Are we a go? Okay, we're go, I'm told. Everybody, welcome and good morning. I'm Joanne Wuensch. I'm a medical technology analyst here at Citi, and we are going to kick today off with the management of Boston Scientific. Thank you, Dan Brennan and Lauren Tengler, for joining us this morning. Thanks for the invitation. Pleasure to be here. a lot Help you kick off. Help me kick off. Thank you. A lot to cover. I'm gonna start with a big picture question and then we'll dig into some things. It's been almost three years to the day that the pandemic started and at that time, we were talking about silver linings and opportunities for growth and what we may actually positively learn from a very difficult situation. What do you think Boston Scientific has learned and how do you think the company may be stronger today? Yeah. Maybe, before jumping into that, I'll just give a quick recap for the folks that might not be as familiar. Oh, please do. with Boston. Just a couple quick comments. Super proud of the team, what we were able to accomplish in 2022. We grew 9% organic revenue for the year. We expanded operating margins, which was kinda unique in our sector. Actually, importantly, got back to where we were in 2019. A bit of an answer to your question there, that we were 26% operating margin in 2019. We had $375 million of global supply chain disruption and inflationary headwinds in 2022, and we stepped back to that number in 2019. Kind of a nice jumping off point for the next phase of the company's next chapter. We were proud of that last year. Fast forward to guidance. Off that 9%, we gave, I think, very solid guidance of 6%-8% earlier in February. We have continued to drive operating margin. We're gonna do that again in 2023. 26.4% is our goal in 2023, which would be nice adjusted operating margin expansion. Then I think again, a bit unique, actually, the majority of our range is double digit adjusted earnings per share growth. We're 9%-13%, which I think is a bit scarce in our sector as well. Proud of 2022 and looking forward to another great 2023, kind of rinse and repeat. As you look at, your question on where are we relative to, I mean, more procedure volumes, that type of? Anything you wanna hit. I mean, you actually sort of answered the question by saying, oh, we passed it. Yeah. I mean, I think that we have. I mean, I think we're on to 2022 was kind of a nice year coming out of 2020 and 2021 with the kind of malaise of the pandemic and such. 2022 was a nice kind of a reset year. Good results. Feel good about 2023. You know, we often get the question around procedure volume. Mm hmm. Where are you with that? I think what we see is a very positive backdrop of a macro environment within the healthcare system for growth. Are there staffing issues and things that you hear about? Absolutely. We see, and obviously, we put up 9% last year. We see a backdrop of that macro procedural environment across, you know, almost all of our procedures and our businesses that's supportive of growth. We're excited. Good. A lot of, I think, what I talk to investors about are products in the pipeline, and there's some that you're already leveraging and some that are on the, you know, here to come. Let's start with WATCHMAN. I mean, that's been a big driver of growth over the last two, three, four, five years. Where do you think it is in the evolution of penetrating the space? How do you think about the competitive landscape and what's next? Sure. I mean, WATCHMAN's a fantastic product. To answer your question very specifically, it's still only kinda high single digits to 10% penetrated of what it could be ultimately, right? Just the math answer. The why is it so successful and why do we like it so much? I think it's product and people. The product itself, it's just a great product for patients. It provides an alternative for folks that are looking for an alternative to oral anticoagulants. It's a safe procedure. It's a very well designed product. We're coming out with the next generation this year with FLX Pro. We're coming out with a steerable sheath. We're continuing to innovate. We're not resting on the laurels of what is a great franchise. We're continuing to innovate. We've crossed 300,000 patients that have been treated globally recently. We crossed $1 billion last year in sales. It grew 24% last year. Lastly, we continue to advance clinical science. We have a couple of landmark trials in OPTION and Champion that I think over time have the chance to really, you know, continue to improve that space and drive kinda outsized growth. You know, not in the next couple of years. The readouts are further out but, you know, move that up on the, on the treatment continuum to potential to get it to firstline therapy. That's, that's exciting for us. Our team, ever since the inception, has been great at working with physicians and with patients to increase awareness of the technology in the early days. You know, it was, "What is WATCHMAN?" I think we've answered that question loud