Boston Scientific Corp

NYSE:BSX

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, thank you for standing by and welcome to the Boston Scientific Q1 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, today’s call is being recorded.

I would now like to turn the call over to your host, Susan Lisa. Please go ahead.

[Susan Lisa, Vice President of Investor Relations]

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

We issued a press release earlier this morning announcing our Q1 2019 results, which included reconciliations of the non-GAAP measures used in the release. We have posted a copy of that release as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading, Financials and Filings.

The duration of this morning's call will be approximately one hour. Mike will provide strategic and revenue highlights of Q1 2019. Dan will review the financials for the quarter and then provide Q2 2019 and full-year 2019 guidance and then we will take your questions. During today's Q&A session, Mike and Dan will be joined by our Chief Medical Officers, Dr. Ian Meredith and Dr. Ken Stein.

Before we begin, I would like to remind everyone that on the call, operational revenue excludes the impact of foreign currency fluctuations and organic revenue further excludes the impact of certain acquisitions including NxThera, Claret, and Augmenix, in the relevant period to which there are no prior period related net sales.

Also note, this call contains forward-looking statements within the meaning of federal securities laws which may be identified by words like anticipate, expect, believe, estimate and other similar words. They include, among other things, statements about our growth and market share, new products approvals and launches, clinical trials, cost savings and growth opportunities, our cash flow and expected use, our financial performance including sales, margins, earnings and other Q2 and full-year 2019 guidance as well as our tax rates, R&D spend and other expenses.

Actual results may differ materially from those discussed in the forward-looking statements. Factors that may cause such differences include those described in the risk factors section of our most recent 10-K and subsequent 10-Qs filed with the SEC. These statements speak only as of today's date and we disclaim any intention or obligation to update them.

At this point, I will turn it over to Mike for his comments.

[Michael Mahoney, Chairman and Chief Executive Officer]

Thank you Sussie. Good morning everyone. Boston Scientific continues to grow above market to prove our profitability, invest for the long-term, to address unmet patient needs and deliver differentiated financial performance. In the first quarter, our team delivered 7.8% operational revenue growth and 6.3% organic growth with another quarter balance across our businesses and geographic regions.

In addition, we leveraged our first quarter revenue growth to deliver 7% adjusted EPS growth to $0.35, within our guidance range despite a $0.01 charge related to the [mass market] (Ph) withdraw while generating $437 million in adjusted free cash flow.

We have high visibility to high single-digit organic growth for 2019. Even with the recent unforeseen regulatory headwinds this year related to Paclitaxel, Transvaginal Mesh and sterilization in Men’s health. While we work diligently to offset these issues the cumulative effect to make delivering on the high end or beating our original full-year 2019 revenue guidance of 7% to 8.5% organic growth a lower probability.

As a result, we are lowering the top end of our growth guidance range by 50 basis points and our full-year 2019 operational revenue growth guidance is now 8% to 9%. And organic revenue growth guidance is now seven to eight.

We are pulling up the bottom of our full-year adjusted EPS guidance from a range of $1.53 to $1.58 to a range of $1.54 to $1.58, which represents 10% to 13% year-on-year growth, excluding the benefit of the 2018 IRS settlements.

With this 2019 growth outlook, we are excited for the rest of the year and our plans to build upon our global strengths and drive sustainable long-term revenue gains, double-digit EPS growth and to continue our momentum in 2020 and beyond.

Although we are proud of our results this quarter, we are disappointed that our first quarter operational growth of 7.8 and organic of 6.3 were 70 basis points below our guidance range or approximately $15 million shortfall with $5 million of that related to the mesh.

I will briefly address where we had some revenue softness in the quarter versus our plans as well as our plans to accelerate growth from here. First, although our PI business had strong growth this quarter at 11% organic, we did feel the impact of the Paclitaxel concerns, particularly in the second half of the first quarter after the release of the FDA's Advisory letter.

While the Eluvia launches Japan remains on-track, we do expect the slower adoption of Eluvia to persist in the U.S. and Europe in second quarter, and potentially throughout the second half. The June FDA Advisory Committee panel meeting will be a key next data point and we will continue our dialogue with FDA on Eluvia's unique design characteristics, which includes controlled local release of low dose Paclitaxel from a safe and proven polymer as well as clinical superiority data.

However, we are assuming ongoing headwinds and cut in half our Eluvia revenue expectations for 2019 to reflect the current landscape. In Euro pH, we plan to overcome some of the recent headwinds, we delivered a decent quarter for Urology Public Health businesses at 14% operational and 5% organic growth despite two unanticipated events. In first quarter, we are impacted by an unexpected Illinois South - state mandated shutdown of a third-party sterilizer used for Men’s health product lines.

Fortunately, the U.S. situation has been resolved and we did receive FDA approval late March to conduct sterilization of these products at our own in-house facilities. But we do expect softness in global supply during the second quarter and we will return to full supply by the end of the second quarter.

Regarding Transvaginal Mesh for organ prolapse. Last week news will result in a full-year 2019 negative impacts of $30 million to global revenue in a $0.02 charge to adjusted EPS. A portion of this was booked in first quarter including a five million sales reserve and related inventory write offs, for nearly a $0.01 impact to adjusted EPS.

The mesh market withdrawal represents a 30 basis point dragged to both first quarter and full-year 2019 organic growth and lastly we did see some softness in our U.S. SCS business versus our internal plans.

Global Neuroma delivered a strong quarter with 12% organic growth and we believe SCS remains a very strong and underpenetrated market in the second half of this year, we are excited to release new clinical data on WaveWriter, and launch additional enhancements to both SCS and DBS platforms.

