Boston Scientific Corp (BSX) — Q4 2019 Earnings Call Transcript

Thank you, Greg. Good morning, everyone, and thanks for joining us. With me on today's call are Mike Mahoney, Chairman and Chief Executive Officer; and Dan Brennan, Executive Vice President and Chief Financial Officer.

Good morning. Thank you, Susie. Good morning, everyone. Boston Scientific finished up a strong 2019 as we significantly strengthened our portfolio and capabilities for the future by delivering strong revenue and EPS growth. Consistent with preliminary results we announced on January 14th, we delivered 14.1% operational revenue growth and 7.3% organic revenue growth for the fourth quarter of '19. This represents excellent growth, yet was below our organic revenue guidance of 8% to 9% due primarily to our US high-voltage and US EP businesses. Importantly, operational growth outside of the US in both CRM and EP were solid, as were worldwide results in five of our other divisions, which all grew at or above market, and three posted double-digit growth: Interventional Cardiology, Urology, Pelvic Health, and Endoscopy.

Thanks, Mike. Fourth quarter consolidated revenue of $2.905 billion represents 13.4% reported revenue growth and reflects an $18 million headwind from foreign exchange, slightly less than the $20 million to $25 million headwind expected at the time of the guidance. On an operational basis, revenue growth was 14.1% in the quarter. Sales from the Vertiflex and BTG acquisitions, partially offset by the divestiture of our legacy embolic beads portfolio, contributed a net 680 basis points of growth at the high end of our acquisition contribution guidance range. Of the 680 basis points, BTG contributed 610 basis points split between Interventional Medicine contributing 380 basis points and Specialty Pharmaceuticals contributing 230 basis points. The resulting 7.3% organic revenue growth in the quarter was below our organic guidance range of 8% to 9%, as Mike detailed. Despite the mix, we delivered Q4 adjusted earnings per share of $0.46, above our guidance range of $0.42 to $0.45, representing 16% year-over-year growth and 19% growth excluding the $0.01 net tax benefit in Q4 2018. Earnings were driven by healthy P&L metrics across the board, as well as an approximate $0.03 tax benefit, higher than expected at the time of our preliminary fourth quarter and full year results announcement. The tax benefit is related to both discrete tax items within the quarter, as well as a lower full year operational tax rate, which I will detail shortly. Our full year 2019 consolidated revenue of $10.735 billion grew 9.3% on a reported basis and 11.1% on an operational basis, which includes 380 basis points of growth related to the acquisitions of NxThera, Claret, Augmenix, Vertiflex, and BTG, net of the divestiture of the beads portfolio. Operational growth was in line with our guidance as the contribution from acquisitions was slightly higher than our expectations and organic growth of 7.3% was slightly below our guidance of approximately 7.5%. Full year 2019 adjusted earnings per share of $1.58 represents 8% growth, or 13% excluding the 2018 net tax benefit of $0.07 in the base. Adjusted gross margin for the fourth quarter was 73.1%, just above the midpoint of our guidance range and an improvement of 30 basis points over the prior year due to manufacturing improvements, favorable FX, and mix driven primarily by strong sales in our WATCHMAN franchise. For the full year 2019, adjusted gross margin was 72.4% within our guidance range and represents a 10 basis points improvement over 2018. The full year impact of FX to adjusted gross margin was a positive 70 basis points in line with our expectations and along with manufacturing improvements was offset by price erosion primarily in coronary drug-eluting stents and pacers. Adjusted SG&A expenses were $1,026 million or 35.3% of sales in Q4 above our guidance range, primarily due to lower sales, but an improvement of 40 basis points over the prior year period. Throughout the year, we balanced the need to fund initiatives related to key commercial launches and recent acquisitions, with our commitment to operating expense control and optimization. As a result, we were able to achieve our full year 2019 guidance and decreased adjusted SG&A spending by 30 basis points year-over-year to 35.1%. Adjusted research and development expenses were $297 million in the fourth quarter or 10.2% of sales, which is down 60 basis points from Q4 2018, primarily due to the timing of certain investments, and we're also gaining traction within our R&D efficiency efforts. For the full year 2019, adjusted R&D expenses were $1,138 million or 10.6% of sales compared to 10.7% in 2018. Royalty expense was 0.6% of sales