and clear now. It's a great product and I think it'll be a great growth driver for us for many years. WATCHMAN FLX improved upon the original WATCHMAN. You have this next one, next generation product. How is that different and how do you think that that's gonna be adopted? Yeah. Good, great question. FLX Pro should come out later this year, early 2024. It'll have a coating on it which will further enhance healing and further reduce DRT or device related thrombus. It'll have some nice fluoro markers to help physicians know where they are and then also have a larger size. I think all these things together kinda make it a nice iteration on the existing FLX device. I don't wanna miss steerable sheath. I think that's an important driver for this business. We don't have one today and it really helps with accessing more torturous anatomies and a more efficient delivery of getting to where you need to be in the anatomy. Is there another generation after that? Like is this just something you keep iterating on and making better? I would expect us to continue to innovate here, yeah. Competition was a big theme last year, and the WATCHMAN sales plowed straight through. How do you think about expanding the market or adoption with competition in there instead of focusing on market share maybe? Great question. This is a very healthy market. Dan talked about low penetration rates. We've called the market growth roughly 25% over the 2021 to 2024 timeframe. That's just with the existing indication. We see supportive underlying growth with our continued innovation with things like steerable sheath WATCHMAN FLX Pro. I think to further enhance the opportunity for WATCHMAN, you're seeing us, you know, invest in clinical trials like OPTION, like CHAMPION-AF, which can further expand the indicated population. Within the U.S. today, roughly two million patients are indicated for WATCHMAN. With CHAMPION-AF and OPTION, that can grow to something like seven million patients and grow the TAM to something greater than $5 billion. Those are still a ways out. We completed enrollment in CHAMPIONAF faster than expected at the end of 2022. That is a three year follow up, so we're talking 2026 data, you know, 2027-ish, sort of timeframe. What about the label expansion that happened in the last year? Yeah. We did get DAPT label expansion on, you know, sort of summer of 2022. That did help on the periphery. If you had a physician that really wanted to give the patient DAPT upon right after implant in those first 45 days, you were able to really, you know, with that label, be able to treat any patient you wanted in the way that you wanted them to be treated. I do think it helped to drive some of those nice sales numbers we saw in the back half of the year. Good. I think we've finished with WATCHMAN. I do wanna spend some time on electrophysiology and FARAPULSE. EP sales were up 25% in the last quarter. Big difference between international and U.S. Can you just sort of give us a lay of the land of what's driving the overall growth rate but also the geographic dispersion? Sure. It's actually a pretty clear story. You're right, electrophysiology globally in Q4 grew 25%. That's exciting. That's clearly north of the market. That's something we have not seen from. We have a small electrophysiology business, and we haven't seen that for many years. It's heartening to see that over the last few quarters we're growing faster than the market. Why is that? It's really driven by our POLARx cryoballoon in Japan, which has done phenomenally well, and then our POLARx balloon and our FARAPULSE pulsed field ablation in Europe. Internationally, we actually grew it at 40% in the fourth quarter. That's the 40% kinda pulls the whole global franchise up to 25. The excitement there is twofold. One, it's the excitement for what we have in Europe and in Japan and it's doing extremely well. The future excitement is those are both coming to the U.S. as our goal. When you look at POLARx, the cryoballoon, goal is second half launch this year, right? When you look at FARAPULSE, pulsed field ablation, that's a 2024 launch. We'll have data readout sometime here in the second half and should have a launch as a goal in 2024. The excitement there is those are both for us starting at zero markets, right? We don't have a cryoballoon in the U.S. There's only one competitor in the U.S. For FARAPULSE, it's really the excitement of that technology. If you sit and speak with electrophysiologists, it's the excitement of what PFA could bring, the class of PFA. I think we've got a very good device within that with FARAPULSE, keeping in mind that all PFAs are not created equally. I think we've got a nice, a very nice product and just the potential for that to continue to make inroads into traditional RF ablation. You know, you have the potential for something to be faster, safer, and better. I think as good is probably good enough, but, you know, it's early data. Maybe the data show that it's better. If you have those three things, I