BOSTON SCIENTIFIC CORP Q3 FY2026 earnings call

• Cyber Incident Recovery: Operations fully restored as of September 8th after a two-week outage. The incident reduced Q3 sales growth by ~300 bps and EPS by $0.07. A residual impact of 200-300 bps is expected in Q4 2026 as customer inventory normalizes.
• Strategic Restructuring: Launched a comprehensive restructuring program aimed at org structure evolution, supply chain optimization, and back-office transformation. Expected to deliver over $500 million in savings over three years, with more than half achieved by end of 2027.
• Penumbra Acquisition: Boston Scientific expects to close the acquisition of Penumbra in early 2027, subject to regulatory clearance. The deal is viewed as highly complementary, strengthening the cardiovascular portfolio.
• Product Pipeline Adjustments: Vitalist circulatory support strategy shifted from high-risk PCI to AMI cardiogenic shock to address a major unmet need; co-funded via agreement with Blackstone Life Sciences. Ferrowave Ultra launch delayed to early 2028; Ferriflex enrollment ongoing with CMS approval received.
• Market Dynamics: Acknowledged a cyclical downturn in EP and Watchman franchises, which weighed on growth in 2026. Believes 2027 will be the trough, with stabilization and return to growth expected in 2028 and 2029 driven by new product launches and improved market conditions.
• China Pricing Pressure: Facing increasing VBP and pricing challenges in China, impacting multiple businesses including Urology, Endoscopy, and Neuromodulation. Growth in China is expected to moderate to single digits in 2027.

• Neuromodulation: Sales grew 13%, driven by NALU PNS technology in pain and Cartesia X-Lead/Illumina software in brain. This segment contributed to strong Med-Surg performance.
• Urology: Sales declined 3% due to the cyber incident and expanding pricing pressure in China. New product approvals (Navigator Flex, LithoView Elite) are expected to improve growth in 2027.
• Endoscopy: Sales declined 1% year-over-year, impacted by China VBP and the cyber incident. Underlying performance remains strong led by Axios, but near-term growth is pressured until the full impact of China VBP lapses in Q4 2027.
• Cardiovascular (Interventional Cardiology & Vascular): Delivered 2% total growth. Interventional cardiology grew 19%, driven by imaging and drug-eluting technologies (e.g., agent DCB). Vascular therapies grew 1%, with TCAR supply constraints expected to resolve in early 2027.
• Cardiac Rhythm Management (CRM): Sales declined 2%. Diagnostics grew high single digits, while low voltage and high voltage businesses declined mid and low single digits respectively. Performance is expected to improve in 2027 with new launches.
• Watchman (LAC Market): Sales declined 6% (down 7% in US, up 4% internationally). Standalone procedures declined significantly, while concomitant procedures grew ~35%. The business faces headwinds from shifting physician referral patterns and clinical evidence debates.
• EP (Electrophysiology): Sales declined 5% (down 8% in US, up 2% internationally). Cyber incident impacts were estimated at roughly half the MIS decline. PFA market share erosion continues due to competition until the Ferrowave Ultra launch in early 2028.

• Q4 2026 Organic Revenue: Guidance revised downward to a decline of 1% to 3% (previously implied growth), reflecting cyber incident tailwinds and competitive pressures.
• Q4 2026 Adjusted EPS: Guidance set at $0.77 to $0.79 (previously 80-82 cents), reflecting lower revenue and cyber-related costs.
• Full Year 2026 Organic Revenue: Maintained at approximately 4% growth.
• Full Year 2026 Adjusted EPS: Maintained at $3.16 to $3.18.
• Full Year 2026 Operating Margin: Expected to be approximately 27.6%, below 2025 levels due to gross margin pressures from product mix and cyber disruption.
• 2027 Outlook: Management anticipates challenging conditions, expecting it to be difficult to grow sales and adjusted EPS in 2027 (excluding Penumbra) due to persistent headwinds in EP and Watchman, plus China pricing pressures. No specific numerical guidance provided for 2027 top-line or EPS growth, but described as a 'trough' year.

• Competitive Erosion in EP and LAC: Continued loss of market share in Electrophysiology (PFA) and Left Atrial Appendage Closure (Watchman) due to new competitor entries and shifting clinical perceptions/referral patterns.
• China Regulatory & Pricing Risks: Escalating Volume-Based Procurement (VBP) and other pricing impacts in China creating significant headwinds across multiple segments (Urology, Endoscopy, Neuromodulation).
• Cybersecurity Vulnerability: Recent incident caused substantial operational disruption, revenue loss, and increased costs, highlighting risks related to IT infrastructure resilience.
• Supply Chain Constraints: Specific issues affecting TCAR supply and potential delays in manufacturing validation for new products like Ferrowave Ultra.
• Clinical Trial Execution: Delays in enrollment for key trials such as Thrive (renal denervation) and Ferriflex, potentially pushing back time-to-market for critical innovations.

Q: How should investors view the persistence of current dynamics into 2027 and the specific drivers behind the challenging outlook? / A: Management indicated that underlying business dynamics from Q4 2026 are expected to persist into 2027, making it the trough of the current cycle. While core businesses outside of EP and Watchman continue to grow consistently (~6%), the significant declines in EP and Watchman, combined with anticipated competitive launches and China pricing headwinds, are expected to offset this growth. Consequently, growing sales and EPS in 2027 (excluding Penumbra) will be challenging, though investments in new platforms aim to drive improvement in 2028 and beyond.

Q: What are the specific internal actions being taken to bridge the gap between current performance and the 2028 recovery targets? / A: Boston Scientific has implemented a comprehensive restructuring program focused on streamlining organizational structures, optimizing the global supply chain, transforming back-office processes, and reducing discretionary spend. The company aims to achieve over $500 million in savings over three years, with more than half realized by the end of 2027. These cost efficiencies are intended to fund strategic investments in high-growth platforms while improving operational speed and accountability.

Q: Why did management shift the development focus for the Vitalist circulatory support system from high-risk PCI to AMI cardiogenic shock? / A: Following competitor data that questioned the broad utility of mechanical circulatory support in high-risk PCI, management pivoted to study Vitalist in AMI cardiogenic shock. This indication represents a massive unmet medical need with mortality rates approaching 50%. Clinical data supports the use of mechanical support in this population, and Vitalist’s design offers advantages in positional stability and ease of use for critically ill patients, addressing a clear clinical gap.

Q: What factors are contributing to the delays in the launch timelines for Ferrowave Ultra and Ferriflex? / A: The delay for Ferrowave Ultra is primarily attributed to hardware, software, and catheter design verification and validation (DV) issues inherent in its PMA supplement pathway, not clinical trials. For Ferriflex, delays stem from negotiations with the FDA regarding IDE approval, slight delays in CMS full approval, and operational challenges in completing case documentation to expand trial sites. Management expects supply chain robustness and enrollment to ramp up by year-end.

Q: How does the integration of Penumbra affect the dilution expectations and growth profile of the cardiovascular segment? / A: Penumbra is performing strongly and is viewed as a highly complementary addition to Boston Scientific’s cardiovascular portfolio, particularly enhancing interventional cardiology and vascular therapies. While the initial announcement cited 6-8 cents of EPS dilution, changes in interest rates since then have altered the math. Management remains bullish on the transaction, expecting it to close in early 2027 and contribute to above-market growth in the cardiovascular segment as it becomes organic.