After reporting a fourth-quarter revenue shortfall due to a slowdown in its cardiac rhythm management division, Boston Scientific on Tuesday said it aims to deliver revenue growth above its medtech peer group over the next three years by reshaping its portfolio in fast growing markets like structural heart, oncology, neuromodulation, endoscopy and prostate health.
The company is targeting a compound annual growth rate for organic revenue of 6% to 9% from 2020 to 2022, along with double-digit adjusted earnings per share growth, CEO Mike Mahoney said in a presentation at the J.P. Morgan Healthcare Conference in San Francisco.
Among Boston Scientific's immediate goals: turn its structural heart unit into a billion-dollar business in 2020. Product milestones anticipated for the second half of the year include FDA approval and U.S. launch of the next version of the Watchman FLX device. Mahoney said left atrial appendage closure could be a $1 billion business on its own by 2023. Further, the company expects to launch its latest Acurate Neo 2 transcatheter aortic valve replacement device in Europe in the latter half of 2020, with FDA approval estimated by end of 2021.
Boston Scientific is also betting on $175 million in cost savings over the next three years from its $4.2 billion acquisition of U.K.-based BTG, completed in August. Mahoney said the company projects a CAGR of 8% over that period for the line of venous disease and interventional oncology devices.
Another important catalyst could be the potential $2 billion-plus market opportunity in single-use endoscopes, designed to reduce infection. Boston Scientific's Exalt Model D duodenoscope, an FDA-designated breakthrough device, gained U.S. marketing clearance in December. Mahoney said a limited first quarter launch is planned, with a scaled ramp-up each quarter throughout the year.
According to preliminary 2019 results, sales rose 9.3% to $10.74 billion, or up 7.3% on an organic basis. All of the company’s business segments except electrophysiology grew at a rate equal to or faster than the market in 2019, Mahoney said.
In the fourth quarter, revenue came in $30 million below the midpoint of the company’s guidance range of 8% to 9% organic growth for the period. Mahoney attributed the underperformance primarily to deceleration in the U.S. defibrillator business in December. “We don’t like to miss guidance, so we’re not pleased with that,” he said, adding that the company is still sorting out the reason for the softness.
In recent memory, Boston Scientific missed its revenue goal in the first quarter of 2019 after a disruption to product sterilization processes, an FDA warning about paclitaxel-coated devices, and removal of certain pelvic mesh devices from the U.S. market.
Needham analyst Mike Matson, in a research note, said it remains to be seen if Boston Scientific lost share or the overall market slowed in fourth quarter. “While BSX faces tougher comps starting in 2H20, we believe a strong product portfolio (particularly BSX's structural heart products) should enable BSX to sustain high single-digit organic revenue growth and double-digit EPS growth in 2020,” Matson said, reiterating a buy rating on the stock.
Focusing on the bigger picture, Mahoney emphasized the company’s improvement from a 6% organic CAGR between 2014 and 2016 to 7% between 2017 and 2019, and said Boston Scientific aims to deliver faster organic growth over the next three years. With tuck-in acquisitions, operational growth would exceed organic growth, the CEO said.