think the opportunity for us, to really, have that franchise take off, in the U.S., continued growth ex U.S., but also the growth in the U.S. is just exciting for 2024 and beyond. Electrophysiology, which has really not contributed a ton over many years, I think is poised to contribute outsized growth for the company. Let's just pause for a second. Similar to what we just went through with WATCHMAN, how many patients? What is the dollar market opportunity, and what is the penetration rate today? We're not sharing a ton of information around that, Joanne. What I would say is out of the $8 billion electrophysiology market, it roughly half is pulmonary vein isolation with, you know, maybe threequarters of that being RF, one quarter being cryo. We see PFA falling into either one of those buckets, right? If, you know, what we're seeing in Europe today is interest from both RF users and cryo users in exploring PFA and using PFA in their patients. Really think this is a tremendous opportunity. Physicians are really enthusiastic. We've seen nice quarter-over-quarter growth in FARAPULSE within Europe, and that's in a supply constrained environment. We aren't able to provide the number of consoles we want. We're working towards having supply not be an issue at the timing of U.S. launch. It continues to improve, but it's still a factor in some of that growth. Does PFA cannibalize cryo and RF, or does it expand? It's a great question. I think there will be some amount of cannibalization, but I do think there's opportunity to potentially improve throughput as well. If you're seeing PFA procedures done in 30-ish minutes versus an hour and a half RF ablation, you know, there is opportunity to actually treat more patients in that same day. That will take time. Physicians and hospital systems will have to figure out how to manage that. I think there is opportunity to actually improve the throughput. When you say data the second half of this year, can we level set at what forum that might be? What do you consider to be a successful trial outcome? The trial is quite rigorous. That's our ADVENT IDE. It is a randomized clinical trial that is against existing modalities, so both cryo and RF. It is a non inferior trial. We are looking to be as efficacious as those other modalities. View success as achieving our endpoints, and then to the extent we can provide any other insights into PFA and how and where we think it might be best utilized, we'll do that. As for timing, second half of 2023 is the timing there. We don't know yet which conference, but we'll try to do as early as possible in that sort of second half timeframe. You'll be looking at the paroxysmal or the persistent population? Paroxysmal is what is the population included in ADVENT. It will only be paroxysmal in the second half of this year. We are initiating within the quarter our ADVANTAGE AF trial, which is for the persistent population. Paroxysmal is intermittent AF, and persistent is constant AF. To date, because of the efficacy on existing treatment, paroxysmal is the larger patient population that is treated within that $8 billion market, but there are more people who have persistent AF. There is a tremendous opportunity if we can improve the efficacy using FARAPULSE to treat this patient population and, you know and potentially expand the market. Would you anticipate U.S. growth to follow international growth? Another great question. I think we have a great opportunity to lead here. We've got, you know, first commercialized PFA product in Europe. It's been very successful. There's a lot of lessons learned. It's, it's up to us to execute on the U.S. side and, you know, working through all those supply constraints will be really critically important and frankly, a very large goal of ours. I would look forward to, you know, a strong launch in the U.S. Okay. Moving to structural heart, you do have products there and some coming around. Do you want to give us some highlights? We do. I mean, the headline one there is probably our ACURATE TAVR valve. I've heard of that. You have. That's good. With one C. That's doing well in Europe. We've said this many times. We're about 20% share in the accounts we've launched in, which we think is good performance. It's a great valve that continues to put up very positive clinical data. It's well received in Europe. A very similar story to what we just talked about. You know, our goal is to bring that to the U.S. in 2024 as well. Again, large market measured in billions, starting at zero. You know, we have a great team. We think that valve is gonna find a nice spot within the market, especially as you look at a lifetime TAVR management, and you look at, you know, supra annular valves and where they play there. I think ACURATE's gonna find a nice home in the market. We're not gonna prognosticate, you know, shares and all that. We'll launch and earn that. It's exciting because, you know, as we just talked about, you know, FARAPULSE and cryo launching in the U.S. into