Q1 2024 Earnings Summary
- Rapid Adoption of FARAPULSE Driving Strong Growth in Electrophysiology: The company's transformative FARAPULSE platform has seen exceptional uptake, with U.S. first quarter sales growing 85% organically and international sales growing 59%. Physicians appreciate its unique safety profile, ease of use, and effectiveness, leading to rapid adoption from both RF and cryo users. This has significantly contributed to the guidance raise and showcases the company's ability to meet demand with its supply chain investments.
- Innovation in Legacy Businesses Leading to Sustained Growth: Boston Scientific has successfully revitalized its Interventional Cardiology Therapy (ICTx) and Cardiac Rhythm Management (CRM) businesses. ICTx grew 13% organically driven by advanced imaging portfolios and the AGENT drug-coated balloon, while CRM's growth is propelled by their diagnostics business, including the second-generation LUX-Dx ICM device. This transformation demonstrates the company's commitment to innovation and ability to sustain growth in traditionally slower-growth markets.
- Strong Performance and Market Expansion Potential for WATCHMAN: The WATCHMAN device grew 19% globally, maintaining a strong market-leading share. Upcoming clinical trials like OPTION and CHAMPION are expected to significantly widen the market if successful. Additionally, the proposed CMS rule for a new DRG that allows combining ablation procedures with left atrial appendage closure is viewed positively, offering procedural efficiencies and benefits for patients and hospitals, which could further drive growth.
- Gross margins decreased due to higher-than-expected inventory charges, with adjusted gross margin at 69.8%, lower than anticipated. Daniel Brennan stated, "I didn't love that this quarter," attributing the decrease partly to inventory charges and less favorable product mix due to increased levels of capital placements.
- Potential delays and uncertainty in U.S. approval of ACURATE neo, which may impact growth prospects. Michael Mahoney mentioned, "In the U.S., there's really not going to be any new commentary... We are waiting for the full year follow-up... and we'll communicate in the future date the timing of the release of that clinical data and our next steps in the U.S."
- Increased reliance on new product launches like FARAPULSE may impact margins, as the launch led to higher inventory charges and a lower gross margin. Daniel Brennan indicated that inventory charges were "much more than we're used to in a given quarter," and that gross margin was "a little lower than we would have liked."
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FARAPULSE Adoption and Impact on Guidance
Q: How is FARAPULSE adoption affecting growth and guidance?
A: Management highlighted that FARAPULSE is experiencing rapid adoption, contributing significantly to growth. They are seeing excellent safety results, ease of use, and rapid adoption from both RF and cryo users in both the U.S. and Europe. FARAPULSE drove 70% overall growth, with 85% growth in the U.S., driven by new account openings and increased utilization. They expect continued strong performance, and supply chain teams are able to meet demand. However, they are not quantifying specific revenue figures for FARAPULSE at this time. -
2025 Growth Expectations and LRP Guidance
Q: Will growth accelerate in 2025 following strong 2024 guidance?
A: Management updated their Long-Range Plan (LRP) to 8% to 10% organic growth for 2024 to 2026. They are pleased with the current momentum and raised 2024 guidance to 10% to 12% organic growth. While they aim to accelerate growth in 2025, they are not committing to it at this point. -
Operating Margin Expansion Plans
Q: How will operating margins improve over the next three years?
A: The LRP outlines a 150 basis point operating margin expansion over the three years from 2024 to 2026. Management expects all lines of the P&L to contribute, with OpEx leverage driving improvements this year and gross margin contributing in 2025 and 2026. They are focused on getting back to previous gross margin levels of 72.4% achieved in 2019. -
Gross Margin Commentary and Inventory Charges
Q: What impacted gross margins this quarter, and what's the outlook?
A: Gross margin was 69.8%, lower than desired due to higher inventory charges, which were more than usual. A significant portion of the charges was associated with the success of FARAPULSE. Management is optimistic that gross margins will improve through the year, aiming to reach 70.7% or slightly below for the full year. -
Sustaining Growth in Legacy Businesses
Q: Can Interventional Cardiology and CRM maintain strong growth?
A: Interventional Cardiology grew 13%, driven by advanced imaging and complex coronary capabilities rather than drug-eluting stents, which now represent close to 4% of the company's mix. They expect further growth with the AGENT drug-coated balloon. In CRM, growth is driven by the diagnostics business, including the Preventice platform and a second-generation loop recorder. -
AGENT DCB Opportunity and Manufacturing Ramp-Up
Q: What's the status of AGENT DCB in the U.S. and expansion plans?
A: AGENT is performing well in Japan, contributing to double-digit growth. In the U.S., they are proceeding with contracting and expect sales to begin in the second quarter, ramping up in the second half and accelerating in 2025. They are evaluating opportunities to expand indications beyond in-stent restenosis to include small vessel disease and bifurcation lesions.