I will now provide some additional highlights in the quarter and our full 2019 outlook. So recently, we delivered strong and balanced operational growth with Asia Pac up 10, Europe up eight and the U.S. up seven. Emerging markets revenue grew 22% operationally, led once again by strong China growth. We also delivered balanced organic growth across all our businesses, 7% in both med surge and cardiovascular, 6% in rhythm and neuro.

Turning to some of the businesses, we delivered 8% organic growth in endoscopy, which is broad based and fueled by infection prevention performance, as well as excellent results in a Biliary portfolio driven by the AXIOS Stent in the recent launch of SpyGlass Digital II.

In addition, the quarter reflects strong early launch results in ORISE Gel, a key component of our Endoluminal Surgery portfolio and our new Jagwire Revolution Guidewire and for the balance of the year we expect continuous strength in Endoscopy sales to the ongoing ramp of these new product launches as well as the ORCAPOD single use valve.

Importantly, we remain on-track for a year in 2019 launch of our Exalt-D Single-Use Duodenoscope, which is use in ERCP procedures. We believe the Exalt-D can help meet a significant unmet need for hospitals and patients.

And two weeks ago the U.S. FDA issued a safety communication regarding sculpt reprocessing. Preliminary results of the FDA report indicated higher than expected levels of contamination up to 5.4% of samples tested positive for organisms of high concern, such as E-coli and multidrug resistant pathogen.

The FDA also stated that there continues to be a need for improvement of the safety of reprocess Duodenoscope, and noted that in addition to its March 2018, warning letters to reusable scope manufacturers agency continue to encourage the development of new technology and design features.

The Exalt model D Single-Use scope has been designed to address this exact issue by eliminating scope disinfection challenges completely. This platform represents a significant opportunity in 2020 and beyond.

As mentioned, urology and public health grew 14% operationally and 5% organically in first quarter and reflects an approximate 200 basis point negative impact from mesh sales reserves, recorded in first quarter. LithoVue led sales in our Cornerstone portfolio, and - the urology acquisitions of Augmenix and NxThera are both executing the plan.

Resume results were reinforced by publication of four year trial data with a low 4.4% surgical retreatment rate and no newer adverse events noted between years three and four, as well as the initiation of a resume specific TPT code for physician reimbursement on January 1st.

As mentioned, we expect softer Uro PH revenue in second quarter given the Men’s health sterilization impact, and the remaining 25 million expected negative revenue impact in Q2 to Q4 to the global removal of mesh products for public organ prolapse.

However, we do expect Uro PH revenue growth to be accretive to the company average in second half and full-year 2019 as core growth remains robust. The mental sterilization matters resolved and recent acquisitions of NxThera and Augmenix anniversary and become organic as of May and October respectively.

Within the Neuro grew 6% in the quarter led by 12%, growth in neuromod, 10 and EP and three in cardiac rhythm management, which are all organic. The 12% neuromodulation revenue growth was driven by continued gains in the U.S. by our WaveWriter Spinal Cord Stimulation, and Vercise Deep Brain Stimulation platforms.

Global FEF sales were up 7% as WaveWriter's unique ability to offer combination waveform therapies, both for Paresthesia and sub perception continues to resonate the physicians and patients. And we look forward to improve growth with upcoming new product enhancements and the presentation of updated one year real world data on WaveWriter at INS later this quarter. And in GBS, we anticipate to continue the precise momentum as we roll off a Cartesia Directional Leads in the U.S. and expect MRI labeling in the second half.

Global cardiac rhythm management sales grew above market at 3% organic led by mid single-digit growth in defib sales, against a double-digit comparison, reflecting ongoing uptake of our RESONATE platform and its heart logic heart failure alerts, as well as strong growth of Emblem SICD.

Our device replacement cycle is also tracking to expectations and we are now the number two global share player in the high voltage market. Pacer sales did decline mid-single-digits, which is a significant improvement compared to 2018 trends, which will low double-digit declines.

We anticipate a modest pacer headwind for full-year 2019 and importantly, we aim to more than offset this with continued global presentation of our defib portfolio in both CRT-D and ITD, resulting in another year of above market worldwide TRM growth.

EP sales grew 10% organic in the quarter led by the Arrhythmia HDX mapping and navigation platforms as well as uptake of our direct sense catheter in Europe and enthusiasm for RHYTHMIA LUMIPOINT points software.

In AFib single-shot market, we are excited about the progress made by both our Cryo and our balloon programs. We are working to secure CE mark approval for these technologies and begin U.S. IDE enrollments by year-end 2019, pending completion of program deliverables and discussions with FDA. Last month, presented compelling Apama data set, AF-FICIENT 1, demonstrating the excellent balloon performance, no adverse events and attractive procedure times.

Turning to cardiovascular the group, they grew 7% organic and first quarter 2019.Peripheral interventions grew 11% organic in the quarter led by the Eluvia DS launch in the U.S. and double-digit growth in interventional oncology and arterial.

We are also excited about the anticipated upcoming FDA approval and launching the Vici Viniti stent which comes from the VENITI acquisition of last August. And despite the Paclitaxel headwind, we also expect our PI business will deliver full-year 2019 organic growth that is well accretive to the Company's overall growth rate.

To update you on the BTG acquisition, we remain on-track for mid-year closing, have been received shareholder approval in February. And we are excited for the opportunity to expand our PI and interventional oncology portfolio.

And lastly, BTG reported results for the first 12 months ended March 31st. Oncology and vascular sales grew 15% to 17% in-line with BTG's guidance, spec pharma sales grew double-digit ahead of guidance and royalty revenues was probably flat versus the prior year period, reflecting the launch of U.S. generic competition for ZYTIGA.

Our interventional cardiology business grew 6% operationally and 5% organically in the quarter. Growth in Q1 was led by strong structural results in mid-teens growth and complex PCI products, offset by softness and drug-eluting stents.

