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Becton Dickinson & Co. (NYSE:BDX)
Q3 2019 Earnings Call
Aug 6, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello, and welcome to BD's Third Fiscal Quarter 2019 Earnings Call. [Operator Instructions] It will be available for replay through August 13, 2019, on the Investors page of the bd.com website or by phone at 800-585-8367 for domestic calls and area code 404-537-3406 for international calls using confirmation number 1475284. [Operator Instructions] Beginning today's call is Ms. Monique Dolecki, Senior Vice President of Investor Relations. Ms. Dolecki, you may begin.

Monique Dolecki -- Senior Vice President of Investor Relations

Thank you, Laurie. Good morning everyone and thank you for joining us to review our third fiscal quarter results. As we referenced in our press release, we are presenting a set of slides to accompany our remarks on this call. The presentation is posted on the Investor Relations page of our website at bd.com. During today's call, we will make forward-looking statements and it is possible that actual results could differ from our expectations. Factors that could cause such differences appear in our third fiscal quarter press release and in the MD&A sections of our recent SEC filings.

We will also discuss some non-GAAP financial measures with respect to our performance. Reconciliations to GAAP measures that include the details of purchase accounting and other adjustments can be found in our press release and its related financial schedules and in the appendix of the Investor Relations slides. A copy of the release including the financial schedules is posted on the bd.com website. As a reminder to provide additional revenue visibility we will speak to our fiscal 2019 third quarter revenue results and fiscal 2019 revenue guidance on a comparable currency-neutral basis. The comparable basis includes BD and Bard in the current and prior year periods and excludes intercompany revenues and revenues associated with divestitures among other adjustments.

Leading the call this morning is Vince Forlenza, Chairman and Chief Executive Officer. Also joining us are Chris Reidy, Executive Vice President, Chief Financial Officer and Chief Administrative Officer; Tom Polen, President and Chief Operating Officer; Alberto Mas, Executive Vice President and President of the Medical Segment; Simon Campion, Executive Vice President and President of the Interventional Segment and Patrick Kaltenbach, Executive Vice President and President of the Life Sciences Segment.

It is now my pleasure to turn the call over to Vince.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Thank you, Monique, and good morning everyone. At BD our strategy is driven by our purpose advancing the world of health. Our results this quarter demonstrate that our strategy is working and our core remains strong. Our progress with Bard is enabling us to deliver even more impactful comprehensive solutions for our customers. Turning to Slide 5 in our third quarter highlights. Our third quarter performance was strong. Revenue growth reflects the planned back half acceleration that we've been discussing with you throughout the year. As expected, growth was broad-based and we drove mid-single-digit growth in all 3 segments. Third quarter EPS was also in line with our expectation and our results through the first 9 months of the fiscal year are right on track.

As we approach the final year of the deal model, we continue to successfully integrate Bard as evidenced by our sustained top line momentum, cadence of new product launches and progress toward our cost and revenue synergy capture. We are also pleased with the level of engagement across the organization as our associates are highly motivated by a common purpose. Looking forward to the remainder of fiscal year 2019, we expect the momentum from the third quarter to continue and are reaffirming our full fiscal year 2019 revenue and EPS guidance.

I'll now turn things over to Chris for a more detailed discussion of our third quarter financial performance and our fiscal year 2019 guidance.

Christopher R. Reidy -- Executive Vice President, Chief Financial Officer and Chief Administrative Officer

Thanks, Vince and good morning everyone. Moving on to Slide 7. I'll review our third quarter revenue and EPS results as well as the key financial highlights. Third quarter revenues grew 5.7% on a comparable currency-neutral basis. As Vince mentioned our strong third quarter revenue growth was broad-based and is a strong indicator of the health of the business. As we have discussed previously, there are a number of drivers across our segments that gave us confidence in our planned second half acceleration. I'll provide more color on the third quarter revenue growth in a moment when I take you through the results by segment and geography.

EPS was also in line with our previously communicated expectations for the quarter. Despite significant FX headwinds in the quarter, we delivered adjusted EPS of $3.08 crossing the $3 per share mark for the first time since closing the Bard acquisition. On a currency-neutral basis, EPS grew 14.8%. We also continued to de-lever during the third quarter, paying down approximately $450 million of debt. Gross leverage was 3.7x as of June 30 and we remain on track to achieve our commitment to de-lever to below 3x over 3 years.

Moving on to Slide 8. I'll review our Medical segment revenue growth. BD Medical third quarter revenues increased 6%. As expected performance in the Medical segment was driven by continued momentum and share gains in medication management solutions and strength in pharmaceutical systems. In addition, growth in Medication Delivery Solutions normalized as anticipated and was driven by our leading vascular access portfolio, which also reflects our revenue synergy investments. Growth in Diabetes Care, was in line with our expectations driven by strength in emerging markets.

Now turning to Slide 9 in the BD Life Sciences segment. Revenues increased 5.4% in the third quarter with all 3 business units delivering strong growth of 5% plus. As anticipated, performance in the Life Sciences segment was mainly driven by strength in our molecular platforms in diagnostic systems with continued double-digit growth in BD MAX, as well as our microbiology solutions for IDAST including our Phoenix panels. In biosciences, we saw a strong growth in research reagents and in research instrument sales in the U.S. Growth in Pre-Analytical Systems was driven by strong demand in emerging markets.

Now turning to Slide 10 in the BD Interventional segment. Third quarter revenues increased 5.2% reflecting the diversity of the portfolio. As anticipated BDI's results include a reduction of approximately 50% in planned DCB related sales in the quarter. Excluding the DCB impact, BDI segment revenues would have grown over 7%. Revenues in Peripheral Intervention grew in the low single digits in the third quarter. Excluding the DCB impact revenue growth would have been in the high single digits. Our wavelength Covera and Venovo products continue to perform extremely well. Third quarter revenue growth in surgery reflect strong performance in biosurgery in the U.S. as Progel sales continue to ramp in double-digit growth in infection prevention and biosurgery in Europe where we continue to see the benefit from our revenue synergy investments. Revenue growth in urology and critical care continues to be driven by new product innovation in acute urology as well as continued strength in our homecare and targeted temperature management businesses.