in Q4 and the full year 2019, which was roughly flat year-over-year for both periods. As a result, Q4 2019 adjusted operating margin of 27% improved 150 basis points year-over-year and is within our guidance range of 27% to 28%. We also met our full year 2019 adjusted operating margin commitment with a rate of 26.1%, representing an improvement of 60 basis points over the full year 2018. I'll now move below the line to interest and other expense. Adjusted interest expense for the quarter was $93 million compared to $62 million in Q4 of 2018. Our average interest rate expense was 6.6% in Q4 2019, or 3.4% excluding the bond repurchase costs related to our Eurobond offering, compared to 3.5% in Q4 of 2018. Adjusted other expense for the quarter was $17 million compared to adjusted other income of $4 million a year ago, primarily due to a net gain on certain of our available-for-sale investments in Q4 2018, and both periods include expenses related to our foreign exchange hedging program. For the full year 2019, adjusted interest expense and adjusted other expenses were $325 million and $65 million, respectively, resulting in total below the line expenses of $390 million. This is in line with guidance and an increase from 2018, largely due to the acquisition of BTG, as well as the make-whole call exercised in Q1 of 2019 to execute the early retirement of our 2020 notes. Our tax rate for the fourth quarter was 4.5% on an adjusted basis, below our guidance of approximately 11% due to discrete tax benefits within the quarter, as well as a lower full year operational tax rate. Our full year tax rate was 7.3% on an adjusted basis, also below our guidance of approximately 9% due to the lower operational tax rate. On a GAAP basis, our tax rate for the fourth quarter and full year included a deferred tax benefit of $4.1 billion related to transfers of certain intellectual property rights among our various wholly-owned subsidiaries. These transactions more closely align the global economic ownership of our intellectual property rights with our current and future business operations. We ended Q4 2019 with $1.413 billion and full year 2019 with $1.411 billion fully diluted weighted average shares outstanding. Adjusted free cash flow for the quarter was $638 million compared to $659 million in Q4 2018. In the quarter, we used cash primarily to pay down $900 million of BTG-related debt, executing on our plan to achieve a debt leverage ratio of approximately 2.6 times EBITDA by the end of 2020. As of December 31, 2019, we had cash on hand of $217 million. Our full year 2019 adjusted free cash flow of $2 billion is lower than guidance and down slightly year-over-year as a result of the timing of capital expenditures and increased working capital requirements, mainly in inventory to support upcoming new product launches. We continue to target double-digit adjusted free cash flow growth for the future and our goal for full year 2020 adjusted free cash flow is $2.3 billion, which would represent 15% growth over 2019. On a GAAP basis, we recorded a net litigation-related charge of $223 million in the fourth quarter, primarily related to litigation with Channel Medsystems. This drove a $129 million sequential increase in our total legal reserve to $697 million as of December 31, 2019, which otherwise would have decreased sequentially as we continue to work to fully resolve the mesh litigation. Over 95% of all known claims are settled or in the final stages of settlement, and we expect to pay the remaining $115 million of anticipated payments into the qualified settlement funds in 2020, which will then resolve all significant existing contingencies related to mesh. As a reminder, this liability is released from our balance sheet as payments are made out of the qualified settlement funds to plan. Capital expenditures for the full year 2019 totaled $461 million, above the high end of our range of $375 million to $400 million, primarily due to timing and some pull-forward from 2020 in manufacturing capacity in anticipation of certain 2020 product launches. We expect capital expenditures to be in a range of $450 million to $475 million for 2020, as we continue to build capacity, integrate acquisitions, and position the company for growth. I'll now walk through guidance for Q1 and the full year 2020. For the full year, we expect 2020 reported revenue growth to be in a range of approximately 10% to 12%, which corresponds to 6.5% to 8.5% on an organic basis, with an approximate 350-basis-point contribution from the Vertiflex and BTG acquisitions net of the divestiture of the beads portfolio. As a reminder, Vertiflex is included in organic guidance for 2020 as of June and BTG as of August, at which time the divested beads portfolio