe you can just throw us down where you are in a sense growing in rhythm management? Do you think you are growing above or below the mark at this time, and if we continue to see erosion in your replacement cycle, will it be difficult to grow that business over the next couple of years?
Joe Fitzgerald  Yes. I want to make the comment, and Mark has studied this a lot. So I'll let him answer it. But I think when we look at the figures for the fourth quarter, I think we were in the market at worst slightly below the market, and we saw a late Q4 form deal. And that could only have been the time when Christmas and New Year fell into the cycle. When we look at the general market, I think we are much less concerned about what happened there at the end of November and December than we were when we did not see other people's figures in the market data. We looked very much like the results on the market in January, February, when you first come in March, then comes the wheels of our analytical forecasting accuracy. But, yes, I think we looked back to normal after that December blip. Mark, would you like to add some comments to our CRM trends there for Q1?
Yes. I mean, for core CRM, we've really been on a kind of 3-year period of exceeding the market since the back half of 2016. If you look at the divisions, Raj, as I know you do, Q1 to Q3, we overperformed the market both US and international every quarter. It was really the fourth quarter and it was US CRM specific. And as we got more of our market data, and in January, February, two things, Joe already mentioned that we were doing more on the market in January, February, or at least our pre-COVID market affirmation statement. But I think even more important is that we got our market data, two things we saw, one is that the de novo market was softer in the fourth quarter. It was the softest quarter of the year in the market and with BSE. And secondly, for one reason we can't really explain anything but maybe calendaring of implant days. The month of December was actually very easy for changes. And I can tell you that as we sell our change business from January to February, we return to growth in January, February. It is clear that the components have been distorted by COVID since March.
Raj Denhoy  understood. 3 minutes left, so we're going to do a bit of a quick reason here, but maybe Ken, I can turn to you on S-ICD, so obviously very positive data from HRS, but I think what people see when you can add antitachycardial stimulation to the system that opens up a whole different segment of the market for you. So maybe you can just give us quickly where you are in that process? I think you might be actually muted right now on your …
Yes, you have me. 3 months of lockdown I should have figured it out. So – yes, very excited, our authorized unit, we are studying our modular ATP trial, a lead-free pacemaker designed to communicate with S-ICD, because COVID has postponed and starts enrollment in that trial with intent in the early first half next year.
Understand, ok. And maybe only on the EP, then we have 2 minutes left here, maybe Ken, I'm going with you or maybe with Joe. So I guess the EP has been interesting because it's been a story of two cities, right. You can continue to refer us to Europe, where your documents do quite well to provide your complete product portfolio, but the US is a little behind, and maybe you could just beat us again when you think the US will finally be able to compete effectively in EP against the two big boys?
Yes. I think, if you see, Raj, and I will try to give a quick answer, right, we said last year, if you look at our arrhythmia business, then all the advanced mapping of ablation, etc., we have grown faster than the market almost every quarter since we launched it in 2014. The problem is that our business still has two-thirds – it is weighted two-thirds to some of the low growth-based diagnostic and non-advanced ablations. So I think now with the launch of DIRECTSENSE globally, I think with the launch of Stablepoint in Europe and POLARx in Europe and then other markets ahead, I think you will see us more consistently beating the market or significant market blows when we turn our business from two-thirds from old school supplies to a third advanced new stuff, we will turn it around now and the key approval of DIRECTSENSE will get Stablepoint across the development goal line and then just submissions and approvals and then launch of POLARx, I think the expectation should be that we go on a long term run of Christmas market in each of these regions as we bring these technologies to market.
And you think it's a late 20 phenomenon, what do you think we see of that growth as you start to hit the market?
Well, I said this back in the 4th and 4th quarters, and it is really we needed to get DIRECTSENSE and its associated AF workflow software. We needed that approval in the US. It was significantly delayed 2 years from what we thought we would get. So the spark we need in the US is DIRECTSENSE approval, we have that and we are in LMR now. You saw our press release a few days ago.
And to get that software and the power and cryo to Europe, I mean there are three big growth drivers that will essentially transform our European EP business. And so in Japan, we now have complete DIRECTness with the software approved in Japan, and just submitted filing for PMDA approval of 4, so we are …
Yes, I think, Raj, it's Joe, I think we're out of time. So I appreciate it, but I definitely understand your ability and who we are. So thank you again for the time today.
There is a timeline that posts it all on the IR site or through the Jefferies link. Thanks.
Great. Thanks again guys.