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
Thanks everyone for joining us today at the Jefferies 2020 Virtual Healthcare Conference. I am Raj Denhoy from the medical device research team. Now, we realized it’s kind of unprecedented time, so we appreciate everyone joining us this morning for the presentation. Now, we have Boston Scientific this morning. We have the Rhythm Management and EP team, Joe Fitzgerald, the President; Ken Stein, the Chief Medical Officer; we have Mark Bickel who is VP of Finance and also Susie Lisa, who does IR. Now, before we dig into some questions, I think Joe and Ken had some comments I want to make. And so I will turn it over to you, Joe.
Thanks, Raj and thanks for having us. Wish we could be there in person, but I guess 12 weeks now living in the virtual world is we are kind of getting used to this. Just a couple of quick statements about some of our current product launches. I will cover those over a couple of minutes and then Ken is going to talk about the clinical science abstracts and late-breakers that came out of HRS.
I will say just qualitatively following on from our analyst, call it, wrapping up Q1. We’ve seen what we expected, i.e., as the country opens up and as certain parts of the world open up. Qualitatively, we have seen a really nice sequential week to week growth in procedures as our labs around the globe and the U.S. have started to open back up for deferrable or more electable procedures. And we have seen that both in our CRM implant business and our EP ablation business and I am sure we will get a question on that. Later we can provide a little bit more color. Obviously, we are not given mid-quarter or two-thirds of the way through quarter guidance, but we have seen what you would expect is really nice qualitative return each week, which improves upon itself. So that’s good news.
I want to talk a little bit about the launches that were either smacked out in the middle of or launches that we are expecting here in the next few quarters. So first of all, let me talk about our 3,300 programmer. This is the core sort of data, which allows us to interrogate program diagnosed all of our active implantables across brady and tachy. We continue on that launch. One key feature of that, that really opportunistically was a great thing although we put this in 5 years ago when we began the project, but this is a connected programmer where we can view and assist either implants or interrogations with one click of a button into proprietary software system inside the heart – inside the 3,300 programmer called Heart Connect and we are essentially in full launch mode in the U.S. and we will shortly start that launch in Europe.
As well, we received approval for our next-generation INGEVITY+ readily. We got that approval in the U.S. for a few months into launch of that, that’s going super well. We do have approval in Japan on that and we will begin than launch mid-summer and then expect to go through an MDR filing for Europe and that’s probably pushed – it is pushed into 2021 for that launch. LUX-Dx, which is our implantable cardiac monitor, that is still pending 510(k) clearance, we had said previously we would get that – we expected to get that cleared in Q2 that is still our expectation. And then we will begin a limited market release in Europe – I am sorry in the United States sometime in the month of July.
On the EP side we are really thrilled. We got PMA supplemental approval 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 in the last 2 weeks, really super excited about that. And that also goes for both Japan, Europe and many other markets around the globe really important for us. On POLARx which is our cryo balloon for AF PVI ablation. We are expecting to begin in early July. That slipped a little bit. It really wasn’t, I would say appropriate to try to start that IDE during the months of March, April and May or June given the COVID impact on clinical trials enrollments etcetera. So, we have targeted that for a July 1 start as well as our European limited market release didn’t really want to try to launch POLARx into the COVID crisis when you looked at the Europe trends in case volumes. So, we move that to a July 1 target start date as well.
And I think last piece of news, then I will hand it over to Ken for some clinical science updates. We did complete our Stablepoint force-sensing catheter project. We are in the process of negotiating our IDE for that with the U.S. FDA. We expect CE Mark really any day now and have already submitted for approval on that in Japan. So that really once that product gets available, completes its IDE that will complete the majority of our AF mapping and ablation of portfolio. So, we are real happy to have the technical call it verification, validation work complete with that and now we are just prosecuting approvals and IDE approvals.
So with that, Ken, I know you are chomping at the bit to talk about our late-breaker and key abstracts at HRS. So I will hand it to Ken.
Yes, thanks. Thanks, Joe. Thanks Raj for having us. Yes, as you said, Raj, unprecedented times, so coming to this, but also came to HRS from the basement of my house in New York and not there in person.