Now moving to Slide 11 in our geographic revenues for the third quarter. Growth in developed markets was driven by strong performance in the Medical and Interventional segments in the U.S. and strength in Europe in the pharmaceutical systems MMS and Surgery units. Revenue growth in emerging markets was driven by broad-based double-digit growth in China and EMA. We expect continued double-digit growth in China for the full fiscal year.

Turning to Slide 12 which recaps the third quarter income statement. As discussed revenues grew 5.7% in the quarter on a comparable basis. Now moving down the P&L , gross profit grew 2.4% year-over-year, excluding the impact of currency, as our continuous improvement and cost synergy initiatives were partially offset by the impact of unfavorable mix. The mix impact was driven by strong revenue performance in the quarter and products with lower relative gross margin profiles, as well as lower DCB sales, which as you know, have a hot and margin profile above the company average. The mix impact mostly reflects timing within the year and we are maintaining our full year gross profit margin guidance as we continue to anticipate accelerated revenue growth, continuous improvement and synergy capture to drive strong Q4 margins as FX headwinds abate.

SSG&A as a percentage of revenues was 24.7%. SSG&A grew at a pace slower than sales, which reflects our disciplined spending as well as continued achievement of Bard cost synergies. R&D as a percentage of revenue was 5.6%. For the full fiscal year, we will invest approximately $1 billion in R&D, which reflects our continued commitment to drive innovation. Operating margin of 25.4% was in line with our expectation as pressure in gross profit was mitigated by favorability and operating expenses. Our tax rate in the quarter was 12.8%, which is below our full year guidance range due to the timing of discrete items. We had anticipated these items would occur throughout the fiscal year and as such these items are already reflected in our full year guidance range. As expected, we paid preferred dividends of $38 million in the quarter. As we have been discussing the preferred shares are not included in the shares outstanding calculation. As previously discussed, adjusted earnings per share of $3.08 grew 5.8% versus the prior year and 14.8% on a currency-neutral basis.

Now turning to Slide 13 in our gross profit and operating margins for the third quarter. Gross profit margin was 55.6% in the quarter. The decline in gross margin was driven primarily by unfavorable currency and mix as previously discussed. Operating margin was 25.4% in the quarter. On a performance basis, operating margin was flat as the decline in gross margin was offset by operating expenses leverage as previously discussed. Currency had a negative impact of 120 basis points on operating margin.

Now moving on to Slide 15 in our full fiscal year 2019 revenue guidance. As we discussed, our third quarter performance was strong and in line with our expectations for accelerated revenue growth in the second half of the fiscal year. We expect continued momentum across our businesses and regions in the fourth quarter. As a result we have reaffirmed our total company and segment level revenue guidance for fiscal year 2019, as well as our expectations for growth in developed and emerging markets and China.

Moving on to Slide 16. We have also reaffirmed our full fiscal year 2019 adjusted EPS guidance. Our fiscal 2019 EPS growth expectations continue to reflect strong underlying performance driven by revenue growth and solid operating performance. All in, we expect to deliver adjusted EPS of 11.65 to 11.75.

Turning to Slide 17 in our detailed P&L guidance. We have updated our expectations for interest of the net to approximately $450 million to reflect proactive measures we have taken to lower interest expense. The balance of our P&L guidance expectations for the full fiscal year 2019 remain unchanged. We also continue to expect to achieve approximately $100 million in cost synergies in fiscal year 2019 and we are on track to fully realize $300 million in annualized cost synergies over the 3-year deal period. We feel good about the momentum we have across our businesses and we're very confident that we will deliver on our commitments in fiscal year 2019 and beyond.

Now I'd like to turn the call back over to Vince, who will provide you with an update on our product portfolio.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Thank you, Chris. Turning to Slide 19 in our planned product launches by segment. As we have been discussing with you, we have a very robust pipeline across the company. There are a number of things we're excited about. I'll touch on just a few launch -- recent launches here. Starting with the BD Medical segment. In May, we launched the BD Pyxis ES system version 1.6, which bring software enhancements achieved through upgrades to the core ES software as well as through-system integration of 3 technologies. BD Pyxis ES refrigerator, BD Pyxis track and deliver and BD HealthSight Data Manager. These enhancements improve clinical workflow efficiency, pharmacy flexibility and end-to-end medication safety. Regarding our HealthSight platform, feedback from customers continues to be very positive and we are gaining traction across our applications.

Before we move on to our Life Science segment, I would like to discuss the Type 2 Insulin Patch Pump. As we discussed on our call last quarter, the feedback we received from the FDA was more comprehensive than we had anticipated. Based on this feedback and given the intricacies of this product category, we have decided to withdraw our FDA application and have engaged a third party R&D partner with expertise in this space while we work through our strategic options. As a result, our previous timeline has been extended and we will provide you with additional information as we make progress.

Moving on to the BD Life Science segment. We are excited by the recent launch of BD core, our new high throughput molecular diagnostics platform aimed at providing automation of molecular testing in core and other large centralized labs. Early customer interest and placement of our BD core units are exceeding our expectations. We also continue to see strong growth on the BD MAX platform, supported by the commercial success of recently introduced assays, such as the BD MAX vaginal panel, as well as our Enteric panel suite. In addition, we have seen success with our Phoenix M50 IDAST instrument along with our recently launched CPO detect asset.