will also no longer have an operational impact. We expect foreign exchange to be a headwind of approximately $30 million to $40 million for the full year 2020. However, as I'll detail shortly, due to our hedging program, we expect the FX impact to EPS to be neutral for the year. We expect our adjusted gross margin for the year as a percentage of sales to be approximately 72% for the full year with no FX impact. We do not anticipate material improvement over full year 2019, as manufacturing improvements will be offset by pricing declines, which are expected to be slightly higher than usual due to biannual Japan price cuts and China tenders, in addition to mixed challenges from our new high-growth products that are initially dilutive to total company gross margin, such as Exalt-D, POLARx, and LOTUS Edge. We expect full year adjusted SG&A to be in the range of 34.5% to 35%. This assumes up to 60 basis points of improvement over 2019, as we continue to execute on our cost optimization initiatives and also recognize the benefits of programs currently underway. Full year adjusted R&D is expected to be in a range of 10% to 10.5% and we expect our royalty rate to remain at less than 1% of sales for 2020. This implies a full year 2020 adjusted operating margin of approximately 26.7%, which represents 60 basis points of improvement over 2019, consistent with our previously outlined goal of 50 basis points to 100 basis points of annual improvement. We continue to make progress towards our long-term goal of 30% adjusted operating margin. We forecast our full year 2020 adjusted tax rate to be approximately 10%, consistent with our disclosure in January. This assumes an operational tax rate of approximately 11% with approximately 100 basis points of benefit from the accounting standard for stock compensation. We expect adjusted below the line expenses, which include interest payments, dilution from our VC portfolio, and costs associated with our hedging program to be approximately $400 million to $425 million for the year. And we expect fully diluted weighted average share count of approximately 1.417 billion shares for Q1 2020 and 1.421 billion shares for full year 2020. As a result, we expect full year 2020 adjusted earnings per share to be in a range of $1.74 to $1.79, representing 10% to 13% adjusted earnings growth and we expect FX to be neutral for the year if rates hold constant. On a GAAP basis, we expect earnings per share to be in a range of $0.95 to $1. Now turning to Q1 2020, we anticipate reported revenue growth to be in a range of approximately 10% to 12%, which represents 11% to 13% operational growth and an approximately 600-basis-point contribution from the Vertiflex and BTG acquisitions, net of the divestiture of the beads portfolio. On an organic basis, we believe our business, without the impact of the Coronavirus, would be in a range of 6% to 7.5% growth year-over-year. However, while we're still in the very early stages of assessing the impact and highly focused on supporting our patients and employees in China, we believe it is prudent to include a potential impact to our Q1 revenue related to the Coronavirus. Our best estimate at this time is a preliminary $10 million to $40 million potential negative impact to revenue as a result of deferred procedures, supply chain, and other disruptions. Although it is early, the Chinese healthcare system is highly focused on containing the spread of the virus, and thus, we expect to see a reduction in volume for all non-emergency medical device procedures as it will not be business as usual in China in February and March. This $10 million to $40 million potential negative impact results in Q1 2020 organic growth guidance of 5% to 7%. Full year organic growth of 6.5% to 8.5% contemplates our ability to recapture some of the lost procedure volume in China during the year, as well as other offsets throughout the remainder of the year. Note that given the leap year, Q1 includes an extra selling day over the prior year, but this equates to roughly one-half of a day sequentially based on the weighted average of selling days globally. We expect the foreign exchange impact on Q1 revenue to be an approximate $25 million to $30 million headwind. For the first quarter, adjusted earnings per share is expected to be in a range of $0.37 per share to $0.40 per share, representing 6% to 15% growth, and GAAP earnings per share is expected to be in a range of $0.16 per share to $0.19 per share. Please check our Investor Relations website for Q4 2019 financial and operational highlights, which outlines Q4 and full year results, as well as Q1 and full year 2020 guidance including P&L line item guidance. So with that, I'll turn it back to Susan, who will moderate the Q&A.

