Boston Scientific CEO Discusses Q3 2010 Results - Earnings Call Transcript

Boston Scientific CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Boston Scientific Corporation (

BSX

)

Q3 2010 Earnings Call

October 19, 2010 5:30 pm ET

Executives

Larry Neumann - VP, IR

Jeff Capello - EVP and CFO

Ray Elliot - President and CEO

Joe Fitzgerald - SVP and President of the Endovascular Unit

John Pedersen - SVP and President of the Urology and Women's Health Division

Mike Phalen - SVP and President of the Endoscopy Division

Mike Onuscheck - SVP and President of the Neuromodulation Division

Hank Kucheman - EVP and President of the Cardiology, Rhythm and Vascular Group

Ken Stein - SVP and Associate CMO, CRM Group

Keith Dawkins - SVP and CMO, CRV Group

Analysts

Michael Weinstein - JPMorgan

Rick Wise - Leerink Swann

Larry Biegelsen - Wells Fargo

David Lewis - Morgan Stanley

Glenn Novarro - RBC Capital Markets

David Roman - Goldman Sachs

Kristen Stewart - Deutsche Bank

Joanne Wuensch - BMO Capital Markets

Bruce Nudell - UBS

Matthew Dodds - Citigroup

Tim Lee - Piper Jaffray

Sarah Michelmore - Cowen

Presentation

Operator

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» Boston Scientific Company Q3 2009 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by, and welcome to the Boston Scientific third quarter earnings call. (Operator Instructions) I would now like to turn the conference over to our host Mr. Larry Neumann. Please go ahead, sir.

Larry Neumann

Good afternoon everyone and thank you for joining us. With me on the call today are Ray Elliott, President and Chief Executive Officer; and Jeff Capello, Executive Vice President and Chief Financial Officer.

We issued a press release earlier today announcing our third quarter results. Key financials are attached to the release including the reconciliation of non-GAAP financial measures used in this presentation and we have also posted a copy of the press release as well as support schedules to our website under the Investor Relations tab.

The agenda for this call will include a review of the third quarter financial results as well as fourth quarter and updated full year 2010 guidance from Jeff. An update on our business performance in the quarter from Ray, followed by his perspective on the quarter overall. We will then open it up to questions.

We will be joined during the question-and-answer session today by Sam Leno, Executive Vice President and Chief Operations Officer; Hank Kucheman, Executive Vice President and Group President CRV; Mike Phalen, Senior Vice President and President of our Endoscopy Business; John Pedersen, Senior Vice President and President of our Urology and Women's Health business; Joe Fitzgerald, Senior Vice President, and President of our Endovascular Unit; Michael Onuscheck, Senior Vice President and President of our Neuromodulation Business; Dr. Ken Stein, Chief Medical Officer for CRM; and Dr. Keith Dawkins, Chief Medical Officer for the CRV Group.

In addition, I'd like to welcome Sean Wirtjes with us today who recently joined us Vice President of Investor Relation. Sean was most recently with Varian Inc. and is working with me to transition all IR responsibilities here at Boston Scientific. We expect this transition to be completed by year end.

Before we begin, I'd like to remind everyone of our Safe Harbor statement. This call contains forward-looking statements including statements regarding our expected market share and gross margin, growth projections, new product approvals, timing of product launches, acceptance and sales, our financial position, expected net sales, earnings and tax rates for 2010, the effect of our restructuring activities, the effect of our debt repayment and expected FDA approvals.

The company wishes to caution the listeners that actual results may differ from those discussed in forward-looking statements and maybe affected by among other things, risks associated with our financial performance, our restructuring plan, clinical trial results, our programs to increase shareholder value, new product development and launches, regulatory approvals, litigation, our tax position, our competitive position, our growth strategy, and the company's overall business strategy as well as other factors described in the company's filings with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which it is made and we undertake no obligations to update any forward-looking statements.

I'd now like to turn the call over to Jeff for a review of the financial results for the quarter.

Jeff Capello

Thanks, Larry. Let me start by providing you with a detailed review of the operating results for the quarter. Consolidated revenue for the third quarter was $1.916 billion versus our guidance range of $1.850 billion to $1.925 billion and represents a 5% decline on both the reported and constant currency basis from the third quarter of last year.

Compared to the headwind of $51 million assumed in our third quarter guidance range, foreign exchange had only a $4 million negative impact on our third quarter sales results, which positively affected our reported revenue by $47 million.

We estimate that defib ship hold and product removal actions lowered our revenue growth rate by approximately 140 basis points or $28 million in the quarter compared to our guidance estimates of $44 million due to continued strong execution of our stop shift recovery plan.

Ray will provide a broader overview of our businesses by major product category, but I'll address our sales results for all of our businesses at a high level here.

Worldwide DES came at $365 million, at the high end of our guidance range of $340 million to $365 million, but down 4% on a reported basis and 11% on a constant currency basis from the third quarter of 2009. Our worldwide DES revenue includes $111 million for TAXUS and TAXUS Element, $195 million for PROMUS and $59 million for PROMUS Element. Our worldwide TAXUS, PROMUS, PROMUS Element split for the quarter was 30-54-16.

