Boston Scientific Corp

NYSE:BSX

Earnings Call Transcript 2019-Q4

[Operator]

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

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

[Susan Lisa, VP, IR]

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.

We issued a press release earlier this morning announcing our Q4 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 & Filings. The duration of this morning's call will be approximately one hour. Mike will provide strategic and revenue highlights of Q4 '19. Dan will review the financials for the quarter and then provide Q1 '20 and full-year 2020 guidance, and then we'll 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'd 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, Augmenix, Vertiflex and BTG in the relevant periods for which there are no prior period-related net sales, as well as the divestiture of the bead business. On this call all references to sales and revenue unless otherwise specified are organic.

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 product 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 Q1 and full-year 2020 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'll turn it over to Mike for his comments.

[Michael Mahoney, Chairman & CEO]

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 result 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.

With today's results, we disclosed adjusted EPS of $0.46 in Q4, exceeding the high end of guidance due largely to a 3% tax benefit. For the full year 2019, we delivered 11.1% operational revenue growth, 7.3% organic revenue, a 60-basis-point improvement in profitability to 26.1% and adjusted EPS of $1.58, which is up 13% over the prior year, which is also normalized for the $0.07 tax settlement benefit in 2018.

We delivered these results while also generating approximately $2 billion in adjusted free cash flow. Our 2019 financials continue a five-year trend of excellent results and provide solid evidence that our strategy of category leadership in key markets and portfolio diversification into higher-growth adjacencies continues to deliver differentiated results.

Our goal is to continue to execute against our strategic plan objectives, further increase our organic growth profile and deliver top tier sales and EPS growth results over the next five years. Boston Scientific brings a combination of long-term consistent above-market revenue growth, margin expansion, targeted double-digit adjusted EPS growth and a greatly improved ability to deploy a strong free cash flow and that is what we believe position Boston Scientific to continue to drive compelling shareholder value.

We are excited about our plans to build upon our momentum in 2020 and beyond. We're targeting in 2020 operational revenue growth of 10% to 12%, which includes approximately 350 basis points of growth from the Vertiflex and BTG acquisitions, resulting in the full year 2020 organic revenue growth guidance of 6.5% to 8.5%.

Similar to the trend in 2019, given the ramp and timing of 2020 product introductions, acquisitions that will turn organic in the second half, as well as an expected negative first half impact in China procedure growth from Coronavirus. We expect to see organic revenue accelerate in the second half of 2020 in comparison to the first half of the year by approximately 200 basis points. We're guiding to adjusted EPS of $1.74 to $1.79, representing 10% to 13% adjusted earnings growth, which includes a $0.04 to $0.05 of accretion from the BTG acquisition, as well as approximately $2.3 billion in adjusted free cash flow.

I'll now provide some highlights of our fourth quarter and '19 results along with our thoughts on 2020 outlooks. Our revenue growth in this quarter was broad-based across businesses and regions. But most notably this quarter by 13% operational revenue growth in the US, 12% in Asia-Pac and 10% in Europe, Middle East, Africa. Emerging markets had another outstanding quarter, growing operation revenue 16% in the quarter and 19% for the full year and now represents 12% of total company sales.

So turning to each business, our MedSurg segment represents 31% of our revenue mix in '19 and continues to deliver excellent results with sales growth of 11% in the fourth quarter and 9% for the full year. Endo sales grew 10% in the quarter and 9% for the full year, with fourth quarter sales led by double-digit growth at our biliary franchise and infection prevention franchises.

Endo sales also are expected to decelerate slightly in first quarter 2020, where we are targeting a full year growth acceleration in endo, given the breadth and strength of our category-leading portfolio, as well as more significant contributions from the Exalt-D single-use scope launch in second quarter and beyond. I'm also pleased to announce that Exalt-D received CE Mark in late January, we began the limited launch later this quarter.

Our Endo business is also advancing additional pipeline opportunities including the resolution ultra-hemostasis clip and the next-generation launch of our therapeutic imaging portfolio call the Spyglass Discover, which is a single-use surgical scope. We continue to believe our therapeutic imaging portfolio represents a differentiated opportunity in '20 and an incremental $2 billion market opportunity by 2024.