Thanks, Dan. Greg, let's open it up to questions for the next 25 minutes or so. In order to enable us to take as many questions as possible, please limit yourself to one question and one related follow-up. Greg, please go ahead.

Robbie, can you hear us?

I can hear you. Can you hear me?

We hear you now.

We can hear you.

Great. Maybe you could just start with the top-line guidance for 2020. The range is a little wider than we've seen from you historically. You have a lot of new product launches into new markets in 2020. Maybe just walk through the rationale for the wider guidance range and any important cadence issues to pay attention to?

Sure, yes. So, the full year guidance organic. You heard in the script there 6.5 to 8.5. We think a 200 basis points wide range isn't crazy for a company our size. So we think that makes sense. Similar to '19, in '19 we saw 6.3% organic in the first half and 8.3% organic in the second half. And so we expect a similar trend in 2020. As I mentioned, you'll see second half acceleration as mentioned due to the product cadence, and we can talk about the various products if you'd like, as well as the M&A train organic. And also we expect, hopefully, we aim for a resolution of the potential impact in China as we enter the second quarter. So we'll see second half acceleration and we expect many of our businesses to grow double-digit. We expect UroPH and Endo, as well as EP all to accelerate in 2020. We expect PI to put up a first quarter similar to fourth quarter. We expect nice acceleration due to important product launches in PI, as well as the integration going on plan. And we've also given the Structural Heart guidance of $900 million to $1 billion, which is a significant increase over 2019. So we're very confident in the product launches that we have across all the divisions. And the execution, our aim will be to accelerate organic revenue growth in '20 faster than we did in '19.

Great. And maybe just the follow-up on CRM at the JP Morgan Conference when you pre-announced, you thought that some of the softness in fourth quarter was due to replacements and high power. Have you been able to dig into that any further and come up with why maybe replacements were softer in December versus expectations?

Yes. So we don't have all the market data yet. It's still too early to receive kind of unit volume across the industry. Similar to what I mentioned before, we think primarily the impact in Q4 was due to our comps. We had mid-single-digit positive comps. Our competitors had negative comps, and so we don't see a – we don't believe that we lost market share in defib in fourth quarter. We think we faced a tougher comp than our competitors did. And also we don't have the ICM loop recorder yet, and some competitors include that in their sales. So, in a pure like-for-like basis, we think we held share and we do think the market is a bit softer though. We think the market in 2020, we project global CRM to be flat to declining low single-digit. And we expect – we obviously aim to continue to grow faster than the market, like we have for many years in defib, but we think the market growth is probably zero to negative 2% for the full year.

Thank you.

Thank you and good morning. So first question just wanted to ask about the guidance you're providing for the first quarter that 5% to 7% and if you use the midpoint of your assumptions on Coronavirus maybe 6% to 8% excluding that. My question is that, even excluding the slower China growth in Q1, it does feel like a deceleration from what you've been experiencing over the last couple of quarters, given the selling day and an easier comp in the first quarter. So what do you assume slows in Q1 relative to the last couple of quarters or is this just you guys being conservative?

Good morning, Bob. We are confident in the quarterly guidance we provided, as well as for the full year, and we aim to accelerate organic growth in 2020 compared to 2019, which is a key focus for us. In the first quarter, there is an additional half day, as Dan mentioned, which gives us a slight advantage when considering global selling days. However, we expect Endo to decelerate a bit from the fourth quarter, along with PI also remaining soft in the first quarter, similar to the previous quarter. These trends are aligned with our expectations. Additionally, we are facing challenges in drug-eluting stents due to price cuts in Japan and the overall pricing environment. In the first quarter, we see the CRM market remains in the zero to negative 2% range. Importantly, we have some promising mixed launches in DBS that will support our full year results, and we anticipate continued strong growth in complex coronary procedures. Other areas of the business, especially Structural Heart, should perform very well. However, in the first quarter, the combination of pricing pressures in DBS and the impact of the Coronavirus, which Dan discussed, alongside the integration of BTG, affects our guidance. Initially, we anticipated growth of 6% to 7.5% pre-Coronavirus, but we estimate that the impact from China could lower our first quarter guidance to around 5% to 7%.

Okay. And then maybe as just a sort of an obvious follow-up on that. What do you assume in Endo slows a little bit in Q1? And then also I'd love to see hear your comments on Exalt-D in terms of what you're expecting for the year out of that product? Thank you.

Endo is one of our more predictable businesses, and we have executed very well against our plans. It's common for them to experience a slightly softer first quarter. However, this softness will still be above the BSC average and likely above market expectations, so their definition of soft may not be entirely accurate. Looking at the full year, they have a promising lineup of product launches, including the new hemostasis clip, enhancements to digital SpyGlass, and most notably, the Exalt-D. We conducted our first few cases last week, and the results are very encouraging. You can expect a controlled launch in the first quarter to ensure everything is on track. Many of the contracting arrangements for capital placements are being organized now, and we are confident in a monthly acceleration for Exalt, with a larger impact anticipated in the second quarter and a significant contribution in the latter half of the year, along with the upcoming surgical scope. We are pleased with the progress on the Exalt-D launch and are excited about the early outcomes.

Great. Thank you.