We expect overall interventional cardiology growth to accelerate from first quarter on due to strong growth in complex coronary products, easing DES comps, the launch of Promus ELITE and U.S. approval LOTUS Edge and the continued momentum of structural heart with our broader portfolio, capabilities and scale.

WATCHMAN had another excellent quarter as we continue to increase utilization and to expand WATCHMANs international footprint and we are pleased with the March European launch of NextGen WATCHMAN FLX. We also received Japan approval of WATCHMAN during the quarter. To remain on-track for reimbursement approval and commercial launch in Japan during the third quarter for WATCHMAN.

Our ACURATE TAVR valve platform is the fastest growing valve in Europe and delivered nearly 30% growth in the quarter. We plan to begin enrollment in our US IDE for ACURATE neo2 around mid-year with similar European launch timing. We also began a controlled commercial launch of LOTUS Edge in Europe late in first quarter and also enrolling patients in REPRISE IV intermediate risk study and also received FDA approval last night for LOTUS.

We will begin to control the U.S. launch immediately and we believe LOTUS Edge is a differentiated value that will be sought after by physicians and operators both as a workforce valve as well as the valve that can be counted on to provide superior outcomes in complex cases, like heavy calcified native valves and bicuspid valves.

And finally, the SENTINEL cerebral embolic protection device continues to build excellent momentum. We are now in more than 200 accounts with SENTINEL where usage rate exceed 60% and we believe that protected TAVR is an emerging standard of care. So the combined strength of WATCHMAN, ACCURATE, LOTUS Edge and SENTINEL position us well to deliver on our guidance for 700 to 725 million in structural heart revenue in 2019.

For the close, I would like to share again my enthusiasm for our outlook in 2019 and beyond and we believe that Boston Scientific continues to be uniquely positioned to drive shareholder value due to our long-term growth profile, meaningful opportunity, improved margins, track record of recording double-digit adjusted EPS growth and our improving ability to deploy capital. So we are looking forward to discussing this outlook and our exciting technology pipeline at our investor day, which will be June 26th in New York.

I really want to thank again our employees once again for their winning spirit and their ongoing commitment to advancing science for life. And Dan will now provide a detailed review of our financials.

[Daniel Brennan]

Thanks, Mike. First quarter consolidated revenue of $2,493 billion, represents 4.8% reported revenue growth and 7.8% growth on an operational basis, which excludes the impact of foreign currency fluctuations. Our reported revenue reflects a $73 million headwind from foreign exchange, slightly unfavorable to the $60 million to $65 million headwind expected at the time of guidance.

Sales from the NxThera, Claret and Augmenix acquisitions contributed 150 basis points, roughly in-line with our expectations at the time of guidance, resulting in 6.3 organic revenue growth for the quarter. This 6.3% includes a negative 30 basis point impact from the mesh market withdraw.

Q1 adjusted EPS of $0.35 grew 7% over the prior year, and was within our guidance range. While there were several puts and takes to the P&L in the quarter, on balance they net to zero resulting in that $0.35 EPS number.

To summarize quickly, we had $0.02 in charges related to the mesh withdrawal and an investment impairment. And they were basically offset by the $0.02 net litigation benefit. While the costs of the make-hold call related to the February bond offering were offset by a lower tax rate. None of these items was included in the Q1, 2019 guidance.

The FX impact on adjusted earnings per share with immaterial as expected at the time of guidance. Adjusted gross margin for the quarter was 71.4%, below our guidance range of 72% to 73%. This represents a 90 basis point decline over the prior year, driven by product mix, particularly lighter sales in Men’s health, neuromodulation and coronary drug eluting stents, as well as mesh related inventory reserves, and unfavorable manufacturing variances.

Adjusted SG&A expenses were $855 million, or 34.3% of sales in the quarter, down 120 basis points year-over-year, and outperforming our guidance range of 35% to 36%. The favorable result in SG&A was due to a combination of the operating expense reductions from ongoing optimization initiatives, as well as an approximate net $25 million non-recurring litigation related benefit in the quarter, including a portion of the Edwards Litigation Settlement.

Adjusted research and development expenses were $271 million in the first quarter, or 10.9% of sales at the high end of our range and up slightly year-over-year, due to additional mesh accruals related to the mesh withdrawal. Royalty expense was 0.6% of sales roughly flat versus the prior year.

As a result, Q1, 2019 adjusted operating margin of 25.6% increased 30 basis points year-over-year near the midpoint of our guidance range of 25% to 26%. If you normalize for the SG&A benefit from litigation, adjusted operating margin would have been approximately 24.6%, but then normalizing for the 40 basis point and negative impact from the mesh withdrawal places us back at the low end of our range. We are reiterating our full-year adjusted operating margin guidance of 26% to 26.5%, which represents a 50 to 100 basis point improvement over the 2018 rate of 25.5%.

Now, I will move below the line to interest another expense. Adjusted interest expense for the quarter was $83 million, this is a $22 million increase from Q1 2018 largely due to exercising the make-whole call to retire early are 2020 notes, given the favorable market conditions for our February public bond offerings.

Our average interest expense rate was 4.7% in Q1, 2019 compared to 4.1% in Q1 2018 and reflects the offering which totaled $4.3 billion aggregate principal amount of senior notes, the proceeds from which will impart be used to finance a portion of the proposed BTG acquisition. We remain committed to our BTG delivering goals targeting $1 billion in debt repayment with an 18 months post deal closing and a leverage ratio of 2.5 times debt-to-EBITDA within two years.

Adjusted other expense was $28 million in the quarter and includes a minor impairment related to one of our venture holdings. The remainder of adjusted other consists of dilution from our equity method investments and exchange losses related to our hedging program.

Our tax rate for the first quarter was 7.1% on a GAAP basis and 6.9% on an adjusted basis below our guidance range of approximately 11% for the quarter due to our higher than expected benefit from stock compensation accounting in the quarter, as well as a reduction in our estimated annual effective tax rate, which I will discuss as part of the full-year guidance.