Pre-Analytical Systems continues to benefit from capacity investments in our ultra-touch push-button blood collection sets. Ultra touch has been very well received by our customers and is driving continued conversion from conventional solutions. Within biosciences, We continue to see strong performance in our FACSymphony high parameter instruments and flow reagents, as well as the BD Rhapsody AbSeq Single Cell Multiomics solution that improves RNA and protein analysis. In addition, our FACSLyric clinical instrument continues to do well and when combined with the recently launched FACSDuet automated sample prep instrument provides a solution for clinical laboratories to improve the accuracy and repeatability of their test.

Within the BD Interventional segment, we are excited that we recently launched OptiFix AT, an articulating Fixation Device for laparoscopic and robotic compatible use. And [indecipherable] STOVHR which is a mesh designed specifically for open hernia repairs that leverages our existing Phase 6 technology and a newly developed positioning system. In addition, our WavelinQ Endovascular AV Fistula System, as well as our Venovo and Covera products that launched earlier this year, as part of our stent product category all, continue to see positive momentum in the market. Regarding our FDA PMA submission for Lutonix below the knee. As you are all aware, we have been working with the FDA in a collaborative review process. Subsequent to the FDA Advisory Committee meeting on paclitaxel the statutory review time for our BTK PMA submission concluded and the FDA notified us that our PMA was not approvable in its current form.

While this determination was based on the clinical evidence provided to date, we continue to review, collaborate and align with the FDA on the path forward regarding our submission, including the need to potentially provide additional clinical data. As a result, the approval process timeline has extended out from our previous expectations and we no longer expect approval this calendar year. We will keep you informed as we work with the FDA and make further progress. Before I move on, I would like to speak for a moment about our commitment to sustainability, which is a key component of our strategy. We're pleased to have recently published our FY 2018 sustainability report, which provides an update on our progress toward achieving our 2020 sustainability goals. These goals provide the framework for how we manage and make an impact on the most relevant, social and environmental issues for our company. We are pleased with the progress we have made toward our 2020 goals and believe there are opportunities ahead to make a real difference as we work to address global challenges such as climate change and antimicrobial resistance. In addition, we received several acknowledgments in 2018 including CR magazine's 100 Best Corporate Citizens List and the Human Rights Campaign foundation Best Places to Work for LGBT QB quality.

More recently, we were proud to have been named as one of the 2019 Best places to work for disability inclusion, by disability in. These awards highlight the success of our business, our responsibility to the environment, our commitment to inclusion and diversity and our ethical standards. Looking forward, we now have a broader, more impactful portfolio and we'll continue to refine our sustainability strategy and set new ambitious goals that will not only ensure our resilience over the long term, but also consider the expectations of our shareholders and stakeholders around the world. In the appendix of today's presentation, we have again included a slide that provides you with some more details on our sustainability initiatives. We hope you find this information useful in understanding BD's commitment to this important topic.

Moving on to Slide 20. I would like to reiterate the key messages from our presentation today. We delivered strong revenue growth in the third quarter, in line with our planned second half acceleration. Growth was broad-based across the businesses and regions, which reflects the breadth and diversity of our portfolio. The integration of Bard is on track and we are confident in our ability to achieve our cost and revenue synergy commitments. Looking forward to the remainder of fiscal year 2019, we expect our momentum to continue and have reaffirmed our full year revenue and EPS guidance. In summary, we are confident that our core remains strong. Our progress with Bard is enabling us to deliver even more impactful, comprehensive solutions for our customers.

Thank you. And we'll now open the call to questions.

Question-and-Answer Session

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Kristen Stewart of Barclays.

Kristen Stewart -- Barclays -- Analyst

Hey, good morning, everybody. I just want to start off with longer term expectations, I can appreciate that you guys probably don't want to give any specific color around 2020 and guidance in that respect. But heading into the call, I think 2020 outlook was definitely one of investors top concerns and given the update on Lutonix below the knee and it not being approvable, I think that's only to increase the concerns on the street. So I was wondering if you could help provide your thoughts on puts and takes for how we should think about fiscal year '20. I know that you had talked about the deal model being kind of mid-teens growth, obviously there has been some changes with Lutonix, but also Gore royalty. How should we think about that and the year ahead in the puts and takes? Thanks.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Good morning, Kristen.So Kristen, thanks very much for the question. I have to say we're not surprised to get the question, but I'm surprised that you have to write out the back, but let's get it on the table. We're making good progress on 2020, is what I want you and everyone to know, we're making good progress on the budget. We're a little early on, we are not finished yet. But with knowing that we had the Gore royalty going away, we started this process earlier and I feel really good about the process, that we are running in the progress we're making there. So with that I'm going to turn it over to Chris, he's going to give you a little more detail. We're not going to completely guide today, but we'll give you a good sense of the progress we're making.

Christopher R. Reidy -- Executive Vice President, Chief Financial Officer and Chief Administrative Officer

Sure. Thanks, Vince and good morning, Kristen. You're right, it's too early to give a level of precision to guidance for next year. There'll be some things that we're watching. But what I would say is, that the message essentially remains the same as last quarter with the one exception being BTK. But if you think about it on the revenue side, we still expect to drive 5% to 6% growth for '20. Despite the DCB status quo and the BTK delays, we'll still be able to drive that 5% to 6%. And then on EPS, at worst the BTK impact, even if we don't have it for the full year, is about 1% and we would intend to mitigate as much of that as possible. A little bit of pressure on FX, we'll watch that. But despite all of this, barring that unforeseen changes from here, we're very confident in our ability to deliver double-digit earnings growth next year. Where we are in that double-digit will depend on things that transpire between the next couple of months. But we feel good with that floor of double-digit and we'll see where BTK plays out and where FX goes, but everything else is pretty consistent with what we've said before.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

All in all, a good progress and maybe I'll just ask Simon to comment. Simon, you're having some really good performance on some new products that give us this confidence on the 5 to 6. So maybe you want to talk about some of the other products that are offsetting some of these things in the DCB area.