And then just to give you a little bit of the math on the ranges. So the 6% to 7.5% is the range without Coronavirus for Q1 in terms of organic revenue growth. Just to let you know how we got to the 5 to 7. So the low end of 5 is basically the midpoint of 6.75 and we took the high end of the risk of 10 to 40 for the Coronavirus and took that off to get to the 5. And then, saying, similarly for the high end of 7 it's the 7.5 high end less the low end of the Coronavirus of 10 million, which brings you to the 7%. So just to give you a little bit of that math as to how it came to 5 to 7 from the 6 to 7.5.

Good morning. Just two questions for me. Dan, I want to come back to Coronavirus just to sort of set expectations. So by our quick math, China is kind of 5% of the company. Maybe it was a point of growth to 2019. I appreciate the focus in the first quarter. But picking those numbers, it seems like you're implying for first quarter that China business is either a 10% grower kind of half what you grew last year 20% or maybe slightly declined. Is that kind of roughly accurate? And what's actually in the annual guidance for impact from China given it drove a point of growth from last year? Then I had a quick follow-up.

Sure. I mean, as we talked about at our Investor Day, China was about a $500 million business growing 20%. That would imply about a $600 million business in 2020. So rough math $50 million a month. The 10 and the 40 are simply the impacts our China team that's obviously very close to the issues in China on the ground. That's how they size it today, and so that's why we included that in the Q1 guide. For the full year, as you saw, the 6.5 to 8.5, we assume that we can get some of those procedural volumes back and that other parts of the company could kick in and keep that 6.5% to 8.5% organic revenue growth range intact. But it's just the ability to react within Q1 with the acute nature of what we see as the potential in China that's why we raised it.

Okay. And then you are seeing that impact. You have seen that impact here in the early part of January into February?

As you look at China, everyone is aware of the situation. The number of medical device procedures in Q1 will not meet the expectations that were set 90 or 180 days ago. Consequently, we anticipate an impact on that business in Q1.

Okay. And then just for the guidance for the year, just two things maybe for Dan or for Mike. One, obviously, you talked about second half acceleration. Maybe just help us understand the key drivers of that second half acceleration from a product perspective? And kind of related to that, your two big products from a revenue perspective absolute dollar contribution are Augmenix and LOTUS maybe just sort of talk to your confidence in those two products and what drives that back half acceleration? Thanks so much.

Sure. We can discuss several aspects, but to focus on the most significant ones. The primary growth driver will be Structural Heart, projected to contribute around $900 million to $1 billion. We're particularly excited about the WATCHMAN product, as the new WATCHMAN FLX will be launched in the US in the latter half of the year, performing exceptionally well in Europe, alongside several major clinical trials. We anticipate robust growth for WATCHMAN. LOTUS is also performing well and is on track to reach 150 accounts, so we expect a notable impact from LOTUS throughout the year, with increasingly greater effects each quarter. Our Symetis valve, ACURATE, has exceeded company averages, experiencing mid-teens growth in the fourth quarter, and we expect the neo2 launch in the second half. Overall, Structural Heart is poised for significant growth. EXALT will serve as a valuable new revenue contributor with a stronger impact in the second half. In the PI segment, we are optimistic about quarterly improvements as we integrate BTG. New product launches from legacy BTG and potentially Ranger in the second half of 2020 will enhance our standing. In the EP segment, the POLARx product is expected to have a positive impact, especially in the latter half of the year as we ramp up its rollout. Neuro is also performing well, with Augmenix generating over $100 million and showing strong growth, alongside NxThera, which is also doing well, with five-year data anticipated soon and new reimbursement approvals from Cigna and Blue Cross. Overall, there's a lot of exciting development across our portfolio. Therefore, to reiterate Dan's statement, despite some short-term challenges in China, we remain comfortable with our full-year growth projection of 6.5% to 8.5%.

Hi, good morning, Mike. I'd like to focus on Exalt-D. It's clear that you’re excited, and we've had several detailed discussions with doctors recently. I'm pleased to report that they are eager to try it, with some showing significant interest. However, they raised concerns about its usability and how it compares to their current reusable technology. Additionally, there was uncertainty regarding pricing and costs. Can you share your confidence that Exalt-D is on par with existing reusable technology? Please also address pricing and how you plan to present the economic case to doctors and hospitals. Lastly, could you discuss the manufacturing ramp-up and how it relates to your acceleration towards a full launch? Thank you.