Actually, looking at their metrics, we actually think our big late-breakers probably got more exposure, because it was held virtually versus the usual in-person meeting with three major late breakers as well as one other really important abstract. And just to quickly review what we showed two really important trials, regarding the S-ICD PRAETORIAN, which is the first ever head-to-head randomized study of the S-ICD versus the transvenous ICD showed very convincingly non-inferior, the transvenous ICD and clear evidence of superiority with respect to reduction of lead-related complications over the long-term. And then that was complemented with the data from our UNTOUCHED trial, which is the largest trial ever of the S-ICD in its most recent iteration, EMBLEM and the EMBLEM MRI device in a standard primary prevention population. And in that trial, we found inappropriate shock rates, sub 3% with the current EMBLEM MRI device and our Smart Pass technology. And in fact, that’s better than the best inappropriate shock rates that have been reported and contemporary practice with transvenous devices. So two trials that really, I think went together very nicely in terms of the message that the S-ICD ought to be high on the list and probably the first choice for primary prevention patients who don’t have a need for pacing or CRT.
The other late-breaker was our PINNACLE FLX data. That was the IDE trial for our next-generation Watchman device, the FLX device. That trial showed the lowest complication rates ever seen with the Watchman device and an IDE type trial and hit a landmark that I am never ever going to exceed in my lifetime with Boston Scientific. We actually hit 100% on the efficacy endpoint the FDA asked for, which was again we had 100% of patients at effective seal of the left atrial appendage at a 12-month backup, so never going to pass that bar again. The other, Raj, to talk about, because it dovetails with what Joe mentioned about DIRECTSENSE was reported the results of our localized trial, which studied the use of our DIRECTSENSE technology to predict durable lesions for pulmonary vein isolation for afib. But that turned out to be, based on the last metrics we saw from HRS, the highest viewed abstract of the entire meeting and beat number two by a margin of 100%.
And what we found in localized was that using our DIRECTSENSE technology, if you had an adequate impedance dropped during ablation, was over 95% predictive of having a durable lesion and that’s miles ahead of any technology that’s out there, one of the reasons we are so excited about the DIRECTSENSE launch in the United States. And then just a couple of comments about clinical trial cadence Joe mentioned, we did have to push off the start of our frozen AF study, that’s the IDE trial for our cryo balloon POLARx anticipating starting that trial in July. I mean, we have also pushed the start of our modular ATP trial, which is the trial for the use of our leadless pacemaker, the Empower system, both as a pacemaker in concert with the S-ICD. And the goal now is to begin enrollment in that trial early in the first half of 2021.
Q - Raj Denhoy
Great. That’s very helpful and thorough overview. Maybe Joe I can start with you, I mean, I have got a few kind of background kind of COVID questions and we will talk about RM and EP. At a high level though, I think what you described there was an encouraging sort of recovery that’s unfolding. Maybe the question could be is it better or worse than maybe you thought it would be and I know you guys gave kind of guidance and I don’t expect you are going to update it today, but in early April, have things improved better than you originally thought they would at this point?
No. I would tell you that it’s very close to what we thought back when we started to think about what Q2 was going to look like, right. What we couldn’t time was when would the severe lockdown it really was similar all across Western Europe, U.S. and came late in Japan, but it was very similar, right, with essentially most of the deferrable and most of the elective procedures, hospitals were just not doing them. So, I think if anything just me qualitatively assessing, I think the move to open, my opinion was maybe a week or two earlier, so you started to look at that last week in April and you saw many states, counties, municipalities in the U.S. start to talk about what our reopening plan look like. So trying to split that between weeks is really tough. I think we did a pretty darn good job in assessing what Q2 was going to look like. I think we have talked about on the call, May looking better than April, June, which we are 2 days into June, June hopefully looking better than May. So I think maybe if anything I would say the move to reopen and restart might have came a week or two earlier than we thought. That’s about as good as I can give you.
Understood. Are there any other metrics though that you think about or look at other than just open right, whether hospitals are doing procedures or not, things like surgery schedules, anything you can offer kind of qualitatively around other metrics that might be informing the pace of the recovery?
Yes. I mean, we look at and we spent a lot of time with customers looking at is there clinic back to something that looks like full operation, right. Can they bring the same number of patients in each week? These are the patients that they are assessing and then moving through the testing and hopefully towards some type of therapy. So we spent a lot of time evaluating that. You also look at what the – we are looking at what is the pipeline, right, you take the referral chain whether it be primary practice docs, general cardiologists, but what happened to that pipeline of patients during those severe shutdown weeks of March through call it mid to late April. So, those are probably the two biggest ones. And then Ken, we are trying to really get a handle on what the whole patient reluctance item is. Ken, you want to mention some thoughts on that?