We continue to sustain our worldwide DES leadership during the third quarter with an estimated global market share of 37%, which we estimate to be 8 percentage points higher than our nearest competitor and 4 percentage points lower than our share in Q3 '09, primarily impacted by the results of the Compare study which were released in September last year and the introduction of new stents principally in Japan.

U.S. DES revenue was $199 million, at the high end of our guidance range of $185 million to $200 million and 11% lower than the third quarter last year, driven primarily by TAXUS share loss and a decline in the overall market driven by pricing pressures. This includes $68 million of TAXUS and $131 million of PROMUS revenue. It represents a 34-66 mix of TAXUS and PROMUS in the U.S. compared to a 48-52 mix in Q3 of '09.

We estimate that our U.S. DES share was 45% for the quarter with 15 share points of TAXUS and 30 share points of PROMUS. This represents a reduction in total share of 4 points compared to the third quarter of last year. The decline in market share year-over-year is consistent with our expectations given the results of the Compare study.

On a sequential basis, our market share of 45% was down 1 point from the second quarter of this year, indicating that our share has further stabilized. We continue to maintain drug-eluting stent market share leadership in a competitive U.S. market with 16 more market share points than our nearest competitor.

Based on our estimates of the U.S. market for the third quarter, we believe that Abbott's share was approximately 29%, while J&J and Medtronic achieved approximately 14% and 12% respectively.

International DES sales of $166 million were at the high end of our guidance range of $155 to $165 million and represent a decrease from prior year of 13% on both a reported basis and constant currency basis. This includes $43 million in TAXUS, $64 million in PROMUS and $59 million in PROMUS Element sales. It represents a 26-39-35 mix of TAXUS, PROMUS and PROMUS Element.

The international contribution for PROMUS Element includes $43 million in EMEA and $16 million in the Americas and Asia-Pac combined. We estimate that Boston Scientific's DES market share in EMEA for the third quarter was 31%, which is down 3 points compared to the third quarter of 2009.

TAXUS market share was approximately 8% with revenue of $18 million. And PROMUS market share was approximately 3% with revenue of $6 million. PROMUS Element market share was approximately 20% for quarter with revenue of $43 million with an exit share close to the 24% despite not yet being available in all major markets and regions. Together this represents a TAXUS, PROMUS, PROMUS Element mix in EMEA of 27-9-64.

We continue to be very pleased with the market acceptance of PROMUS Element, which is running ahead of plan to the product's market leading alloy and stent design which improves ease of use.

In addition, the recently introduced TAXUS exited the quarter with 3% market share in EMEA. We expect that our unique ability to deliver two different drugs via multiple stent platforms will allow us to protect and expand our position in the market.

Through the success of PROMUS Element and the TAXUS platform, we have driven 90% of our DES product mix in EMEA back to the self-manufactured margins.

Our DES share in Japan was 35%, down 12% from the third quarter of 2009 and free falling sequentially with revenue of $48 million, driven by the number of accounts participating in the Abbott reset trial and a challenging pricing environment.

TAXUS market share was approximately 5% with revenue of $7 million. And PROMUS market share was approximately 30% with revenue of $41 million. Together, this represents a TAXUS-PROMUS mix in Japan of 15-85. During the quarter, we estimate Abbott's share at 42%, Medtronic at 8% and J&J at 15%.

The reset trial completed enrollment during the quarter, which now provides us with an opportunity to leverage our commercial strength and two drug platform to reenter these accounts as we look to regain some share.

We estimate our Asia-Pacific DES share to remain steady at about 17% during the third quarter, split 7% TAXUS with $8 million in revenue, 4% PROMUS with $6 million in revenue and 8% PROMUS Element with $12 million in revenue or a TAXUS, PROMUS, PROMUS Element mix of 31-24-45.

DES sales in our Americas international region were $25 million, representing approximately 54% market share with 21% or $10 million in TAXUS revenue, 22% or $10 million in PROMUS revenue and 10% or $5 million in PROMUS Element revenue. This represents a 40-42-18 mix of TAXUS, PROMUS and PROMUS Element.

With global DES market share of 37%, we maintained 8 full percentage points of share advantage over our nearest competitor. Our strong commercial team is focused on the only two drug platform in the industry, and when you couple that with the continued rollout of PROMUS Element and TAXUS element stents, we expect to increase our market share leadership going forward.

I would like now to provide you with a little bit more detail on the drug using stent market dynamics during the quarter.

We estimate the worldwide DES market in Q3 at approximately $992 million, which is down 1% on both a reported and constant currency basis versus Q3 '09. Our estimated worldwide market revenue in the quarter includes a worldwide unit volume increase of approximately 10% driven by an increase in both PCI volume and a 3 percentage point increase in penetration, offset by a worldwide market decline in average selling prices of approximately 10%.

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