Thank you, Rick. The teams have been working on this multi-year program, utilizing the capabilities we've gained with LithoVue and digital SpyGlass. These capabilities have been applied to Exalt-D, and you've identified the key criteria. For this to be a successful product, it needs to match the usability and functionality of existing scopes that include sterilization costs. This has been the focus for the team over the past three to four years. The good news is we've conducted numerous procedures and involved key positions worldwide with the product for multiple years, giving us confidence in the design and visualization features. Importantly, with the FDA-approved device and our team's expertise, we can make ongoing enhancements to the platform each year. Similar to what we did with digital products and LithoVue, we anticipate annual upgrades to the platform. This product won't remain stagnant, as is often the case with reusables for many years. We plan to enhance it annually over the next several years, offering features like smaller handles and options for left-handed or right-handed users that competitors may lack. This approach should meet physician expectations and provide improvement. On the manufacturing side, we possess considerable experience and have been investing in advance, which explains the capital investment increases in 2019 and 2020 to manage expected volumes. We feel comfortable with the ramp-up we've outlined, expecting acceleration starting in the second quarter and continuing onwards. Regarding economics, it's a complex matter. We believe there's room for reimbursement, with patient costs ranging from approximately $4,000 to $12,000, and outpatient costs around $3,000 to $5,000. Additionally, we received FDA breakthrough status, which may support potential reimbursement advantages. We also have substantial pricing flexibility within our Endo business, allowing us to set prices independently while exploring contracting opportunities across our business portfolio.

Thanks so much for all that.

Thank you for taking my question. Mike, I have a follow-up regarding the guidance and one for Dan as well. Concerning the guidance, you mentioned the timing differences between the first half and the second half. If I remember correctly, last year you experienced a day impact in the second half. I understand all the comments regarding Structural Heart, but shouldn't the cadence for Structural Heart be similar to last year? So, the real growth for our new products should start to increase in the second half. Is that the correct way to look at it? Additionally, regarding the range of 6.5% to 8.5%, are you comfortable with the midpoint of that range? I appreciate the wider range given Q4 and market factors, but I would like to know if you're at ease with the midpoint.

Sure. This is Dan, Vijay. So on the Structural Heart piece, I think that's fair that as you look at the LOTUS launch that's obviously a very controlled rollout that we've had and that should gain momentum over time as should Sentinel. Mike mentioned that neo2 comes out in the second half. So I think that's fair relative to Structural Heart. We obviously wouldn't give a specific number within the guidance range of 6.5% to 8.5% organic for the full year. But then you heard in Mike's commentary that our goal is to accelerate in 2020 off 2019.

That's helpful, Dan. And then one on the margins here, Dan, I think, I heard you mention in a China tender, Japan biannual price cuts. What specifically is the impact from those factors on gross margin? And on the operating line, does it have any impact on the mix just given BTG is coming in because it looks like you're implying 50 basis points margin expansion? Thank you.

Yes, I want to highlight the launch of WATCHMAN FLX in the US, as it is significant for the WATCHMAN team, which has performed exceptionally well from the start. Regarding price impacts, overall, we are seeing a slight increase in pricing across the enterprise this year in a few areas, including the biannual price cut in Japan and constraints in China that prevent normal manufacturing cost improvements from positively affecting gross margin. Typically, manufacturing cost improvements are paired with pricing and mix, leading to an increase in gross margin. However, this year, the pricing in China and Japan is somewhat elevated, along with possible developments in the DES area, as mentioned by Mike. Consequently, we anticipate gross margin to remain around the 72% range we discussed. This aligns with our previous statements over the last two years regarding gross margin's reduced capacity to enhance operating margin improvement, which will be compensated by increases in SG&A and R&D expenses. You observed this trend in 2019, and we expect to see a similar pattern in 2020.

Thanks guys.

Good morning. Thanks for taking the questions guys. One on complex PCI, one on Neuromodulation. So your complex PCI business continues to do really well. But that's a business that we don't have a lot of visibility on. So my question for you Mike or Dan is, how are you feeling about the sustainability of growth in that business in 2020 and what are the drivers? And I had one follow-up.