Adjusted free cash flow for the quarter was $437 million, compared to $283 million in Q1 of last year. In the quarter, we used cash primarily to fund the closing of the Millipede acquisition. We continue to expect full-year adjusted free cash flow to be $2.2 billion.

We believe we are approaching the resolution of Mesh litigation with over 95% of all known claims now settled, or in the final stages of settlement. Our total legal reserve of which Mesh is included was $699 million as of March 31, 2019. In the quarter, the known claim count was essentially flat at 53,000. And we made cash payments of $2 million into the qualified settlement fund and still anticipate full-year payments into the fund to total $250 million, which would then resolve all significant existing contingencies. As a reminder, this liabilities released from our balance sheet as payments are made out of the qualified settlement fund to plaintiffs.

Capital expenditures for the first quarter of 2019 were $63 million. And we continue to expect capital expenditures to be in the range of $375 million to $400 million for the year as we build capacity, integrate acquisitions and position the Company for continued growth. We ended Q1 with 1,408 billion fully diluted weighted average shares outstanding.

I will now walkthrough, guidance for Q2 and full-year 2019. And as a reminder, the guidance I'm providing does not include the proposed BTG acquisition, which is not yet closed. For the full-year, we expect 2019 reported revenue to be in the range of approximately 7% to 8%, with year-over-year growth of 7% to 8% on an organic basis, and an additional 110 basis points contribution from the NxThera, Claret and Augmenix acquisitions.

Given our Q1 results, and Q2 guidance, which I will discuss shortly, we fully recognize the implied acceleration in second half organic revenue growth to deliver on our full-year guidance. There are several significant drivers of this acceleration, including multiple anticipated key product launches, such as LOTUS Edge, which we received approval for last night, and VT in the U.S., Eluvia and WATCHMAN in Japan and Exalt-D globally.

We have continued momentum in our core, we will have enhanced supply in the Men’s health and our SENTINEL products. We anniversary some of our 2018 acquisitions, which does turn organic in 2019. We have the April anniversary of the 2018 price cuts in Japan. And also the normalization of selling days in the first half versus second half of the year, also has a meaningful impact.

And while we expect the foreign exchange to be at $110 million to $120 million headwind to revenue for the full-year 2019. We continue to expect FX to be neutral to EPS for the year due to our hedging program.

There is no change to our expectations for adjusted gross margin as a percentage of sales to be in the range of 72% to 73% for the full-year. We expect a positive mix shift as Men’s Health supply stabilizes SCS and DBS trends improve with new data and products and coronary the DES faces easier comps.

In addition, we will continue to execute on our ongoing standard cost reductions and also expect a positive full-year FX impact to adjusted gross margin of 50 basis points. We continue to expect full-year adjusted SG&A to be in the range of 34.5% to 35% of sales of 40 to 90 basis point improvement versus full-year 2018, but increasing slightly from Q1, due to the non-recurring litigation benefit in Q1. There is also no change to expectations for full-year adjusted R&D spend to be in a range of 10.5% to 11%. And the full-year royalty rate to remain at less than 1% of sales for 2019.

These target metrics imply a full-year 2019 adjusted operating margin in a range of 26% to 26.5% unchanged from prior guidance up 50 to 100 basis points versus 2018, consistent with the improvement goals, we outlined last September and positioning us well December and positioning us well to deliver on our long-term goal of 30% plus adjusted operating margin.

We now expect our full-year 2019 adjusted tax rate to be approximately 10%. This assumes an operational tax rate of approximately 11% before an approximately 100 basis points of benefit from the accounting standard for stock compensation, of which a significant portion was already recognized in Q1. This compares to our original full-year 2019 tax rate guidance of 12% after stock comp.

The 200 basis point improvement and our full-year adjusted tax rate reflects roughly 100 basis points of benefit from our current year geographic mix of profits, and another 100 basis points of benefit resulting from refined estimates following recently released proposed U.S. Treasury Regulations implementing Tax Reform.

We now expect below the line expenses which include interest payments, dilution from our venture capital portfolio and costs associated with our hedging program to be approximately three $325 million to $350 million dollars to the year, a slight increase from prior guidance, primarily due to the earlier than expected refinancing of the 2020 bonds in February to take advantage of favorable market conditions and a minor investment impairment both recorded in Q1.

Note that along with other relevant aspects of the P&L, we will update our below the line expense guidance after we close the BTG acquisition, as interest expense related to the acquisition is currently excluded from adjusted results. We also expect a fully diluted weighted average share count of approximately 1,409 million shares for Q2 2019 and 1,410 million shares for the full-year 2019.

As Mike discussed, we are raising the low end of our full-year 2019 adjusted earnings per share guidance to $1.54, and maintaining the high end of $1.58. The go forward impact of reducing our Eluvia forecast by 50% basically offsets the Q2 to Q4 tax rate benefit. Minus $0.02 for Eluvia plus $0.02 for tax. And we have plans to offset the pain resulting from the loss mesh revenue in Q2 to Q4.

This $1.54 to $1.58 cent range represents 10% to 13% adjusted earnings growth, excluding the 2018 net tax benefits of $0.07 in the base. On a GAAP basis, we expect EPS to be in a range of $1.09 to $1.13.

While there are a lot of moving parts and some noise in the quarter, our trajectory and targets for 2019 remains strong. 7% to 8% organic revenue growth, 50 to 100 basis points of margin expansion and double-digit adjusted earnings per share growth at all points in our guidance range.

Now turning to Q2 2019, we expect reported revenue growth to be in a range of approximately 5% to 7%.This represents year-over-year organic growth in a range of 6% to 7% with an additional 140 basis point operational growth contribution from NxThera, Claret and Augmenix.