markets that are, you know, Cryo is probably about $1 billion globally. Obviously, Lauren went through the numbers on the ablation side. You know, TAVR market, same thing. We're starting from zero with a good product and a good team, so we're excited about that for 2024 as well. Do you have a view on market growth rate? Does it matter for Boston Scientific? I think early days, I'll leave that to the companies that are in the market today. I think early days are that, for us, it's gonna be about, you know, share capture. Growth won't be as critical for us in those early days 'cause it's a very large market, and it's under-penetrated, and, we'll just go out and see what we can do from a share standpoint. You already have Sentinel that's in the cath lab. I mean, two questions. How is that doing? Can you leverage that presence in that sales force? You can. We'll have to obviously continue to build that out over time. I think the takeaway is we will not skimp on that. When you think of our ability to capitalize on the things that we have to look forward to relative to POLARx and FARAPULSE and ACURATE, we haven't gotten to AGENT, drug-coated balloon in the U.S. yet, which will be next year. It's in Japan with reimbursement here in the first quarter. We will make sure that we invest whatever we need to commercially to make those a success. You wanna talk about AGENT? Sure. Yeah. Sure. AGENT drug-coated balloon is a coronary drug-coated balloon for in-stent restenosis. It's an alternative to whether it's a plain old balloon angioplasty, or, you know, a drug-eluting stent or bare metal stent, when you have in-stent restenosis. It's available in Japan today. It also has a small vessel indication. There's only one other player on the market, so it's pretty exciting to launch this differentiated option into this market where there is only one other player. The market opportunity broadly is around $500 million now, but we see that growing to $1 billion kind of over the long term. We're excited to bring it to the U.S., where it would be the first coronary drug-coated balloon indicated for in-stent restenosis, and that's, you know, sometime next year. When will we see data on that? Um, so It completed enrollment in August of last year, so it's a year follow up. It would be sometime thereafter, whether that's, might be too soon for a TCT, but in likely the back half of this year. Okay. Your guidance this year is 6%-8% revenue growth, and we just went through four different, if I could use the word blockbuster products. What does that do to your revenue growth rate over time? Well, I think the good news is we'll probably have an Investor Day in the fall. As we always do, we'll lay out what we think our three year, we call it LRP, long range plan, will be at that time. We'll see where we are. I think, I think it's a, I'm excited for the next chapter of the company, for 2023 and then for 2024, 2025, and 2026, kind of that next LRP period. I think we've got the opportunity to have a special chapter for the company. You've got other things behind that, some of which came through M&A. Can you highlight some of the recent M&A? Is it safe to assume tuck-in is the way that you'll keep going? I think yes, we our number one capital allocation priority is, you know, high quality, innovative tuck in M&A. I don't see that changing. It's worked well for us over the last 10 years. We've got a nice VC portfolio that helps to feed that with about 35+ companies in that portfolio. That's, call it half of our recent acquisitions have come from that portfolio. If you look at the most recent acquisitions, we just closed Acotec, which is a majority investment in a company in China. We have a couple pending in M.I.Tech, which is a majority investment in a Korean endoscopic stent company. Then Apollo, which was the company that'll tuck into our endoscopy franchise as well. I'm really proud of the 2021 class, right? You look at that, right? You go through it. I mean, we won't go through all the ones. We've hit some of them already. You have FARAPULSE, Lumenis, Devoro, Preventice, and Baylis, right? Those five companies. Devoro is still early days on that, right? In the Venus franchise with NPI. The other four, like real revenue, chunky revenue that's growing accretive to the company growth rate, and it's making a difference. You know, if you're looking for the proof positive that the tuck-in acquisition strategy works, I think the class of 2021 is a really good proof point of that because those are making a difference in 2023 and will beyond that. I'm just curious, at what stage do you say, "Okay, we have an investment here." You might have a seat on the board. You go, "Okay, time to fold that in fully." I mean, how do you think about that? Well, part of it's, you know, discussions that we have, but it's also the timing of the exit for those VC companies. Because, you know, the earlier you do it, obviously there's more, you know, risk to retire. The later you do it, maybe you missed an