Simon Campion -- Executive Vice President and President, Interventional Segment

Sure, Vince. I think Chris earlier on in the statements mentioned Venovo, Covera and Wavelength within the PI business. I'm sure you have seen the recent Trump proclamation on kidney disease which will only serve to help the visibility of this ailment and another great quarter and end-stage renal disease domestically and internationally. I think also very significantly for the BDI segment is our performance globally, as we begin to leverage the scale of BD, particularly in areas where Bard was only commencing its investment profile. So, for example, biosurgery and infection prevention in Europe was a tremendous quarter and that was driven by the investments that we made as part of the acquisition. And urology continues to perform terrifically well, driven by home care internationally and new products domestically and we foresee that great progress continuing in all three businesses within BD.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

So thanks, Simon. The bottom line of what Simon is saying is we're right on the deal model, the mix of new products is a little different. We didn't expect the DCB situation, but as Simon just detailed for you, there's a whole series of other new products, including in urology, that is going quite well. So that's enabling us to hold that guidance range. Thanks for the question, I appreciate it.

Operator

Your next question comes from the line of David Lewis of Morgan Stanley.

David Lewis -- Morgan Stanley -- Analyst

Good morning. Just two quick ones from me, one for Chris and one for Simon. Chris, thinking about the 4th quarter, you obviously maintained 25%, 26% margins, but it sort of implies 28% 4th quarter margins to get to the midpoint, so should we be thinking about the low end of the range for the year on margins and how do you get that 2.5 point step up? And same question on growth. Chris, you talked about acceleration into the 4th quarter, but it's a pretty significant momentum step up into the 4th quarter, just to get to the low end of the 5 to 6. So basically about your confidence top and bottom for the 4th quarter, and just a quick one for Simon, post the panel and now with the BTK update. Have you made any commercial decisions about the DCB commercial organization in terms of its size, is it right sized for the opportunity and the level of growth? Thanks so much, guys.

Christopher R. Reidy -- Executive Vice President, Chief Financial Officer and Chief Administrative Officer

Sure I'll start. So clearly, we have been saying that the revenue is going to accelerate in the second half of the year. You saw that starting to happen in Q3, we see that accelerating even further in Q4. Again, it's the continued strength and UCC in surgery, the MMS momentum that we have, MDS is accelerating and strong growth in biosciences and DS which is essentially across the business. So we have strong confidence in that. And then on operating margins, we do see acceleration in the operating margins in the 4th quarter. Don't forget, we don't have the FX drag that goes away in the quarter. We continue to see revenue cost synergies and CI continuing to build and again FX abates there. So, we have a lot of confidence in being able to get solidly within that 25% to 26% range that we gave guidance on.

Simon Campion -- Executive Vice President and President, Interventional Segment

Hi, there. It's Simon. So, certainly we've been preparing for all eventualities respect to DCBs and BTK as well. And while we won't provide you any details here, I think it's important to recognize that the territory managers for example, within the preference of engine business, sell far more than DCBs and we have seen positive uptake in stents and other areas. So to begin to affect those, I think it would be not a great move, but obviously as part of this process, we have sought to offset as much of this as possible without impacting the commercial performance of the organization.

Christopher R. Reidy -- Executive Vice President, Chief Financial Officer and Chief Administrative Officer

And, we're still waiting to see where the FDA comes out on the course on labeling changes and the letter to physicians. We'll stay tuned for how that works out. Thanks for the question.

Operator

Your next question comes from the line of Bob Hopkins of Bank of America Merrill Lynch.

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Thank you and good morning. There are a lot of questions one could ask, but I can't help but just one more on Paclitaxel. If you could elaborate in however you can on what you heard from FDA after the panel meeting and do you have a sense you might need a whole new trial or just longer term data? Or any incremental sense on what you heard from that would be helpful.

Simon Campion -- Executive Vice President and President, Interventional Segment

You're asking on BTK?

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Yes, that's right.

Simon Campion -- Executive Vice President and President, Interventional Segment

On BTK, well, I don't think would provide the specific information here. We did provide the 6-month data and interim 12-month in the PMA that we filed, and we continue to cooperate and work with FDA as we work through this. But to provide any specifics about it, I think would confer competitive advantage on others and I'm not allowed to do that. It remains a very active PMA. Our teams are collaborating with FDA and we expect to have face-to-face meetings here with them in the not-too-distant future.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

To really nail down what that data requirement will be, and we have more data to bring to the table. So we continue to work on it, but thanks for the question, Bob.

Operator

Your next question comes from the line of Robbie Marcus of J.P. Morgan.

Robbie Marcus -- J.P. Morgan -- Analyst

Great, thanks for taking the question. I was hoping you could talk about your strategy around M&A in general. You're down at 3.7 times leverage. We saw you not wait until you got all the way to your target last time with the Bard deal. How you're thinking about where to add, what to add, valuations in the space? And also if you could just touch on M&A specifically in diabetes and this as an area? I think back to the last Analyst Day, there was a long list of product innovations that you were hoping to bring to market. I don't think it probably turned out as positive as you hoped. Your thoughts in diabetes and your plans for the future there? Thanks a lot.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Yes, sure, and happy to answer the question. First, just a little bit of a correction, we did hit our deleverage target on the CareFusion deal, before we did the Bard deal and we're very proud of that. We are really focused on meeting our leverage target as we go forward. Now what we've been saying and remain committed to is that, a must-do plug in M&A is an important part of the strategy. And as we put the deal model together we made allowance for that, and you've seen us do stuff like Wavelength Q, because it's an important part of the growth strategy. You should expect over the next year that we will continue doing that as we move forward toward deleveraging and getting down below three times. And then as we look forward, we have tremendous capability in terms of our ability to do M&A. But we're not a serial acquirer, we are a strategically driven company and you should expect us to be thinking about plug in M&A and then looking at the dividend and share repurchase as we move forward. So, Chris, anything else you want to that?