Note that the NxThera acquisition anniversaries in April and therefore revenue from May and June is included in organic guidance. We expect the foreign exchange impact on Q2 revenue to be a $45 million to $50 million headwind.

For the second quarter, adjusted earnings per share is expected to be in a range of $0.37 to $0.39 per share, representing 6% to 12% growth, excluding the Q2 2018 net tax benefit of $0.6 in the base, and we do not expect any adjusted EPS impact from foreign exchange.

GAAP EPS for the second quarter is expected to be in a range of $0.23 to $0.25 per share. Please check our Investor Relations website for Q1, 2019 financial and operational highlights which outlines Q1 results as well as Q2 and full-year 2019 guidance, including P&L line item guidance.

With that, I will turn it back over to Susie who will moderate the Q&A.

[Susan Lisa, Vice President of Investor Relations]

Thanks, Dan. Kevin, let's open it up to questions for the next 30 minutes or so, please limit yourself to one question and one related follow-up. Kevin, please go ahead.

[Operator]

Thank you. [Operator instructions] First question from the line of Bob Hopkins, Bank of America. Please go ahead.

[Robert Hopkins, Bank of America]

Well thank you, and good morning. So just one housekeeping item to start. Just to clarify, was there selling day difference in Q1?

[Daniel Brennan]

There was a slight selling day difference, we hadn’t included in our forecast, but there was a slight selling day difference if you look at it. Like we did mention that is part of the acceleration into the second half, because there is a difference there where there is about a day fewer in the first half and a day more in the second half. So it’s the reason for the acceleration, going first half to second half, but there was one in Q1, but we didn't mention it.

[Robert Hopkins, Bank of America]

Okay. Thank you for that. And then more importantly, just on the Q1 growth rate that was a little lower than your guidance. I think you called out stents and Men’s health and neuromod, where they are kind of the primary culprits, if you will. I was just wondering if you could give a little more color on these issues, and whether or not these issues impacting growth in Q1 are temporary or lasting? Just a little more color on those three, please?

[Michael Mahoney, Chairman and Chief Executive Officer]

Sure. Good morning, Bob. Yes, so obviously, don't take this slight revenue miss in first quarter lately. I think it’s first time we've missed and - close to decades. And we pride ourselves in delivering our commitments and very excited about the future. But specific to a couple of those comments, one, intervention cardiology, you have seen that strong diversification with structural heart and complex coronary growing well, and DES has been softer for us.

We do anticipate some improvement in DES, as you look at the second half of the year particular based on improved comps for drug-eluting stents as well as new product portfolio with a product called the Elite, as well as really just the ongoing diversification, high growth markets for that basket in cardiology overall, so and then you obviously have the LOTUS approval.

Second one was Paclitaxel, we are seeing some usage in the U.S., but some IDNs are not using that based on the upcoming panels. If you saw some softness there, we took that revenue down for the full-year as highlighted. But today the Japan launch is right on-track.

You mentioned Men’s Health, that issue has been resolved. That supply issues will be back to full supply, call it in mid June. So that will be strong for the second half of the year. And then the other one is spinal cord stim, we did grow nicely at 12% neuromod. We do feel like the market was a bit lighter in first quarter than we anticipated. But overall we see that as a strong growth market going forward and we continue to take share.

So there were clearly some one-time events in the first quarter. Dan mentioned the selling days impact as well. But we have full confidence in the second quarter guidance and the seven to eight organic for the full-year and we will be stronger Company as the year head into 2020.

[Operator]

Thank you. Next question is from the line of David Lewis, Morgan Stanley. Please go ahead.

[David Lewis, Morgan Stanley]

Good morning, Mike and Dan, I will start with the forward outlook here. I think 2019 guidance is pretty consistent with our view. It's a second quarter, a lot of conversation this morning on second half, but if you think about the second quarter, how risk adjusted is the second quarter and you know what factors sort of provide the confidence given Eluvia and mesh get a little worse in the second quarter pretty significant momentum step up just into 2Q. So one, what is your confidence in second quarter? What are factors that drive that? And in 2019 guidance, broadly is the reflection or the reduction simply Eluvia and mesh or does it also reflect kind of a slower start to the year and then I have a quick follow-up?

[Michael Mahoney, Chairman and Chief Executive Officer]

Yes, so just on the second one, in terms of the full-year guidance its simply, I said, in the words carefully. If you look at our history, we typically are in the higher end of the range, if not be on revenue really and of course, you guys track all that stuff.

And so we essentially lowered it to seven to eight, because we didn't feel the high end of the guidance or beating the 8.5 was as feasible as it was four months ago. So that is why we felt it was prudent to reduce the guidance of top end from seven to eight, so we can kind of carry on our tradition and the reasons for that were stated.

And we are confident that second half acceleration for Bob's earlier question. I think in terms of second quarter, we obviously have some visibility here. Its near the end of April, we spent a lot of time on our second quarter guidance, we don't plan on making this a habit, we plan on continuing a longer streak of hitting our guidance commitments.

But specific to second quarter, we do have good momentum across the regions. Our emerging markets are very strong. Dan mentioned there is a little bit of selling day favorability in second quarter as well.

But more importantly, launches. And we finally got FDA approval from LOTUS, which we are excited about Eluvia is beginning to sell in Japan, FLX in Europe, this Vici stent we have for PI. And we just have very good momentum with Accurate and Sentinel. And as I mentioned, also the DES comp.

So we spent a lot of time on second quarter as you could imagine, and on the full-year guidance even more than normal. Through that we had the right confidence conviction. So at the end of the year, we still believe that 7% to 8% and 8% to 9% operational, double-digit EPS is very good and sets us up for a bright future.

[Operator]

Thank you. Next question from the line of Rick Wise with Stifel. Please go ahead.

