Boston Scientific's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Boston Scientific (BSX)

Q4 2011 Earnings Call

February 02, 2012 8:00 am ET

Executives

Sean Wirtjes -

William H. Kucheman - Chief Executive Officer and Director

Jeffrey D. Capello - Chief Financial Officer and Executive Vice President

Ken Stein - Senior Vice President and Associate Chief Medical Officer of Cardiac Rhythm Management

Analysts

Michael N. Weinstein - JP Morgan Chase & Co, Research Division

Glenn J. Novarro - RBC Capital Markets, LLC, Research Division

Kristen M. Stewart - Deutsche Bank AG, Research Division

Miroslava Minkova - Leerink Swann LLC, Research Division

David R. Lewis - Morgan Stanley, Research Division

Bruce M. Nudell - Crédit Suisse AG, Research Division

Tao Levy - Collins Stewart LLC, Research Division

Raj Denhoy - Jefferies & Company, Inc., Research Division

Robert A. Hopkins - BofA Merrill Lynch, Research Division

Derrick Sung - Sanford C. Bernstein & Co., LLC., Research Division

Matthew J. Dodds - Citigroup Inc, Research Division

Presentation

Operator

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Ladies and gentlemen, thank you for standing by, and welcome to the Boston Scientific Q4 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Mr. Sean Wirtjes. Please go ahead.

Sean Wirtjes

Thanks, Rochelle. Good morning, everyone. Thanks for joining us. With me on today's call are Hank Kucheman, Chief Executive Officer; and Jeff Capello, Executive Vice President and Chief Financial Officer.

We issued a press release earlier this morning announcing our Q4 and full-year 2011 results, which included key financials and reconciliations of the non-GAAP financial measures used in the release. We posted a copy of that press release, as well as reconciliations of the non-GAAP financial measures used in today's conference call to the comparable GAAP measures and other supporting schedules to the Investor Relations section of our website under the heading Financial Information.

Hank will begin this morning's prepared remarks with an update on our business progress and his perspectives on the quarter. Jeff will then review our Q4 and full-year 2011 financial results and business performance, as well as Q1 and full-year 2012 guidance. We'll then open the call up to questions.

During today's Q&A session, Hank and Jeff will be joined by our President, Mike Mahoney, as well as our Chief Medical Officers, Dr. Dawkins and Dr. Stein.

Before we begin, I'd like to remind everyone that this call contains forward-looking statements within the meaning of federal security laws, which may be identified by words like anticipate, expect, project, believe, plan, estimate, intend and similar words. These forward-looking statements include, among other things, statements regarding our market share; markets for our products; new product approvals; launches and performance; clinical trials; our cost reduction and growth initiatives; our investments in emerging markets; the timing and volume of share repurchases; our free cash flow and uses thereof; our future financial performance, including sales, margins and earnings guidance for the first quarter and full-year 2012; and our future tax rates, R&D spending and other expenses.

Actual results may differ materially from those discussed or implied in these forward-looking statements. Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K filed with the SEC as updated in the 10-Qs we've subsequently filed. These statements speak only as of the date hereof, and we disclaim any intention or obligation to update them.

At this point, I'll turn it over to Hank for his comments. Hank?

William H. Kucheman

Thanks, Sean. Good morning, everyone, and thank you for joining us. Before I get started, I want to let you know that starting today, we are implementing a revised approach to our earnings calls, which is intended to reduce call duration, as well as streamline and focus the information we provide. And we look forward to your feedback on this revised format.

Now let me move on and show my perspectives on the fourth quarter and the progress we are making on our key initiatives to drive revenue growth and increase EPS, including a glimpse forward into 2012.

I'll start with a couple of key points regarding fourth quarter results and then move on to some of the more important product introductions we expect to benefit from in 2012 and beyond.

Fourth quarter revenue of $1.848 billion was down 8% on a reported basis and down 5% in constant currency and excluding the Neurovascular divestiture. This decrease was primarily the result of continued weakness in some of our end markets, particularly CRM in Europe, as well as some other factors Jeff will address in his comments. We delivered adjusted EPS of $0.13 in the quarter, which was in line with consensus and within our guidance range of $0.13 to $0.16, despite the fact that the negative EPS impact of inventory charges relating to the earlier-than-expected U.S. launch of PROMUS Element Plus were not included in that guidance. Jeff will detail our financial results in guidance, as well as several positive developments which should help set the stage for BSE in 2012.

As you know, we're a global leader in a diverse $30 billion marketplace. Some of those markets are growing, others are not, but we continue to believe that the markets we're in are some good ones, with long-term growth prospects supported by demographic and disease trends, underutilization, underpenetration and the growing middle class in emerging markets. Our potential for future success starts with new products, so let me share with you why I'm excited about our pipeline.

In CRV alone, we expect to launch 24 new products in 2012. Our U.S. PROMUS Element Plus Stent launch is now fully underway and meeting our high expectations, and we anticipate approval of PROMUS Element in Japan ahead of our previously announced timeline of mid-'12. Once we have this approval, our platinum chromium element drug-eluting stent series will be approved in all major markets worldwide, and we should be well on our way to realize in the approximate $200 million profit opportunity that we expect to come with the conversion from PROMUS to PROMUS Element in the U.S. and Japan.

In addition, we just received approval for PROMUS Element Plus in Canada much earlier than expected and have also begun a rollout of this new delivery system in Europe. Although the worldwide DES market was relatively flat, it is still a large and profitable market, any market where we expect to continue our share momentum on the strength of the Element platform.

In CRM, we've historically focused on the higher end of the market, with single product offerings, which often limited our ability to compete effectively in all segments. We expect to change that with our new tiered defib and pacer platforms. In defib, we began the U.S. launch of our INCEPTA, ENERGEN and PUNCTUA ICDs and CRT-Ds in earnest this quarter. These new devices maintain our advantage in size and shape, which is often a critical factor for patients. They also offer improved programming options. Our LHFM capability, 4-SITE, DF4 universal connector system built off our highly dependable RELIANCE lead platform and our market-leading battery longevity warranties of up to 10 years, our key platform differentiators. Today, we're very pleased with the rollout based on the positive feedback received from customers.

Turning to the pacing side, we expect to launch our INGENIO family of pacemakers in CRTPs in Europe and the U.S. in the first half of the year. Similar to our new tachy devices, INGENIO incorporates clinically relevant features that offer tangible benefits to patients. For example, INGENIO includes a feature called right rate, which builds on our unique capabilities around the treatment of chronotropic incompetence. The INGENIO platform will also be RF-enabled, support remote patient monitoring, have advanced heart failure diagnostics and be compatible with MRI systems, the last of which is planned for Europe in the middle of this year. We believe that our new tachy and brady platforms will be a one-two punch for our sales teams who are very excited at the prospect of beginning to offer these new devices and targeting market share gains in 2012.

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