Christopher R. Reidy -- Executive Vice President, Chief Financial Officer and Chief Administrative Officer

Just wanted to point you back to the presentation I made at your conference back in January, Robbie, where we talked about future cash flow considerations. And the bottom line of that is, we throw off a lot of cash. We happen to be using it to pay down $6 billion of debt. But at the same time, when that is done, which is within the next year, we will have a lot of cash to allocate and we started giving some sense of that. We'll be talking more about that as we move on. But again, it gets back to what Vince said, we're not going to let it build up in the balance sheet. We are going to be more active in tuck-in M&A across the whole portfolio and likely to start going back to share buybacks, once we start building up the cash balances and have gotten down to that three times leverage. And we made that correction, because we are very proud about the fact that we live up to our commitments, we committed that we would get down to three times leverage in the CareFusion deal and we did that before moving into the Bard transaction. I'm not going to get down to the three times leverage this time as well.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

So, as Chris said, plug in M&A across the entire portfolio, and that could include diabetes, obviously any other business here. In the short run, we remain committed to the patch pump. You heard me comment that we have taken on a development partner for doing that and we'll continue to work on that as the number one priority as well as investing in the core of that business where we see some nice opportunities. But thanks for the question.

Operator

Your next question comes from the line of Vijay Kumar of Evercore ISI.

Vijay Kumar -- Evercore ISI -- Analyst

Hey guys, thanks for taking my question, housekeeping questions first and one on Q4. The imply at the lower end of the 5 or 6, for the annual rate in place Q4 6% organic, where the acceleration coming from just given the tougher comps? If you can walk us through that, and the second on Q3, the new MDR regulation incremental cost. Is that sort of an ongoing below the line of implementation costs, are we annualizing that -- Q4? Thank you.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Yes, it's a little hard to hear you, Vijay. But at the same time, I think I got it. You were looking for a little bit more on Q4 revenue and we're not talking about accelerating much more from the 5 to 7, it's a little bit. I went through before, where we're seeing strength in some of the new products that we've brought to market. Venovo, Covera, Wavelength are very helpful continued strength and UCC. We are seeing great momentum in MMS as you saw from the results this quarter. MDS is accelerating as we expected it to and we see strong growth in biosciences and diagnostic systems. Don't forget, we have some revenue synergies that kick in toward the back end of this year, particularly in the 4th quarter. So that's where we're seeing it come from. And I think I talked about the margins, gross profit as I mentioned in my prepared remarks. We saw some one-time items that go away in the 4th quarter and rebound, not to mention FX, not being a headwind both on gross profit and operating margin. We see CI and synergies ramping. We're very comfortable with the direction and very similar message to what I said last quarter, you saw that move in that direction in the third quarter, and we expect that to continue in the 4th quarter.

So Vijay the only thing I would add to that, emerging markets growth is going to continue to be strong. I mentioned already that in China, we were double-digits, we expect to be double-digits for the rest of the year. You know that we have a great business, they're a great team there and a strong partnership with the Ministry of Health. That is all going extremely well, we don't expect this environment with tariffs on retail products and stuff to be impacting that business. So we expect that to do double-digits for the entire year and we feel good about that. We feel good about the rest of Asia and, of course, EMA you saw it was very strong this quarter and we expect that to continue. So there is a lot of drivers both in the business side, and from the geography side.

Christopher R. Reidy -- Executive Vice President, Chief Financial Officer and Chief Administrative Officer

I think, just for clarity I would add two other points, Vijay. We do expect lower interest to be about $250 million, as we mentioned in our prepared remarks. I would expect tax to be closer to the middle of the range. There's a lot of intricacies in tax, but you saw it was lower in this quarter at 12.8%. That will rebound upwards in the 4th quarter, putting us right toward the middle of the guidance range that we gave. Thanks for the question.

Operator

Your next question comes from the line of Larry Biegelsen of Wells Fargo.

Larry Biegelsen -- Wells Fargo -- Analyst

Good morning, thanks for taking the question. Just one on Lutonix and one on China. On Lutonix, there have been a lot of questions on BTK, but my question is on the current indications and what you're seeing since the FDA panel and your expectation once the updated FDA guidance comes out. And Vince, I heard your comments on China and your confidence there but there -- we're getting questions from investors about potential backlash in China against US products given all the rhetoric here. Maybe you could help us understand why you're confident in that growth continuing and why some of this noise won't have an impact domestically. Thanks for taking the question.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Yes, sure. I'll handle that and then Simon can handle the intricacies of what's going on in DCBs. So on China, as I was mentioning just a minute ago, our experience through this whole situation with what's going on with trade has been that they've been keeping very separate what's happening in healthcare versus what's happening on to trade side. And I think that reflects number one, a strategic priority to continue to develop the healthcare system in this environment. And that's what we hear from the Ministry of Health and in fact, more recently over the past 6 months, we've had conversations where they've explicitly told us that. So that's the first part of it. The second part of it is, we had our team in here and the China healthcare system is now better funded than it was a year ago or three years ago and so there's some positive momentum going on in China as the rest of the economy slows down and I think is important to them. And then thirdly, we are really well positioned with the portfolio in the organization that we have in China. And it's not just the fact of our commercial organization, but it's what we do in terms of investing in China. We have four plants in China, we continue to invest behind that. We continue to invest in innovation for China as well. And I know Tom's excited about the portfolio, he's been working very closely with John DeFord and our team in Asia. So we've built the partnership over 25 years there and so we do think that different aspects of the environment will be difficult, and we are ready for that, but we also expect that with what we've done to fully invest in China and not just a commercial organization we're very, very well positioned and that's what we hear. And Tom's got another one or two things he'd like to add.