Turning to Neuro and Pelvic Health [ph]. This franchise also continued its excellent performance growing organic sales 12% in the quarter and 8% for the full year 2019, with 15% full year operational growth and that's despite 170-basis-point headwind from the mesh withdrawal. Fourth quarter strength was led by double-digit growth in our single-use LithoVue scope, core stone, Rezum minimally invasive therapy for BPH and almost doubling of SpaceOAR revenue. As a reminder, SpaceOAR Hydrogel diminishes the risk of local undesirable side effects of prostate cancer, radiation therapy and continues to resonate in the marketplace and with patients resulting in $100 million in sales in 2019.

In addition, the Rezum system recently obtained expanded commercial coverage wins this year including Anthem Blue Cross Blue Shield and Cigna. We expect Neuro and Pelvic Health to deliver double-digit revenue growth in 2020 and the continued progress of our broad portfolio and globalization efforts.

Turning to global Rhythm and Neuro sales, which were 1% in the fourth quarter and 3% for the full year and they represent 29% of our total mix in '19. Neuromodulation delivered fourth quarter organic revenue up 8% and operational revenue up 19%. The full year organic sales were up plus 7 and operational sales were up 13. As detailed last month at our investor update on the recent NAND's Annual meeting, we remain very bullish on our comprehensive portfolio and exciting pipeline in both pain and brain modulation.

Neuromod results for the quarter were led by doubling in sales of our Vercise DBS system, which offers unique directionality with our cartesia lead. The ability to provide precise neural targeting with this lead allows physicians to optimize therapy and help reduce unwanted side effects for patients. This in addition to the CE Mark approval of Neural Navigator 3, which integrates enhanced visualization with clinical programming to simplify and accelerate physician program. We expect continued strong momentum in DBS in 2020.

Our global spinal cord stimulation sales also improved sequentially from third quarter to fourth quarter in '19. For the full-year, SCS sales were down low-single digits. But we believe the SCS market will return to growth in 2020 given low patient penetration rates, as well as new product launches and clinical data from our team and industry more broadly.

In SCS WaveWriter the only platform approved by the FDA to provide simultaneously paresthesia based and subperception therapy, which targets two different mechanisms of action at the very same time not alternating them for patients suffering chronic pain. In our combo randomized clinical trial three-month data presented at NANS last month, WaveWriter combination therapy demonstrated an 88% responder rate, which is one of the highest responder rates reported among other comparable SCS clinical studies.

Also, our Vertiflex acquisition complements our RF Ablation and SCS portfolio in pain and represents an important therapy for patients with moderate lumbar stenosis. Vertiflex performed well in the quarter and exceeded its full year pro forma '19 sales goal of $60 million.

Turning to CRM. CRM sales fell 3% in the fourth quarter after growing above-market in Q1 to Q3 may end up 1% for the full year. The weakness in the fourth quarter was caused primarily by mid-single-digit declines in the US ICD revenue with global ICD sales declining low-single digits. Fourth quarter patient revenue as expected was down low-single digits worldwide. And we believe that global ICD softness in the fourth quarter was largely related to the tough comps we faced with a global mid-single-digit growth comp in fourth quarter '18. In addition, while we don't have all the fourth quarter inputs, our best estimate is the fourth quarter '19 worldwide CRM market which excludes implantable cardiac monitors likely declined low-single digits.

In 2020, we'll aim to continue to deliver above-market growth in defib due to our longevity benefits, HeartLogic heart failure diagnostic and EMBLEM S-ICD. In 2020, we remain on track to launch LUX-Dx, which is our implantable cardiac monitor by mid-year, but we do expect limited revenue contribution due to the revenue recognition policies. Overall, we expect worldwide CRM revenue to be more in line with the market in 2020, potentially flat to down low-single digits.

EP sales grew 4% in the fourth quarter and for the full year 7%, and US sales grew 8% in the quarter. Importantly, international sales continued to be very strong up 15% in the fourth quarter and up 16% for the full year led by the launch of our DIRECTSENSE catheter in Europe and Japan, as well as continued double-digit growth in major markets for our RHYTHMIA HDx mapping system.

We also continue to enjoy strong response to LUMIPOINT, which is the next-gen HD mapping algorithm that illuminates critical areas of the heart by utilizing user-defined inputs to assist and map interpretation. We continue to answer our pipeline globally in EP and we're pleased to announce that we've just received CE Mark for a POLARx single-shot pulmonary vein isolation technology in Europe. We look forward to bringing POLARx to the market in Europe, as well as beginning enrollment in our US IDE trial. So, overall, we do expect EP sales growth to accelerate in 2020 as we're excited to enter the single-shot market, while continuing to increase our mapping and navigation footprint, and also expanding the launch of our NAV enabled catheter portfolio and adding new features to RHYTHMIA mapping.