Sure. That business as we've mentioned is larger than DES and continues to do very well around the globe and it's really maybe our most important business in Asia-Pac. So that strategically is a very big business for us. It requires more clinical orientation, which is also helpful and is more in our sweet spot, and also it is under less pricing pressure, I would say, compared to drug-eluting stents. So the innovation there is really important. And you see a big focus on our Ivis and rural later platform, as well as WOLVERINE, and maybe Ian can touch on some other key products. But it's really a key cadence of new products that we have, as well as a big focus on complex PCI training that we have around the globe and how our portfolio matches that.

I think you've said most of it, Mike. I think the thing I'd say, Larry, it's most important is the population is aging. And so the burden of disease is appearing later. And so we're seeing more patients with more complex conditions due to their later age, with more comorbidities, less suitable for surgery. So just the sheer demographic change is actually driving the burden of complex coronary disease in late age. So it requires more complex interventions.

That's helpful. And just on Neuromodulation, Mike and Dan, you gave a lot of helpful color on the different businesses for 2020. But I wasn't sure if I heard your expectations for Neuromodulation for 2020 relative to 2019. So how do you see that business in 2020 relative to 2019 on an organic basis? Thanks for taking the questions guys.

We are optimistic that our SCS business will accelerate compared to 2019. In 2019, the market and our SCS business were sluggish, and we faced tough comparisons from the previous year. Therefore, we anticipate improvements in our global SCS business for both 2019 and 2020. Additionally, we've discussed some of the clinical advantages of our portfolio at NANS and in our materials, which should support our expectations. Our DBS sector is showing strong momentum, with significant market share gains in Europe and the US, and more clinical studies will be presented to highlight our product differentiation. Furthermore, Vertiflex will start contributing organically in the latter half of the year. Overall, we believe that Neuromodulation will experience faster growth in 2020 compared to 2019.

Thanks for taking the questions guys.

Hi, good morning. Thanks. And just two questions, first on China, I understand you provided nice details around the 1Q potential headwind. But can you help us get a little bit more granular? And any help just in terms of your exposure in China by business unit? I mean, is Cardiovascular Interventional Cardiology most exposed or is it more broad-based? And then on the second question just WATCHMAN FLX. Many comments today just on it being a driver. Can you help us understand the boost that you'll get from WATCHMAN FLX launch? Is that premium pricing? Are there accounts out there that are waiting for WATCHMAN FLX to get over the hump to start a WATCHMAN program, or is it just deeper penetration to current accounts as WATCHMAN FLX will open up kind of more procedures in different risk categories of patients? Thanks for taking the questions.

Sure, Josh. I can start on the first one, and I think Mike can take the second one. The good news is we do have, as you mentioned, a very well-diversified portfolio in our China business. It's not reliant on one particular business within the mix. But as our team reflects on all of what's going on there. It's pretty clear that a vast majority of the healthcare resources in China are focused on diagnosing, treating, and preventing the spread of the Coronavirus and that all of the procedures are at risk of being delayed. So as we look at it, we don't say it's particular division or another, and that 10 to 40 contemplates the whole market basket of Boston Scientific business and the impact that we could see here in the first quarter.

Yes. Regarding WATCHMAN FLX, Ian or Dr. Stein can provide additional insights. In Europe, our experience has shown that we are primarily gaining market share. In the US, we haven't encountered any centers delaying openings due to the absence of WATCHMAN FLX. Therefore, we do not anticipate it will significantly influence the opening of new centers beyond what we expect with the current WATCHMAN. They can discuss the safety profile and the confidence physicians have in FLX, which should enhance their willingness to increase our utilization rates. Our main metric for WATCHMAN is utilization rates. We will continue to open more centers in the US and expand in Japan and other countries. In the US, our focus is on activating and ramping up utilization, and we believe WATCHMAN FLX will further support this growth.

I'd just add to that. I'd say the key drivers to utilization are our awareness, and we're driving that through education strategies and direct-to-patient, direct-to-physician education strategies, which is highly effective. And then procedural enhancements actually increase utilization, and WATCHMAN FLX is a substantial procedural enhancement in terms of being simpler to use, easier to recapture, and physicians immediately recognize some of the valuable procedural enhancements. And the third part of increasing utilization is building evidence. And I think the mere fact that we've announced the CHAMPION trial, a major doc versus WATCHMAN FLX trial helps to build the awareness and therefore the utilization. So I think things will be very positive.

Great. With that we'd like to conclude the call. Thanks for joining us today. We appreciate your interest in Boston Scientific. Before we disconnect, Greg will give you all the pertinent details for the replay.