Thomas Polen -- President and Chief Operating Officer

Larry, this is Tom. Good day, good morning. Maybe just one small thing to add to Vince's good overview there is that, those investments that we've made over the last 25 years, particularly in that localized highly automated manufacturing, today the majority of the high volume disposable medical devices that we sell in China, we make in China locally. So we're actually importing a relatively low percentage, particularly of our high volume disposable devices where there can be local competition. We're actually behaving as a local -- in that -- employing local associates, acquiring our raw materials locally, etc. and engaging in those local communities. A much more on some of the unique areas where there is actually not local competition in areas such as BDB, DS, etc. or BDI where we would be doing importing and we're actively moving some more of that manufacturing into China as well.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Okay. So Simon is going to [Technical Issue] DCBs and the intricacies there.

Simon Campion -- Executive Vice President and President, Interventional Segment

Good morning Larry, it's Simon. So I think as you obviously know, the power happened in June and I think in industry really did put the best foot forward here in a collaborative nature. I think many of the physicians that spoke were speaking on behalf of the role of Paclitaxel, not only within PAD but also these are Paclitaxel in other areas and not seeing a signal associated with that. And everyone continues to work with the FDA as we look to refine their Dear Doctor letter. But what we've seen is approximately 50% reduction. I think we communicated that on the last call, it has remained at about that point in the last quarter and barring any unforeseen upsides, I think we should expect that to continue as we roll forward here.

But once again, DCBs are just about 1% of the total BDX business. As Chris has spoken to, and I've spoken to, with new products in PI, with new products in surgery, that is just launched and with the outstanding performance [indecipherable] within Urology. I think we're well placed to offset as much of that headwind as we can moving forward.

Larry Biegelsen -- Wells Fargo -- Analyst

Thanks guys.

Simon Campion -- Executive Vice President and President, Interventional Segment

Sure. Thanks.

Operator

Your next question comes from the line of Bill Quirk of Piper Jaffray.

Bill Quirk -- Piper Jaffray -- Analyst

Yes, sure. So you already saw some of the interest reduction in the third quarter and that was actually used to offset the additional pressure. We saw about $0.05 of pressure, more than we expected to and FX, we thought it would be about $0.20, it was more like $0.25 of pressure. So you've already seen some of that and that's why I pointed to the fact that the tax rate goes back up in the fourth quarter to get to the middle of the range for the year. It's 13.3% year-to-date through the third quarter and we expect it to be closer to the 15% after the year, o obviously that is an offset that you see and it was much lower. So when you put all that together in your model I think you get back to right where we are. And there is no question that the FX has put pressure, it was real in the third quarter, but we are holding our range for the year despite that pressure.

Okay. Patrick?

Patrick Kaltenbach -- Executive Vice President and President, Life Sciences

Yes, let me comment quickly on the BD MAX. And as we said in the quarters before, we saw growth north of 20% and again this quarter it was north of 20% and it's driven by the strong assets we have to Enteric panel -- NVP panel, etc. So we are pretty confident that this has a long runway building out more panels on BD MAX and again the strong demand, and we're pretty happy with the business.

Bill Quirk -- Piper Jaffray -- Analyst

Patrick, anything you want to add on BD Core? I mentioned it as one of the new product launches. Maybe a little more color on that.

Patrick Kaltenbach -- Executive Vice President and President, Life Sciences

Yes. So we just launched BD Core in Europe and we are really, really happy with the initial demand we are seeing and the interest we're seeing from our customers in Europe. It's still early days because we have just one assay so far on it but we are building out a panel and we think we have a very competitive platform on hand that will drive the future growth within our business year. We will have the same as I said, we have the BD MAX report and more on BD Core build out a complete platform approach so we can cover both the acute and the call out. So that's a very strong driver for the business.

Unidentified Speaker

Yes. So we just launched BD -- Europe and we are really, really happy with the initial demand we are seeing and the interest we're seeing from our customers in Europe.It's still early days, because we have just one as so far on it, but we are building out a panel and we think we have a very competitive platform on hand that will drive the future growth within within our business year we will have the same as I said, we have BD MAX report the -- and BD core build out a complete platform approach , so we can cover both the acute and the call out.So that's a very strong driver for the business.

Bill Quirk -- Piper Jaffray -- Analyst

Okay. Thanks, Patrick. And thanks for the question.

Operator

Your next question comes from the line of Rick Wise of Stifel.

Rick Wise -- Stifel -- Analyst

Hi. Good morning Vince, and hi Chris, how are you doing?

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Good morning. We're doing great.

Rick Wise -- Stifel -- Analyst

One quick one and one guidance. I'm just -- Vince, as always, I'm curious to hear your thoughts about the politics and Med-tech Tax. I would like to hear your thoughts about that but I'd like to ask a guidance question. I think you're making it abundantly clear and for multiple reasons why fiscal fourth quarter is going to look good and accelerate and so it sounds like at a minimum look a lot like the growth we saw in the fiscal third quarter. But you have -- you do have your dramatically most challenging comp of the year. Maybe help us understand how you hit the upper end or get toward the upper end of guidance or what would have to happen if [indecipherable] to get to that full year guidance? More toward 6%, you'd have to post an upper single-digit fourth quarter. Is that remotely possible or are there some variables that I'm not understanding? Any color would be much appreciated.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

We have provided guidance in the past calls because of DCB, because of the full season as it played out. Those are the biggest drivers that we would be toward the lower end of our guidance range of 5 to 6 in spite of those pressures. So the guidance for Q4 really implies the low end of that 5 to 6 range. So that is --

Rick Wise -- Stifel -- Analyst

As you've just mentioned, it would take a real blow out to take it up to the top and the businesses are performing strongly, but as you said, with the comp there that makes it really difficult.