opportunity. You could have done it earlier. You're always trying to strike that balance. I think we try to do that. The nice part about the portfolio is there's so many companies, and they're across all of our franchises. It's not all focused on one or two franchises. Across all seven of our businesses. We get smarter about those, about those phases. When it comes time for acquisitions, if they're, if they are ready for that, which is a, it's a much lower stress, better informed situation 'cause you've been on the board. You've been with the company for four or five years. You know, as opposed to the one where you get the call and the data room's open and your bids are due in, you know, three weeks, right? We do those, too, and I think we've done those well. The VC portfolio is just a unique opportunity to provide a whole other set of seeds for that process. Okay. How do you think about some of the other segments? One of the things that struck me as we're sitting here, we're talking is, you know, we've been talking over years. Not long ago, we were talking about cardiac rhythm management and drug-eluting stents and things which are now more. Is the right way to think about it, bread and butter? They're still super important to the overall business and patients and the portfolio, right? Mm hmm. They may not grow as fast. They're growth dilutive, but they're still, you know, highly profitable and important to the, to the, to the overall P&L. One thing that you, that you do see, as they've gotten smaller, our performance on pricing has gotten better, right? Okay. Part of it's math and part of it's activities. You know, no secret, the two biggest areas of price challenges that we have are traditional CRM and drug-eluting stents. As they have grown more slowly than the company and become smaller, their impact on the overall aggregate price impact for the company has become smaller. Price has gotten better for us as a result of that. No, they're both still critically important parts of the company that fit in the overall synergistic You know, it's great to have when you're in cardiology, have stents, but then also have all the ancillary complex PCI and have SENTINEL and have eventually Atava and have LAAC. They're a nice puzzle piece, albeit that they're growth dilutive. As part of the medtech life cycle, one of the things which many companies are doing right now is they're spinning out or divesting assets they no longer view as core. Are you looking at things of that nature too, or are you just happy with everything in the family? I mean, I think that's part of good hygiene of a company is always making sure that the assets that you have are the ones that you want and contribute to achieving the strategic plan. From our standpoint, we grew 9% last year. We've got solid guidance this year, at the 6%-8% organic growth. I think everything is kind of clicking at this point. Good. Pricing. You do wanna talk a little bit about what you're seeing, many medtech companies have been talking about taking some price. In China, there's the VBP headwinds. Just a little bit geographically how you're seeing that? Yeah. Historically, for us, price has been a, you know, low single digit decline every year. Now, again, almost largely entirely driven by drug-eluting stents and CRM, as we said. As they get smaller, that helps the math equation. In other instances where with innovative technologies where the reimbursement supports it. We're able to thoughtfully, you know, this is not just us, I think the industry, thoughtfully increase price where appropriate. I mean, again, we continue to be and have been in a pretty high inflationary environment, so I think that's acceptable, and I think it's reasonable. The goal is over time that, you know, could we get that to be flat price? You know, 'cause every year starting off negative means you have to grow faster in units to get growth. Could that get to flat? That's a goal we have. You know, that might not have been the case if we were here three or four years ago. We might not have had that idea that we could get there. I think that's a reasonable goal for us now, is to get to flat. One of the things that really struck me last year is many companies were managing a host of macroeconomic headwinds, as Boston Scientific did well in doing that. Why do you think that was so? Probably a multitude of reasons, and I think the revenue growth, and it's obviously the first line on the P&L for a reason, right? It's paramount to the company. It's the life's blood of a company, right? I think we've done well over time with that, as recently as last year with the 9%. We also believe that you have to be able to move profitability and your financial results better each year as well. We kinda had two choices. We could, you know, take the $375 million headwind and just kinda use it as a backdrop and an excuse as to why we couldn't do it, or we could dig in and try and get after it and improve margins in the face of that. We did that. You know, we improved