Turning to cardiovascular, this segment grew sales in fourth quarter 19% operationally and 10% organically. For the full year 2019 growth was 14% on an operational basis and 9% organic, and accounted for 39% of our total company sales. Peripheral Interventions grew 4% in the quarter and 8% for the full year on an organic basis and 34% for the quarter and 19% for the full year operationally, with the BTG Interventional Medicine acquisition. Legacy PI growth was driven by strong double-digit growth in Asia-Pac offset by a slight decline in US sales due to tough comparisons from the US launch of Eluvia, as well as a competitor's manufacturing issue one year ago.

The Interventional Medicine business performed in line with expectations, growing plus 7% pro forma with high single-digit growth in Interventional Oncology. We expect similar global organic growth trends in PI in the first quarter of 2020 with acceleration thereafter on the integration of BTG, as well as important new product approvals such as Ranger DCB, which is supported by great new head-to-head data from the Compare trial, which we just released last week at LINC.

Interventional Cardiology continues to grow nicely above market, delivering 13% organic and operational revenue growth in the quarter. For the full year IC organic sales grew 10%, which is a 50 -- 550-basis-point increase versus '18, while operational sales were up 11% for the full year. We delivered coronary therapies growth of 1% in the fourth quarter and 2% for the full year.

Synergy Megatron is an important line extension to our market-leading Synergy bioresorbable polymer stent platform as its purpose-built for large proximal vessels. Megatron will be -- is launching in Europe now and is on track for a second half 2020 US launch. Strong structural heart sales then drove the IC sales of 13% overall in the quarter. Strong growth across our structural platforms led the achievement at the high end of our '19 revenue guidance of $700 million to $725 million, which is up over 50% versus '18.

WATCHMAN achieved its strongest quarterly growth rates of the year and fourth quarter as we continue to focus on four important areas, market development and education, continued pursuit of clinical evidence to understand the benefits of WATCHMAN and broader patient populations including lower risk patients to be enrolled in the head-to-head CHAMPION-AF study, number three product enhancements such as the next-gen WATCHMAN FLX, which is expected to launch in the US in the second half of this year, and fourth and lastly, geographic expansion in Japan and other countries..

Turning to TAVR, we continue to be pleased with the launch and progress of LOTUS Edge and remain on track to open 150 accounts in the first 12 months post approval. We also recently received LOTUS Edge reimbursement approval in Japan. It will be in a limited market release over the coming months. Our super annular valve offering ACURATE neo grew mid-teens in the quarter and we look forward to the launch of the next-generation ACURATE neo2 in Europe mid-year.

In Sentinel, which is the only cerebral embolic protection device is now in over 600 US hospitals. We estimate that Sentinel is approaching 20% of the overall US TAVR procedural penetration. We believe that definitive evidence focused on a stroke endpoint will continue to elevate Sentinel to become the standard-of-care for all patients and will help influence future clinical guidelines. To that end, we look forward to beginning to enroll at this quarter in the Protected TAVR randomized clinical trial.

Finally, in the mitral field, we are pleased to have entered the clinic in December in Australia with our Millipede full annuloplasty range for mitral valve repair. We're targeting enrollment in our early feasibility study in the US by the end of 2020. So with our portfolio of WATCHMAN, ACURATE, LOTUS, Sentinel and Millipede, we're excited about our Structural Heart capabilities and long-term growth prospects. And we target combined revenue of $900 million to $1 billion in 2020.

And also outside of three reporting segments I detailed, fourth quarter BTG spec pharma revenue of $58 million brought full year pro forma sales to $250 million, which is down slightly year-over-year and also in line with our expectations.

So to wrap up, we have an extremely exciting future and believe that we're well-positioned to continue and strengthen our performance track record in 2020 and beyond. And for that, I'd like to thank our employees and their winning spirit and commitment to patients.

Now, I'll turn things over to Dan for a detailed review of our financials.

[Daniel Brennan, EVP & CFO]

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, 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 the lower full year operational tax rate, which I will detail shortly. The FX impact on adjusted earnings per share was immaterial as expected at the time of guidance.

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 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 [ph] or 35.3% of sales in Q4 above our guidance range, primarily due to the 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 $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 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 an 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 Vertaflex and BTG acquisitions, net 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 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.

[Susan Lisa, VP, IR]

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.

[Operator]

Thank you. [Operator Instructions] Your first question comes from the line of Robbie Marcus from JP Morgan. Please go ahead.

