Boston Scientific Corporation Q2 2010 Earnings Conference Call

Boston Scientific Corporation Q2 2010 Earnings Conference Call
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Boston Scientific Corporation (BSX)

Q2 2010 Earnings Conference Call

July 21, 2010 08:00 am ET


Larry Neumann - VP, IR

Jeff Capello - EVP & CFO

Ray Elliot - President & CEO

Michael Onuscheck - SVP & President, Neuromodulation Division


Bob Hopkins - Bank of America Securities

Mike Weinstein - JPMorgan

Rick Wise - Leerink Swann

David Lewis - Morgan Stanley

Joanne Wuensch - BMO Capital Markets (US)

Tim Lee - Piper Jaffray

Kristen Stewart - Deutsche Bank

Mike Duncan - UBS

Derrick Sung - Sanford Bernstein

David Roman - Goldman Sachs

Steve Lichtman - Oppenheimer & Company



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Ladies and gentlemen, thank you for standing by, and welcome to the Boston Scientific Q2 earnings conference. At this time all participants are in a listen-only mode. Later, there will be question-and-answer session. Instructions will be given at that time. (Operator Instructions) And as a reminder, this conference is being recorded.

I would now like to turn the conference over to our host Larry Neumann, Vice President, Investor Relations. Please go ahead, sir.

Larry Neumann

Thank you, Tanya. Good morning everyone and thank you for joining us this morning. 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 yesterday afternoon announcing our second quarter results. Key financials are attached to the release including the reconciliation of non-GAAP financial measures used in the discussion and we have posted a copy of the press release as well as support schedules to our website.

The agenda for this call will include a review of the second quarter financial results including third quarter and 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 quarter. We will then open it up to questions.

During the question-and-answer session today, we will be joined 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 our CRV Group.

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 growth projections, new product approvals, 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, the company's overall business strategy and 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 will now turn it over to Jeff for a review of the financial results for the quarter. Jeff.

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 second quarter was $1.928 billion versus our guidance range $1.825 billion to 1.925 billion, and represents a 7% reported in constant currency decline in the second quarter of last year.

Compared to the positive contribution of $25 million assumed in our second quarter guidance range, foreign exchange contributed only a positive $4 million to our second quarter sales results, which negatively impacted our reported revenue by $21 million.

We estimate the defib ship hold and product removal actions lowered our revenue growth rate by approximately 300 basis points or $62 million in the quarter compared to our guidance estimate of $127 million due to the 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 DS came at $389 million at the high end of our guidance range of $355 million to $399 million and down 12% both on reported and constant currency basis from the second quarter 2009.

Our worldwide DS revenue includes a $128 million for TAXUS, $210 million for PROMUS and $51 million for PROMUS Element. Our worldwide TAXUS, PROMUS, PROMUS Element split from the quarter was 33-54-13.

We continue to sustain our worldwide DS leadership during the second quarter with an estimated global market share of 38% which we estimate to be about 10 percentage points higher than our nearest competitor and 4 percentage points lower than our share in Q2 ‘09 principally impacted by DS share movements including the introduction of new stents principally in Japan.

US DS revenue is $209 million at the high end of our guidance range of $190 million to $210 million and 12% lower in the second quarter of last year. Excluding the favorable impact of a $7 million adjustment to the sales transition reserve included in Q2 ’09, US DS sales were down 9% versus last year driven by TAXUS share loss.

This includes $73 million of TAXUS and a $136 million PROMUS revenue and represents a 35-65 mix of TAXUS and PROMUS in the US compared to a 47-53 mix in Q2 of ‘09. We estimate that our US DS share was 46% for the quarter with 16 share points of TAXUS, 30 share points of PROMUS.

Excluding the transition recorded in ’09, our total share is down three points compared to the second quarter of last year. The decline in market share year-over-year is consistent with our expectations given the results of the compared study which released in September of last year. On a sequential basis, our market share of 46% was flat with the first quarter of this year indicating that our share has stabilized as we enter the third quarter which is the last difficult US quarter for comparisons given the compared results.