Yes, yes. Thanks, Joe. Yes, so, Raj, as I am sure you guys are doing we have been reaching out to our advisors. We have had a series of calls with advisors from a variety of different regions both in the U.S. and international. One of the things is notable right a lot of regional differences in what’s happened. I am in New York. I mean, obviously, we got very bad. If you were in the Northeast, it’s probably the furthest behind regionally and there are other parts of the country, where we have spoken to docs who still have never seen a patient with COVID. So the pace recovery is very different. I think what we have heard from folks, first of all, particularly when you look right at EP and Rhythm Management procedures, the procedures that are deferrable, but they are not necessarily elective. You can put them off for some time, but you can’t put them off forever either because it’s for a life saving therapy, that’s a generator change that needs to be done at some point in a couple months or even for the afib patients. I mean, patients are just terribly symptomatic. And so people will delay for a while, but not going to delay forever on these procedures. And the other thing I think that we have seen you know was sort of tracking reluctance of people to come into the hospital, again very regionally dependent. And I think one of the things that we like to point to when you look just outside of 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 issue, at least a patient reluctance is much less significant.
Understood. Yes, I want to get to that in a minute. One last question on kind of the COVID situation currently, 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 has been reports of 40 work weeks and furloughs and these sorts of things. Even some of your competitors have noted that perhaps they might try to take advantage of your pulling back here a little bit maybe you could just ground us in what is actually happening at Boston right. I mean, are these types of activities taking place and if you feel like you are losing momentum perhaps 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 took a look at Q2 back in March and obviously similar to lot of people, there was going to be a pretty significant downturn in revenue. At the highest level I would say we did three things and we did all three of these to preserve our ability to take maximum advantage and provide all of the services and have all of the supply chain in place for whenever that recovery start right. So obviously we took executive salaries, CEO, named executive officers. We took a 50% pay reduction. We took the majority of our U.S. exempt employee base and move them to a 4-day work week and a corresponding 20% reduction in salary and then we put programs in place for our field sales employees who obviously were not going to earn the type of commissions and incentive payments given the significant impact that we saw in March and what we were predicting for in April. And – but I will tell you this we have done a great job. We have had no furloughs. We have had no layoffs. We have our entire workforce in place. And that’s really important because as we have seen the recovery start, we are at 100% capacity both on the manpower and both on supply chain within our plants. So I think we took the actions necessary for our company. I am really not going to comment, Raj, on how long will those last, I think we said on our call that we saw – we expected a sequential improvement April to May to June and a similar sequential improvement happening Q3 versus Q2. So I think Susie unless you want to make the comment, I think we took the actions we needed to address our Q2 and I will stop there.
And I’d just add briefly that I think is also leadership by example from the very top with Mike foregoing his salary or any others doing the same. Our Board comp cut by 50% and actually had a voluntary program in Europe for a reduction in pay and you saw extremely high participation levels there. Again, the messaging I think has been very clear and transparent throughout that this was done in an attempt to preserve capital to cut cost and to make sure that we don’t need to go to layoffs or furloughs as Joe that. And I think too with the communication that was likely a Q2 action. I think engagement level is very high and those types of criticisms are just off base.
And then Raj, one other comment, I will let Mark Bickel comment just on the actions we took on what I will call variable spend across all of our businesses, geographies, divisions. Mark, you want to talk a little bit about that?
Yes. I know, I mean, it’s a couple buckets. I mean, beyond what Joe mentioned with the headcount furlough, there is the obvious savings that you get from things like T&E clinical trial deferments, really just things that are directly tied to COVID and to be quite frank, those are probably happening at our competitors. And then the other buckets we thought it was prudent to look at our plant capacity, our inventory levels, some of our deferrable CapEx. So again, I think these are all very responsible reductions that we did and then really didn’t touch anything in the long-term.
Understood. Yes and I don’t want to belabor the point, so maybe we only have about 5 or 6 minutes left, kind of these short sessions, but I want to spend some time on CRM obviously, on our RM, in particular and EP. May Joe turning it to you, so even towards the end of last year, your core CRM business, pacers and I think particularly, defebrillators slowed a bit. And there was some commentary perhaps around the end of the replacement cycle, heavy replacement cycle on batteries. Maybe you could just ground us in where you are in a sense in growth in Rhythm Management? Do you think you are growing above or below the mark at this point and if we do see continued erosion in your replacement cycle, is it going to be difficult to grow that business over the next couple of years?