[Michael Mahoney, Chairman & CEO]

Robbie, can you hear us?

[Robert Marcus, J.P. Morgan]

I can hear you. Can you hear me?

[Michael Mahoney, Chairman & CEO]

We hear you now.

[Daniel Brennan, EVP & CFO]

We can hear you.

[Robert Marcus, J.P. Morgan]

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?

[Michael Mahoney, Chairman & CEO]

Sure, yes. So, the full year guidance organic. You heard in the script there 6.5 to 8.5. We think 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, 8.3% organic 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 $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.

[Robert Marcus, J.P. Morgan]

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?

[Michael Mahoney, Chairman & CEO]

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.

[Robert Marcus, J.P. Morgan]

Thank you.

[Operator]

Your next question comes from the line of Bob Hopkins from Bank of America. Please go ahead.

[Robert Hopkins, Bank of America Merrill Lynch]

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?

[Michael Mahoney, Chairman & CEO]

Sure. Good morning, Bob. So, again, we're very comfortable in the quarterly guidance we provided as well as the full year and we aim to accelerate in '20 over '19 organic growth, which I think is the most important piece here. We look at first quarter there is an extra what Dan calls a half day, when we look at all the global selling days and so forth. So there's a slight benefit there. But as mentioned in the script in a few areas, we do expect to see in first quarter Endo decelerate a little bit from first -- from fourth quarter, as well as PI being soft again in first quarter similar to fourth quarter. So those kind of are in line. And we also see some challenges in drug eluting stents with Japan price cuts, as well as the overall pricing environment in drug-eluting stents. So we anticipate that in the first quarter and we talked about the CRM market kind of zero to negative 2% range. But importantly, we have some nice mixed launches in DBS to support the full year and we expect to see continued complex coronary growth do well.

And then all the other businesses across the company should do extremely well with Structural Heart [ph]. But in first quarter the combination of some of those pricing pressures we're seeing in DBS combined with the Coronavirus issue that Dan outlined and really moving through that BTG integration that was the guidance of the 6 to 7.5 pre-Coronavirus and we estimate the impact, as I mentioned, 10 to 40 from China which brings our first quarter guidance down to 5 to 7.

[Robert Hopkins, Bank of America Merrill Lynch]

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.

[Michael Mahoney, Chairman & CEO]

Yes. So Endo is one of our more predictable businesses, I would say, in the company. Very good execution against our plans. And it's not uncommon for them to have a slightly softer first quarter. So slightly soft is going to be above the BSC average and likely above market. So their definition of soft there is probably not fair. But as we see -- as we look at the full year, they have a nice set of product launches with new hemostasis clip, improvements to digital SpyGlass and the big one the Exalt-D. And we've had our first few cases take place over the past week and they want -- they're very, very encouraging. And so you're going to see a kind of more of a controlled launch in the first quarter to make sure things are going well.

A lot of the contracting in terms of the capital placements are being organized now and we're very confident in acceleration really each month in Exalt with a much bigger impact in second quarter and a significant impact in the second half of the year, and then the surgical scope coming. So I think we're really on track with Exalt-D launch and couldn't be more excited about the early results.

[Robert Hopkins, Bank of America Merrill Lynch]

Great. Thank you.

[Daniel Brennan, EVP & CFO]

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.

[Operator]

Your next question comes from the line of David Lewis from Morgan Stanley. Please go ahead.

[David Lewis, Morgan Stanley]

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.

[Michael Mahoney, Chairman & CEO]

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.

[David Lewis, Morgan Stanley]

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

[Michael Mahoney, Chairman & CEO]

As you look at China, I mean, everybody sees it on the news and such. There just -- the number of procedures for medical device procedures in Q1 is not going to be what was expected 90 days or 180 days ago. So, certainly, we are planning to see an impact in that business in Q1.

[David Lewis, Morgan Stanley]

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.

[Michael Mahoney, Chairman & CEO]

Sure. We have a number of things we could talk about. But just to hit on the biggest -- the bigger ones. The biggest growth driver contributor is going to be Structural Heart that $900 million to $1 billion. And the big impacts there are excited about led by WATCHMAN, with the new WATCHMAN FLX launch will happen in the US in the second half of the year and that's doing extremely well in Europe and we have a number of big clinical trials. So we expect very strong growth on a WATCHMAN.