We continue to maintain drug-eluting stent market share leadership in a very competitive US market with more than 17 more market share points than our nearest competitor. Based on our estimate of US market for the second quarter, we believe that Boston Scientific’s market share was 46% for the second quarter estimated between 47% to 48%. And Abbott share was approximately 29%, while J&J and Medtronic achieved approximately 13% and 12% respectively.

International DS sales of $108 million were at the high end of our guidance range of 165 to 180 and represents a decrease from prior year of 12% on both the reported basis and constant currency basis. This includes $55 million in TAXUS, $74 million in PROMUS and $51 million in PROMUS Element. And represents a 31-41-28 mix of TAXUS, PROMUS, PROMUS Element. PROMUS Element contributed $51 million to our international DSOs including $39 million in EMEA and $12 million in the Americas and Asia-Pac combined.

We estimate that Boston Scientific’s DS market share in EMEA for the second quarter was 32% which is down three points compared to the second quarter of 2009. TAXUS market share was approximately 10% with revenue of $24 million. PROMUS market share was approximately 6% with revenue of $14 million and PROMUS Element market share was approximately 16% with revenue at $39 million.

Together this represents a TAXUS, PROMUS, PROMUS Element mix in EMEA of 31-18-51. We continue to be very pleased with the market acceptance of PROMUS Element which is running ahead of plan to the products market leading alloy and stent design which improve ease of use.

The recent launch of TAXUS Element on the same leading edge stent platform is expected to offset the current TAXUS share erosion. The combination of the continued rollout of PROMUS Element and TAXUS Element will position us to begin to take share on a year-over-year basis during the second half of the year.

Our DS share in Japan was 38%, down 15 points from the second quarter of 2009 with revenue of $50 million, driven primarily by the number of accounts participating in the Abbott reset trial, and a challenging pricing environment and by the introduction of additional competitive drug-eluding stent platforms.

TAXUS market share was approximately 7% with revenue of $9 million. And PROMUS market share was approximately 31% with revenue of $41 million. Together this represents a TAXUS PROMUS mix in Japan of 18-82. During the quarter, we estimate Xience share at 42%, Endeavor at 8%, and J&J share at 12%.

As we discussed last quarter, the reset trial is expected to complete enrollment around the end of July. This will provide us with an opportunity to leverage our commercial strength and two drug platform to reenter these accounts as we look to regain some share in the back half of the year.

We estimate our Asia-Pacific DS share remain steady at about 17% during the second quarter, split 7% TAXUS with $ 11 million in revenue, 5% PROMUS with $8 million in revenue and 5% PROMUS Element with $9 million in revenue or a TAXUS PROMUS PROMUS Element mix of 39-29-32.

DS sales in our Americas international region were $25 million, representing approximately 54% market share with 23% or $11 million in TAXUS revenue, 23% or $11 million in PROMUS revenue and 8% or $3 million in PROMUS Element. This represents a 44-44-12 mix of TAXUS, PROMUS and PROMUS Element.

In summary, with global DS market share of 38%, we maintain 10 percentage points of share advantage over our nearest competitor. Our strong commercial team focused on the only two drug platform in the industry, coupled with the rollout PROMUS Element and TAXUS element, stents will allow us to increase our market share leadership going forward. I would like to provide you a little more detail on the drug using stents market dynamics during the quarter.

We estimate the worldwide DS market in Q2 at approximately $1,035 million which is flat from reported end constant currency revenue versus Q2 ’09 excluding the impact of $7 million of revenue recorded to replenish customer on inventory as a result of the launch of TAXUS Liberte. 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 penetration offset by worldwide market decline in average selling prices of approximately 9% constant currency, also down 9% in actual reported.

Global penetration rates increased 3% versus a year ago. The US PS market is estimated to be about $456 million for the quarter representing a decrease of approximately 3% from the second quarter of last year, excluding the impact of sales transition reserve reversals in Q2 of last year. This consists of a unit volume increase of approximately 6% which includes an increase in PCI volume and an increase in penetration. This unit volume increase was offset by approximately 8% decline in ASPs including a negative mixed shift of DS platforms. During the quarter we saw our US DS ASP reductions in line with the aggregate market declines with TAXUS down about 8% and PROMUS about 9% compared to the second quarter of 2009.

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