[Rick Wise, Stifel Nicolaus]

Good morning. Hi, Mike, turning to LOTUS and talk to us a little bit about the LOTUS launch.

From two angles. I think if I remember correctly, there were 60 original pivotal U.S. sites. Is that where you start? Is that what you are targeting? Talk a little bit about, how you are going to address the U.S. market? And I will just go ahead and ask, separate related question. When might we see some more data on LOTUS Edge that specifically addresses where the technology is now? And last just on Sentinel, you say you are in 200 accounts? I mean, is this the place you start with LOTUS? Again, any color on the launch will be great, thank you so much.

[Michael Mahoney, Chairman and Chief Executive Officer]

Sure. Thanks, Rick, and I will let Ian jump in on some of the data questions in a few minutes. We are really excited about getting LOTUS over the goal line here with the FDA and the LOTUS Edge. You know LOTUS Edge is a terrific platform, we have begun our launch in Europe, and essentially we will be primarily initially focused on many of the customers that were been involved in our clinical trials.

And they have more experience with LOTUS and LOTUS Edge is a lower profile delivery system. So obviously, we would spend quite a bit of time with those customers who have been part of the studies and are part of the current intermediate risk study and those represents a significant, slice of the of the tablet market.

So that will be our focus, and then we will expand out from there. We want to obviously do this very well, we think this is unique product. And we want to upgrade outcomes and so we will initiate there, then we will expand to the large centers beyond that and our clinical team and salesforce is obviously excited to bring this on.

SENTINEL is doing very well, quite frankly, our operations and manufacturing team has done a great job of increasing supply, we bought a smaller startup company. And we are significantly increasing the supply capacity, which has really been the limiter so far, because the demand of SENTINEL is quite high. And so we will continue to grow SENTINEL, likely at a faster rate in the second half given increased supply, and launch it a little bit more outside the U.S.

And as we talked about in the past, we have to win with the clinical benefits of our TAVR as a standalone platform with the safety and efficacy of it. And then we have all the other components surrounding LOTUS, which are compelling, like the Safari wire like SENTINEL, and our other products that meet the needs for interventional cardiologist.

But really excited about getting LOTUS approved. And Ian if you are unmute, maybe you could provide some views on the upcoming data.

[Ian Meredith]

Thanks very much, Mike, and thanks Rick for the question. So as you alluded to, we have the REPRIE IV study, which is the intermediary study, 896 patients, that trial is now underway in the U.S., and that will provide very important data to the safety and efficacy of the LOTUS Edge platform in intermediate risk patients.

That trial should recruit pretty quickly. It's a single arm study, there is a nested registry within NASH for 100 patients with bicuspid valve disease. And so we very much look forward to those results that probably be mid next year. As well as that we have the respond Edge trial, which be 200 patients in 16 sites in Europe, at trials just getting underway.

And of course, we have the REPRISE III registry, which was the U.S. initial experience with LOTUS Edge, which is underway and continues to recruit. So we should have towards the end of the year and next year, significant - data about the confirming the safety and efficacy that we've actually seen from the original LOTUS Edge 30 day data from the REPRISE, Edge and [FIMS A] (Ph) trials, of course, which showed as you know very good results on lower pacemaker rates.

[Operator]

And next question is from line of [Bruce Nadal] (Ph) of SunTrust. Please go ahead.

[Unidentified Analyst]

Good morning. Thanks for taking the question, I guess for Mike and Ian, I attended the CRT panel meeting in I think, February or January, and it really didn't - the Paclitaxel for vascular arguments really didn't seem to have a coherent mechanism of action. I was just wondering what your thoughts about that might be and secondly is the product family forever changes irrespective of the merits of the man analysis that really caused this whole thing and then I have a follow-up.

[Ian Meredith]

Mike, you are happy if I take it upon?

[Michael Mahoney, Chairman and Chief Executive Officer]

Sure.

[Ian Meredith]

So thanks, Bruce. So I think it's an important question. It’s disappointing to say really you know Paclitaxel has had a pretty still a 25 year history since their approval. And as you know from the taxes data we have an extraordinary body of data there in the coronary circulation where there were more than 5000 patients in randomized trials. 36,000 patients in registries, there was never an all course mortality signal at five and even the Sirtex trial after 10 years.

So there was from time-to-time signal for cardiovascular mortality related to stent thrombosis, but the overall mortality suggesting a non-cardiac cause just wasn't there and it doesn't seem to be a plausible explanation. So it is disappointing, but we will work very assiduously alongside the FDA and VIVA and NAMSA to make sure that we thoroughly analyze the signal in any available trials.

But we still have considerable confidence in the Paclitaxel as antirestenotic agent., and I think we should point out that the Eluvia in a sense a very differentiated product here is controlled focal relief at dose the 120 that is being used in DCB products. So we have site in this and we will work alongside the FDA, NAMSA and VIVA to elucidate this.

[Unidentified Analyst]

And I guess my follow-up is WATCHMAN, clearly the product has continued very strong momentum given the guidance. Could you just talk about the commercial factors, either reimbursement or marketing initiatives? Just kind of the stated play and what will take for really unlock the potential of what I think is a huge product opportunity.

[Michael Mahoney, Chairman and Chief Executive Officer]

Sure. Yes, just again, just to reinforce Ian's point, we think Eluvia is a superior platform, we think it's different in the class. And so we are making the case on that. And obviously, we are supporting the industry in the whole Paclitaxel theme, with the upcoming panel. But we spend a lot on this platform, we feel like it's a unique device, for all the characteristics that Ian said, we will be pushing our point in that regard.

On WATCHMAN, it continues to do extremely well. In the U.S., we are increasing utilization rates. It's less about opening up new centers now in the U.S., because so many have been opened up, it's more about increasing utilization, its driving great outcomes. It's increasing physician awareness through our digital efforts and through working with the WATCHMAN coordinators at the hospitals. And so we are continuing to see WATCHMAN utilization expand with our commercial organization our clinical organization.