LOTUS is doing very well in the market. It's kind of on plan for 150 accounts. So you'll see a full year impact of LOTUS and we expect to see each quarter greater impact there. Our Symetis valve, ACURATE is doing well. It grew above the company average and grew about mid-teens in the fourth quarter and we expect to see neo2 launching in the second half. So the whole basket of Structural Heart will be big. EXALT will be a meaningful new incremental revenue driver with stronger second half impact. And then in PI, I would say, we're confident in quarterly improvements as we settled in on the BTG integration and you have new products being launched from legacy BTG, as well as potentially Ranger in the second half of 2020, which will put our position there. And EP, I mentioned, POLARx, you'll see a nice impact from that particularly in the second half of the year as we ramp that up.

And Neuro continues to do well with, as you mentioned, Augmenix which did over $100 million and is growing very, very well, as well as NxThera, which also is doing well and we'll expect five-year data shortly, and new reimbursement approvals from Cigna and Blue Cross. So this is really across the portfolio. There's a number of exciting things. That's why to reinforce Dan's comment, despite some of the near-term issues in China we're very comfortable with 6.5% to 8.5% full year range.

[Operator]

Your next question comes from the line of Rick Wise from Stifel. Please go ahead.

[Frederick Wise, Stifel Nicolaus]

Hi. Good morning, Mike. If we could focus -- if I can focus on Exalt-D. Obviously, you're excited, we've had a bunch of in-depth doctor conversations lately. Happily, all of them want to try it and we're interested, some very interested. But they highlighted usability and sort of comparability to their current reusable technology. And they were all seemed uncertain about pricing and cost. Can you talk to us about your confidence that Exalt-D equals current reusable technology? Talk to us about pricing and how you're going to go at making the economic case to the docs and the hospitals? And maybe last just talk about the manufacturing ramp and how that ties into the acceleration as you move toward full launch? Thanks so much.

[Michael Mahoney, Chairman & CEO]

Thanks, Rick. So the teams have -- as you know this has been a multi-year program built off of the capabilities we've learned with LithoVue in digital SpyGlass. Those capabilities leveraged for Exalt-D and you hit the key criteria. The number one criteria, if this is to be a blockbuster product, which we think it will be -- it will -- to be -- have comparable, usability and functionality as existing scopes that require the sterilization expense of processes. And so that is the spec that the team has been focused on over the past three years or four years. And so the good news is, we've had done a number of procedures. We've had a number of key positions around the globe involved with the product for multiple years and we're quite confident in the design elements and the visualization capabilities of the product.

Also, I think what's important with this with the FDA-approved device and the capabilities of the team, we'll be able to make improvements to the platform within each year. And so just like we've done with digital and with LithoVue, expect to see probably a once-a-year enhancements upgrade, if you will, to the platform. And so it's not as if this is a stagnant product and which sometimes you get with the reusables for many years. This is a product that we'll be able to enhance at least once per year throughout the next year period whether it be smaller handles, left-handed, right-handed, different user features that the competition doesn't have. So I think that cadence will allow us to please physicians and the spec is to make it as good.

On the manufacturing side, we have a lot of experience with this. We've been investing ahead of it. That's one reason why you saw the increase in our capital investment in '19 and '20 as to manage the volume that we expect. So we're comfortable with the ramp that we have laid out with acceleration in the second quarter and beyond.

On the economics of it, it's a complicated topic. We do believe there's ample room in the existing reimbursement within patient at roughly $4,000 to $12 -- to $11,500 and outpatient $3000 to call it $5000. And we're also, as you know, we did receive FDA kind of the breakthrough status, which potentially could help with additional potential reimbursement tailwinds. In terms of the pricing itself, we have lots of flexibility within our Endo business to price it on its own and potentially look at contracting capabilities leveraging our portfolio across the business there.

[Frederick Wise, Stifel Nicolaus]

Thanks so much for all that.

[Operator]

Your next question comes from the line of Vijay Kumar from Evercore ISI. Please go ahead.

[Vijay Kumar, Evercore ISI]

Thanks for taking my question. So Mike maybe one follow-up on the guidance and then I had one for Dan. On the guidance the comments around the cadence first half versus second half. If I recollect last year you had the days impact in second half. I mean, I appreciate all the comments on Structural Heart but shouldn't Structural Heart cadence to be similar to last year? So the real incremental for our new products, which should step up in second half. Is that the right way to think about that [ph]? And just on the range itself 6.5% to 8.5%, are you comfortable at the midpoint of the range or -- and I appreciate the wider range just given Q4 and market factors, but just want to get a sense whether you're comfortable at the midpoint?