Christopher R. Reidy -- Executive Vice President, Chief Financial Officer and Chief Administrative Officer

Yes. I mean we feel really good about the fact that the businesses are delivering well. We talked about BDI and the performance in this quarter would have been well over 6% but for the DCB impact. And as I said, even with the DCB impact and the potential BTK impact we feel strongly about the ability to drive 5% to 6% next year as well. So we're feeling good about that momentum in order to get to high-ends of the range, we would have had to have a blowout flu season and -- because you know that was a tough compare against last year's flu season and DCB was gullible.

Rick Wise -- Stifel -- Analyst

Tom?

Thomas Polen -- President and Chief Operating Officer

Hey, Rick, this is Tom. Good morning. Maybe just one other comment to add there. You mentioned the comp in last year's Q4 and you're right. As Chris mentioned, we feel really good about the momentum from Q3 going into Q4. And one of the biggest comp areas last year I believe was in MMS. We saw very strong growth and I think one of the things I'm surprised we haven't got the question of and really strong number in MMS this quarter as well, which is reflecting the continued momentum that we see in that business and Alberto has any other comments to add there. But I think we're -- continue to be pleased that growing significantly above market in the MMS business, which we expect to take continue so.

Alberto Mas -- Executive Vice President and President, Medical Segment

Yes. Very good quarter for MMS clearly growing 9% plus and it just reflects an ongoing momentum for this business. Yes, we have been favorably impacted by some timing of installations but will be on the life side and the pump side but that will normalize over time. We do have a very strong -- we had a very strong quarter last year in Q4. We will jump over that and we won't grow at the 9% growth rate clearly but we are expecting good performance given the high quarter. And the drivers are the ones that we had mentioned in the past in terms of our core platforms in M2 Alaris, Pyxis ES. The HealthSight Analytics that is really driving the integrated platform approach to the -- and interoperability where we are. We already have 475 sites live and it just shows that momentum and that extract by the market of what we are offering as an integrated platform.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Yes, the business is performing great. Doing really well. Thanks, Alberto and thanks for the question.

Operator

Your next question comes from the line of Richard Newitter of SVB Leerink.

Richard Newitter -- SVB Leerink -- Analyst

Hi, thanks for the questions. I have two here. One on molecular, the double-digit growth trend is very strong. You also had some -- a competitor that put and continues but up strong double-digit growth. So I guess my question here is how much of the performance and the momentum in that business? Is something happening in terms of improvement in the underlying market versus share? And then the second question would just be on drug-coated balloons. I'd love to just hear following the FDA panel. What are your customers saying in terms of what is going to take to kind of either get back to levels or close to levels of utilization and implementation where they were pre-panel and the study? And where do they think that level is? Is it half of what it used to be? What are your customers saying with respect to that view post-panel? Thanks.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

All right. So let's do molecular first and then will come back to DCB.

Patrick Kaltenbach -- Executive Vice President and President, Life Sciences

Hello, I'll take that. Thanks, Richard for the question. So on molecular as you said our growth is pretty strong not only driven by BD MAX but that's one of the big contributors there. If you look at our growth rate compared to market growth, I would say it clearly indicates that we are taking some share right now. Given the strong growth rates we have and we are again confident in our assays that they are hitting the right market segments and they're also -- if you look for example, on [indecipherable] if we are not using multiplex assays. We're using a more target approach and that is also in terms of the reimbursement model very beneficial for us. So I'd say -- I would say definitely points toward taking market share for us.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Okay. Simon on DCBs.

Simon Campion -- Executive Vice President and President, Interventional Segment

So with respect to DCBs. I think the FDA needs to come out with a statement to and say that the benefits outweigh the risks in summary for the market to begin to rebound. I think our customers feel like their hands are tied right now with the Dear Doctor letter from March 15 and that's reflected in the current 50%. Thereabouts decline in business, not just with us but with others too. So I think in one sentence benefits need to outweigh the risks. And the benchmark for a recovery profile is if you reflect back on drug-eluting stents in the coronary system, you can see the recovery profile that they experienced over a prolonged period of time. Which took a few years but we just have to wait to see what the content of this letter holds for us and more importantly for the patients that we serve. If it remains the same way then patients that we serve will not have the treatment option available to them to the scale it was before the Dear Doctor letter.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

So just to add to that a little. This is probably not a black and white situation. There is a lot of degrees of gray and what the FDA can say here. And so we don't know exactly where that will come out. Simon mentioned before industry has given a lot of input. We expect the KOLs are also giving input on that and we think very shortly, we will get an updated letter. The FDA, I should say will be coming forth with an updated letter in terms of exactly what Simon was talking about. So we're waiting to see where that comes out, and I would agree with Simon the industry more so the healthcare providers had made some great arguments as to why this product is important for patients. And so we'll see how that plays out over the next couple of days. Thanks for the question.

Operator

Your next question comes from the line of Matt Taylor of UBS.

Matt Taylor -- UBS -- Analyst

Hi, thanks for taking the question. So I just had a clarification question on your commentary on DCBs and next year on synergies. So it sounds like when you're talking about being able to grow 5% to 6%, that's not predicated on any real snap back in the core DCB business. Is that correct? And then also when you reiterated the Bard revenue synergies, you're right on track there is no major impact or unsurmountable impact from DCBs, is that right?

Christopher R. Reidy -- Executive Vice President, Chief Financial Officer and Chief Administrative Officer

Yes. So you're right. As we think about 2020, we're assuming that that 50% holds through 2020 so no snap back in that.

Matt Taylor -- UBS -- Analyst

Okay. And on the synergies?

Vincent A. Forlenza -- Chairman and Chief Executive Officer

On the synergies -- the cost synergies we're right on target. We did mention that we will do $100 million this year and we're well on our way to the $300 million. I think from revenue synergies we are on track as well.