And then, in Europe, you are seeing WATCHEMAN Flex be launched which we are really excited about to gain share, not as big market in Europe, but also a lot of progress in China. And we are really excited about the launch, which will impact the second half in Japan.

And Ken, do you want to maybe speak to some of the clinical efforts with WATCHMAN extend the market the Option trial?

[Kenneth Stein]

Yes, thanks, Mike. That is, important to mention Bruce. What unlocks it, I think the next step, right, that unlocks it is indication expansion. And so we are launching a trial called Option, 1600 patient randomized trial at roughly 100 centers globally. And the trial is in patients following atrial fibrillation ablation, who have indications for stroke prevention. And will be randomized to WATCHMAN or NOAC. And this would change the indication, you know this will be the first trial where WATCHMAN would be used in patients who are explicitly candidates for either an oral anticoagulant or the WATCHMAN device.

[Michael Mahoney, Chairman and Chief Executive Officer]

Thanks Bruce.

[Operator]

Next question is from the line of Jason Mills, Canaccord Genuity. Please go ahead.

[Jason Mills, Canaccord Genuity]

Hi, Mike, thanks for taking the question. With respect to the organic growth profile you laid out in the acceleration that you are anticipating through the end of the year, the tenants of that premise seems like they would continue into the first half of next year. And I can appreciate that you are not ready to give guidance for next year yet. But as we digest that, coupled with the metrics you laid out with respect to BTG, I assume your expectations for the organic growth that BTG will generate haven't changed given their strong results recently. So it seems like it's setting up that this could accelerate further in the first half of next year, what I'm getting at is as we look at a forward 15 to 18 months. Can you give us any color or you willing to give us any color as it related to just beyond the end of this year where it seems like it could accelerate further.

[Michael Mahoney, Chairman and Chief Executive Officer]

I want to give first quarter 2020 and second quarter 2020 guidance. But, you will not let me at this point especially after our little miss here on sales in the first quarter.

Dan laid out in his script clearly why we are confident in the second half momentum through the product launches that he rattled off the anniversary of the M&A activities. Another significant opportunity for us in second half is Japan.

Japan will return to strong growth in the second half because of new product launches, and less pricing cuts than we have experienced in the past, and the supply challenges are significantly better to some of those key products. And Dan has also mentioned the selling day. That is the second half acceleration.

And then I'm not going to comment really much beyond that, in 2020 what you will see is a full-year benefit in 2020 of many of these different product launches that are happening kind of a different quarters throughout the year in 2019.

But our goal would be continued to be a Top Tier revenue grower in the future to deliver double-digit EPS growth. And we are excited about BTG, they put up really nice results, very consistent with our thesis when we acquired the company. So we look forward to closing that likely in the late June, July timeframe.

[Operator]

And next question is from the line of Larry Biegelsen, Wells Fargo. Please go ahead.

[Larry Biegelsen, Wells Fargo]

Hey, guys, thanks for taking the question. I will ask both of mine upfront. on Eluvia I can understand, the 50% cut implied in the guidance. But look, and hopefully the panel will go well. But the question I have, I guess is if things don't go as well as expected what is your ability to offset a further reduction in Eluvia, if things don't go well. And then just Secondly, you know, I heard your comment on SCS and your business in the market. But you are the second Company to report a meaningful deceleration in SCS growth. So could you just put a little bit more meat on the bone kind of around what is going on in the market and why you are confident that we won't see further deceleration in SCS, which you kindly gave in the slides today, grew about 7% year-over-year in Q1. Thanks for taking the questions, guys.

[Michael Mahoney, Chairman and Chief Executive Officer]

Yes. So Eluvia is an important growth driver for PI. And we clearly aren't giving up on it, because we think it's a uniquely good product that helps patients. And we are seeing many customers in the U.S. continue to use it. Some have not, but many are. And in Japan, we are launching, essentially right now.

So we remain optimistic, but also smart. That is why you saw us take down the guidance for Eluvia in terms of that impact. But there is also many growth drivers within PI business on its own. For example, this new Vici stent we will be launching likely in the second quarter once the FDA approved and the full impact of BTG and all the synergies that come with that both revenue and cost.

So, we clearly want Eluvia to do very well. But there is many growth drivers within PI and across the Company that give us a confidence for the second half guidance that we - or full-year guidance that we gave, as well as outlook for 2020.

The second question is, yes. It was a bit softer than we anticipated in the first quarter, this traditionally been a strong double-digit growth market, and we believe that will be the case although first quarter was a bit softer. So we haven't seen any somatic reasons why SCS should be bit softer this quarter, given the unmet patient demand that we see out there.

One potential possibility where this - kind of fewer large product launches from BSC and our competitors over the past six months, I think you will to see a ramping up of that clearly from us on the second half of this year with new enhancements to wave riders and some more clinical data.

So we don't really have a great response. And then we feel like it's a long-term, at minimum high single-digit growth, but more likely, double-digit growth market, given the unmet patient need. And importantly, this is a lot of innovation in this space, which I think will continue to excite patients to one act.

[Operator]

Thank you. And next question from the line of Vijay Kumar, Evercore. Please go ahead.

[Vijay Kumar, Evercore ISI]

Hey, guys, thanks for taking my question. So Mike, maybe just, on Larry's questions. If I think about the first half versus second half, right it is I guess Sterigenics improved, the sterilization plant closure, do we know what the impact of fact in Q1 was? And I guess specifically, if the Adcom goes back, is there a chance that, maybe Eluvia needs to be cut again, in for the back half?