[Daniel Brennan, EVP & CFO]

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.

[Vijay Kumar, Evercore ISI]

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.

[Daniel Brennan, EVP & CFO]

Yes. Actually on that prior question from my WATCHMAN team friends here. I want to make sure I include WATCHMAN FLX in the US as well, because that's a huge launch for the WATCHMAN team, who has done a fantastic job since inception. On the price impact, as I look at it, the summary would be, we just have a little bit more price across the enterprise this year in a couple of those areas, as we mentioned, the biannual Japan price cut and the China that will not allow the normal manufacturing cost improvements to poke their head above that and have gross margin go north.

The normal equation is you have your manufacturing cost improvements then you have pricing and mix, and the net of those three normally has gross margin increasing. This year the pricing is a little bit higher with China and Japan, and potentially some acceleration on the DES front there, as Mike mentioned. So that really just all netted out where margin -- gross margin should be in that approximately 72% range we set. That's not a surprise to us. It's what we've been saying all along for the last two years is that gross margin, which has paid a lot of the builds over the last five years or six years would slow in terms of its ability to contribute to operating margin improvement, and then SG&A and R&D would pick up that slack. You saw that in 2019 and you should see the same thing in 2020.

[Vijay Kumar, Evercore ISI]

Thanks guys.

[Operator]

Your next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.

[Lawrence Biegelsen, Wells Fargo Securities]

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.

[Michael Mahoney, Chairman & CEO]

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 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.

[Ian Meredith, EVP & Global CMO]

I think you've said most of it Mark. 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 due to the 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.

[Lawrence Biegelsen, Wells Fargo Securities]

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.

[Michael Mahoney, Chairman & CEO]

Sure. Yes. We're hopeful that -- we aim for that business, I would say, to accelerate versus '19. If you look at '19 our SCS business was slow, the market was slow and we had extremely difficult comps the prior year. And so we would expect our global SCS business to improve over '19 and 2020. And also you heard at NANS, as well as detail out in some of the script, some of the clinical benefits we have with that portfolio. So, I think truly on a comp basis and expectations for the market to improve somewhat, we would expect that to improve. And in DBS we just have a lot of really good momentum there. Excellent share taking is taking place in Europe and in the US and you'll see some additional clinical studies being presented with that platform and we touched on some of the product differentiation there. So, and then you have Vertiflex, which will go organic in the second half of the year. So we think broadly speaking Neuromodulator will grow faster in '20 than '19.

[Lawrence Biegelsen, Wells Fargo Securities]

Thanks for taking the questions guys.

[Operator]

Your next question comes from the line of Josh Jennings from Cowen. Please go ahead.

[Josh Jennings, Cowen]

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, its 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.

[Daniel Brennan, EVP & CFO]

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 its 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.

[Michael Mahoney, Chairman & CEO]

Yes. And on WATCHMAN FLX, Ian or Dr. Stein can comment on it as well. But I think in terms of what we've seen in Europe, it's been more of a share taking capability that we have in Europe. And in the US, we haven't seen centers not opening, because we don't have WATCHMAN FLX. So we don't think it's going to drive the sort of new center openings that we wouldn't already receive with current WATCHMAN. I think it's -- and they can speak to the safety profile and the confidence that physicians have with FLX, which will give them more confidence to continue to increase our utilization rates, which are -- so our key metric for WATCHMAN broadly is utilization rates. We'll continue to open more centers in the US. We're expanding in Japan. We're expanding in other countries. But in the US it's all about turning on and continue to ramp up utilization, which we're seeing or we believe WATCHMAN FLX will further enhance that.

[Ian Meredith, EVP & Global CMO]

I'd just add to that. I'd say the key drivers to utilization or 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 increased utilization and WATCHMAN FLX is a substantial procedural enhancement in terms of being simpler to use, easier to recapture and physicians immediately recognize the 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 let -- announced the CHAMPION trial a major doc [ph] versus WATCHMAN FLX trial helps to build the awareness and therefore the utilization. So I think things will be very positive.

[Susan Lisa, VP, IR]

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

[Operator]

Thank you. Ladies and gentlemen, this conference will be available for replay after 12:30 Eastern Time today through February 20th. You may access the AT&T Executive replay system at any time by dialing 1866-207-1041 and entering the access code 3900175. International participants dial 402-970-0847. Those number once again are 1866-207-1041 or 402-970-0847 with the access code 3900175.

That does conclude your conference for today. Thank you for your participation and for using AT&T Teleconferencing. You may now disconnect.