Yes. I will make the comment and Mark has studied this extensively. So I am going to let him answer it. But I think when we look at now the numbers for Q4, I think we were on market at worst slightly below market and we saw a late Q4 sort of slow down. And that could have just been to the timing of where Christmas and New Years kind of fell in the cycle. As we have looked at the general market, I think we are a lot less worried about what happened there in late November and December than we were when we didn’t see everybody else’s numbers in the market data. We saw really like on-market performance in January, February, once you get into March kind of the wheels come off of our analytical forecast accuracy. But, yes, I think we saw back to normal after that December blip. Mark, do you want to add some comments on our CRM trends there for Q1?
Yes. I mean, for core CRM, we have really been on kind of a 3-year run of exceeding market since the back half of 2016. If you look at the splits, Raj, which I know you do, Q1 to Q3, we outperformed the market both U.S. and international every quarter. It was really the fourth quarter and it was U.S. CRM specific. And as we got more of our market data and in Jan, Feb, two things, Joe already mentioned that we performed more on-market in Jan, Feb or at least our belief statement of on-market pre-COVID. But I think more importantly is we got our market data in, two things we saw, one is the de novo market was softer in the fourth quarter. It was the softest quarter in the entire year in the market and with BSE. And secondly for a reason we can’t really explain other than maybe calendarization of implant days. The month of December was in fact, very light for change-outs. And I can tell you that when we sell our January, February change-out business come in, we go back to growth in Jan, Feb. Obviously, the comps sort of have been distorted by COVID since March.
Understood. 3 minutes left, so we are going to do kind of a bit of a speed round here, but maybe Ken, I can turn to you on S-ICD, so obviously very positive data out of HRS, but I think what people are looking to is when you can add antitachycardial pacing to that system opening up a whole another segment of the market for you. So maybe you could just provide us quickly on where you are in that process? I think you might be muted actually right now on your…
Yes, you got me. 3 months of lockdown I should have figured that out. So – yes, very excited, our empowered device, we are studying our modular ATP trial, a leadless pacemaker designed to be able to communicate with the S-ICD, because of COVID have deferred and start enrollments in that trial intending early first half next year.
Understood, okay. And maybe just on EP, so we have 2 minutes left here, maybe Ken, I will leave with you or maybe with Joe. So, I guess EP has been interesting, because it’s sort of been a tale of two cities, right. You can continue to point us to Europe, where your docs are doing quite well giving your complete product portfolio, but the U.S. here a little bit behind and maybe you could just sort of ground us again on when you think the U.S. will finally be able to compete effectively in EP against the two big boys?
Yes. I think, if you look, Raj, and I will try to give a quick answer, right, we said last year, if you look at our arrhythmia business, so all of the advanced ablation mapping etcetera, we have grown faster than market nearly every quarter since we launched that in 2014. The problem is, is our business still has two-third – it’s weighted two-thirds to some of the low growth basic diagnostic and non-advanced ablation. 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 to come, I think you will see us more consistently beat market or significant beats of market as we flip our business from two-thirds old school stuff to one-third advanced new stuff we will flip that now and that key approval of DIRECTSENSE getting Stablepoint across the developmental goal line and then just submissions and approvals and then launching POLARx, I think the expectation should be that we go on a long-term run of beating market in each of those regions as we bring those technologies to market.
And you think that’s a late ‘20 phenomenon, what do you think we see take off on that growth when you start beating to market?
Well, I said this back in Q4 or Q1 and that is we really needed to get DIRECTSENSE and its associated software for the AF workflow. We needed to get that approval in the U.S. That was significantly delayed probably 2 years from what we thought we would get. So, the sort of the spark that we need the U.S. is the DIRECTSENSE approval, we have that and we are in the LMR now. You saw our press release couple of days ago.
And getting that software and force and cryo into Europe, I mean those are three major growth drivers that will essentially transform our European EP business. And then in Japan, we now have full DIRECTSENSE with the software approved in Japan and have just submitted our filing for PMDA approval of 4, so we are…
Yes, I think, Raj, it’s Joe, I think we are out of time. So, I appreciate it, but I totally understand your bullishness and as are we. So thank you guys again for the time today.
There is a timeline that lays it all out on the IR website or through the Jefferies link. Thank you.
Awesome. Thank you guys again.