margins year-over-year, again, which was pretty scarce. The key was, for us, was again, getting back to that level that we were in 2019. Mm-hmm. In the face of that $375 million number. Just culturally, that's how we're wired. We realized that we wanna do both things. I mean, you know, we, it's tried and true. We've said it forever, right? You know, the revenue growth at the high end of the peer set, differentiated operating margin expansion and double-digit adjusted earnings per share growth. Those are kinda laminated on our corkboards, right? That's, that's how we're wired. I think the, the culture of really digging in and finding ways throughout the whole P&L, it wasn't one area of the P&L, it was the entire P&L, including FX management and all that, to be able to do that. As we gave our guidance this year, we said that the 375, we think is consistent this year. We're not banking on a lot of macro help in that regard. I think that's prudent as we sit here at the beginning of the year. We'll see what happens as the year transpires, but, you know, from a silver lining perspective, we're not saying it gets worse. Last year, to your point, we had to, you know, face 375. Now, in theory, we're facing zero because it's 375 stays 375. That's a good thing for us. I think it's prudent at this point to just assume that it stays where it is, and we'll see how the year plays out. You're one of the few companies that doesn't have sort of this first half, second half type of dynamic in margins and EPS. In fact, I think your gross margins are higher in the beginning of the year. What are the mechanics that drive that that's somewhat different in med tech? Sure. The, so it may be I don't know if it's specific to us or what, but normally our gross margins are better in the second half than they are in the first half. Yep. In the first half, you're still selling with an assumption that you're reducing your cost of your products, your standard cost of your products each year. In the first half, you're still selling the products that are costed at the old higher standard, and then in the second half, you've burned off that inventory, you're now selling the lower standard product, so you get an improvement in gross margin. That's still the case a bit this year, a bit more muted relative to inflationary challenges, but FX is really the driver of that. If you think back to last year and the trajectory of the dollar and what it did, it was, you know, relatively stable in Q1, started to strengthen into Q2, really strengthened in Q2 and Q3, and then weakened a bit in Q4. You're annualizing those, and then you put those up against the hedging contracts that you have relative to our FX program, and that drives better hedging gains and better gross margin results in the first half than the second half. We called that out 'cause for most people that have been around, they're like, "Oh, I expect Boston to have better margins, better gross margins in the second half." That's gross. At the operating, we think through the year, we should be able to continue to have operating go north against that 26.4% for the full year because there's a whole rest of the P&L to manage, right? Between sales and and all the elements of OpEx sales and SG&A and R&D, there's other, you know, levers for us to measure through that. You know, that's why we think from an operating margin perspective, it should look more traditional, which is, if you look back over history, our operating margin tends to get better as we go through the year. You know, we haven't given specific guidance as to what that number will be, but I think that's the trend we're targeting this year as well. When you wake up in the morning and you take a look at Boston Scientific, what do you worry about? The things I can't control, right? Macro things. We learn a lot about those, right? We learn things that we can do to offset them and such, but the macro events that aren't in our control, what we control, right, from in terms of our execution and our product pipeline, and our team, you know, 45,000 strong, I don't worry much about that. I like the team. I like the chapter we're in. I like the prospects ahead relative to the pipeline and the portfolio. You know, I don't worry about much, you know, that we control. What we control, I like. Very good. My ending question is, when we're here next year or the year after, what are we gonna be talking about? What's gonna be different? Well, I don't know if we have to wait a year. I think, I think it's Investor Day. I think, you know, let's get to Investor Day in the fall and we'll give you a sense of what we think the next chapter is and the different launches we have and the margin expansion trajectory and all that. You know, we do one every other year, which we think is the right cadence and, you know, tune in then and we'll see what we think. I think it's. I'm excited about the future. I look forward to it. Great. Thank you. Thank you, Dan. Thanks so much. Thanks again. Appreciate it.