Thomas Polen -- President and Chief Operating Officer

Matt, this is Tom. I'll just give maybe a little bit more color on the revenue synergy. So we are seeing the three areas that we've shared before we're seeing very good momentum across both the vascular access area. We brought the Bard pick and midline business in and integrated with our catheter team. I'd say in the last two quarters, we're really seeing an increase in the number of competitive conversions, which was exactly our strategy and that gives us confidence going forward in that continuing to fuel performance, particularly in the MBS business. You'll see that now in the back half of this year going into next year. We're seeing the benefits in our surgery business. You're seeing some of that play out actually this quarter that the investments that we made in the combined biosurgery and ChloraPrep infection prevention sales force in Europe. We're seeing biosurgery and infection prevention now growing strong double-digits in Europe because of those synergy investments that we've made. And then of course, the third area of just geographic expansion in markets particularly beyond China that Bard had invested in significantly we're seeing strong growth in BDI in those other geographies as well. And so we feel very confident in our revenue synergies being on track this year and continuing that momentum into 2020.

Matt Taylor -- UBS -- Analyst

Thanks, Tom. And then just one follow-up. It sounds like the BD core product could be a really interesting driver. You had some comments on it today but they're a little general. Could you talk a little bit more about how big you think that product could be over time as it builds on your success with MAX?

Patrick Kaltenbach -- Executive Vice President and President, Life Sciences

Yes, I can take that. Look, it's again current revenues are still -- its early days, right. We are ramping the product. So it's just when can do in Europe with the HPV panel on it. As I said, this is for us a revenue driver in 2021, 2022. I think we will see lots of revenue contributions coming from the platform when we also have it available worldwide. We think it's a very attractive platform given the automation capabilities it has especially also taking care of the prenatal step within the platform. So we think we will see a very nice revenue contribution and growth contribution in our Diagnostic Solutions business in the years 2021 and 2022. But this year, it's different will make a huge contribution.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Okay. Right. Thanks, Patrick.

Operator

Your final question will come from the line of Josh Jennings of Cowen.

Josh Jennings -- Cowen & Company -- Analyst

Hi, good morning. Thanks for taking the questions.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Sure, Josh.

Josh Jennings -- Cowen & Company -- Analyst

Just had a -- Appreciate it. Just two questions, first on the peripheral business just in terms of attempting to launch the sales was even more, some of the DCB pullback. I was wondering about your views on the need for an atherectomy platform. I think prior to the acquisition, there was rumblings that Bard had a system in development in the pipeline. I just wanted to hear if that's still the case within -- back to its pipeline. And secondarily, just wanted to hear some updated thoughts on the hernia business. Pyxis seems to be doing very well. There is some controversy around synthetic non-reservable mesh. I just wanted to hear your views on the market and Pyxis positioning. Thanks for taking the questions.

Simon Campion -- Executive Vice President and President, Interventional Segment

So, it's Simon here. I wouldn't comment specifically on what's in our NPD funnel until we're ready to actually give a commercial launch date. As you know PI plays in every category within the PAD space, with the exception of atherectomy. So it's obviously something we keep a close eye on internally and externally but to comment further on that, I wouldn't do so. And then with respect to hernia, at long last I can stop referring to the hurricane because Q3 saw the last comp again versus the hurricane that happened, hard to believe, 2 years ago. So we had a very strong underlying quarter in Q3. We continue to grow above the market and Pyxis performance within our complex Bard business continues to do really well. We've just released 3-year data on Pyxis which continues to do really well. We've just released another version of Pyxis as Vince mentioned Pyxis STOVHR which incorporates a new positioning system and that's off to a great start. And again, we just released a new articulating Fixation System that thus far has got tremendous feedback from our customers. So hernia continues to do very well. We continue to look for other ways that we can leverage that sales team that we have domestically and internationally. So you should expect to see that continue in that vein.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Okay, Josh. Thanks for those questions.

Operator

Thank you. I will now return the call to Vince Forlenza for any closing comments.

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Okay. So let me wrap this up. A couple of thoughts. Our revenues were strong across all the businesses and regions in line with our second half planned acceleration. We're very excited about that. We expect our momentum to continue and have reaffirmed our fiscal year 2019 revenue and EPS guidance. And as we approach the final year of the Bard deal model, I'm confident that we will continue to deliver on our commitments and create more value for our customers, our patients and our shareholders. Once again, thank you for your questions. We look forward to updating you again around this exciting business that we've built. Thanks very much.

Christopher R. Reidy -- Executive Vice President, Chief Financial Officer and Chief Administrative Officer

Thanks, everyone.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Monique Dolecki -- Senior Vice President of Investor Relations

Vincent A. Forlenza -- Chairman and Chief Executive Officer

Christopher R. Reidy -- Executive Vice President, Chief Financial Officer and Chief Administrative Officer

Simon Campion -- Executive Vice President and President, Interventional Segment

Thomas Polen -- President and Chief Operating Officer

Patrick Kaltenbach -- Executive Vice President and President, Life Sciences

Unidentified Speaker

Alberto Mas -- Executive Vice President and President, Medical Segment

Kristen Stewart -- Barclays -- Analyst

David Lewis -- Morgan Stanley -- Analyst

Bob Hopkins -- Bank of America Merrill Lynch -- Analyst

Robbie Marcus -- J.P. Morgan -- Analyst

Vijay Kumar -- Evercore ISI -- Analyst

Larry Biegelsen -- Wells Fargo -- Analyst

Bill Quirk -- Piper Jaffray -- Analyst

Rick Wise -- Stifel -- Analyst

Richard Newitter -- SVB Leerink -- Analyst

Matt Taylor -- UBS -- Analyst

Josh Jennings -- Cowen & Company -- Analyst

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