[Michael Mahoney, Chairman and Chief Executive Officer]

Well, we gave guidance assuming bad things. So, we gave what we felt very conservative, we built in our model very conservative growth for Eluvia based on the Paclitaxel panel, that wouldn't be responsible to do otherwise. So, as I mentioned, we are seeing that the launch in Japan, we are seeing customers use it today. But we've assumed far less than planned Eluvia sales in our second quarter and full-year guidance.

[Vijay Kumar, Evercore ISI]

Thank you.

[Michael Mahoney, Chairman and Chief Executive Officer]

And we are not going to quantify the specifics of the sterilization issue in Men’s health in the quarter.

[Operator]

Thank you. The next question is from Matt Taylor, UBS. Please go ahead.

[Matthew Taylor, UBS]

Hi thanks for taking the question. I just wanted to follow-up on the earlier question on the LOTUS launch and sort of a two part thing, but wanted to understand how we should think about the pace of launch in Europe, in the U.S. and you didn't hit the timelines for the timing of launch in each region. I just wanted to make sure that you are still sort of on-track with where you thought you would be in the beginning of the year. And then can you characterize how the Sentinel supply to improve through the year, it sounds like where you can sell it you are seeing good uptake?

[Michael Mahoney, Chairman and Chief Executive Officer]

Yes. So consistent with previous comments on LOTUS, we are selling our ACURATE valve extremely well in Europe, and we are also selling LOTUS, you are going to see that mix likely be higher with the ACURATE valve versus LOTUS in Europe, given the momentum that we have there. But there are many customers who want LOTUS in Europe.

So be able to sell in both places. But in terms of a mix, which we likely won't break out, it will be quite a bit higher in the U.S. versus Europe. And so that is why this FDAs approval is important for us. It's kind of unscheduled for our commitments, but you will see greater waiting in the U.S.

And SENTINEL simply just the Ops team has done a great job of enhancing supply, because we've been more limited in our ability to open up new centers. And so as this quarter goes on, and second half will be open up new centers and supply them with it.

And then we will be able to expand it more in Europe and other countries, which quite frankly, haven't had the benefit of using it given some supply capacity. So it's not - our Ops team did nothing wrong. They simply bought a small company and now there are significant increase in the capacity for it.

[Operator]

Thank you, next question is from the line of Chris Pasquale, Guggenheim. Please go ahead. Okay, that question dropped. The next question is from the in-line of Daniel Catenacci, SVB Leerink. Please go ahead.

[Daniel Catenacci, SVB Leerink]

Hey, guys, good morning. Thanks so much for taking the questions. Just a quick question - follow-up on some of the TAVR conversation you have been having. Can you talk about what you are seeing now that you relaunched LOTUS from a pricing perspective in Europe, and what you expect to see in the U.S. So now it’s going from a two player market to a three player market, potentially since you are four player market here in the U.S. So we just love to get your high level thoughts and any color you can give on how you plan to price LOTUS Edge here in the U.S. relative to some of your competitors. Thanks so much.

[Michael Mahoney, Chairman and Chief Executive Officer]

Yes. We are probably not going to give as much as you want on a question. I think, in the U.S., we are very confident that capabilities of LOTUS valve This is not a low tier segment offering and so you will see LOTUS priced at competitive race with a market in the U.S.

[Daniel Catenacci, SVB Leerink]

And just to follow-up on that. So is it priced competitively in Europe as well or is it priced at a discount?

[Michael Mahoney, Chairman and Chief Executive Officer]

Well, we won’t provide much thought there. Now with LOTUS we offer two different valves in Europe. And so they are both uniquely good and it provides us some contracting capabilities on the SENTINEL which are helpful, but at the end of the day, the valve does need to stand alone in terms of its clinical efficacy, the safety and the benefits.

You know, doctors typically aren't going choose a tidy valve just because it costs less money. And so we are delivering very good outcomes with ACURATE, you have seen a lot of clinical data there and also LOTUS. So pricing obviously is important, but it's a different environment to drug-eluting stent.

[Operator]

Thank you. The next question is from Matthew O'Brian, Piper Jaffray. Please go ahead.

[Unidentified Analyst]

Good morning. Thanks for taking the questions. Two real quick here. In the past you said in the TAVR marketing side, you get the 20% share and you kind of back off that with LOTUS withdrawal and then now you have SENTINEL which is pretty differentiated. So as you think about where you are share can go over time with kind of this triple threat now would you like to revisit? Where do you think to share can get to? And specifically do you think you can get 20%? And then the second question is just on Ranger, as we think about the launch next year with all the Paclitaxel commentary just how should we think about that launch now, should be back by our expectations for it. Thanks so much.

[Michael Mahoney, Chairman and Chief Executive Officer]

Yes, Ranger. Is a smaller revenue contributor historically in Europe. And Ranger will - I think the panel will certainly have an influence on the potential for Ranger. But again, I think our PI businesses blessed with many growth drivers across the board. And then also with BTG closing.

We wouldn't comment on share. Right now we just get zero in the U.S. so it's all upside. And so you know, with the indication expansions, and we've seen the clinical data and the size of this market, and the uniqueness of LOTUS in our breaths of commercial coverage. We feel like we can do a nice job in this area, but we are not going to provide a share goal publically.

[Susan Lisa, Vice President of Investor Relations]

Alright. With that, we would like to conclude the call. Thanks for joining us today, we appreciate your interest in BSX. Before you disconnect, Kevin will give you all the prudent details to the replay.

[Operator]

Thank you. Ladies and gentlemen this conference call will be available for replay. And that is starting today at 10:30 am. Eastern Time, and will run through May 8th midnight. You may dial the AT&T Executive Playback Services by dialing 1-800-475-6701 with the access code 465105. International callers may dial area code 320-365-3844 with the access code 465105. Now that does concludes your conference. We do thank you for joining. You may now disconnect.