Boston Scientific (BSX) Q1 2020 Earnings Call Transcript

Boston Scientific (BSX 1.43%)
Q1 2020 Earnings Call
Apr 29, 2020, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Boston Scientific Q1 2020 earnings call. [Operator instructions] As a reminder, today's call is being recorded. I will now turn the call over to your host, Susan Lisa. Please go ahead.

Susan Lisa -- Vice President of Investor Relations

Thank you very much, Kevin, and for those explicit directions. Good morning, everyone, and thanks for joining us. With me on today's call are Mike Mahoney, chairman and chief executive officer; and Dan Brennan, executive vice president and chief financial officer. We issued a press release earlier this morning announcing our Q1 2020 results which included reconciliations of the non-GAAP measures used in the release.

We have posted a copy of that release, as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading Financials and Filings. The duration of this morning's call will be approximately one hour. Mike will focus the majority of his comments on the impact of COVID-19, inclusive of April trends and procedural acuity by business. Dan will review the financials for the quarter and our liquidity outlook, and then we'll take your questions.

During today's Q&A session, Mike and Dan will be joined by our chief medical officers, Dr. Ian Meredith and Dr. Ken Stein. Before we begin, I'd like to remind everyone that on the call, operational revenue, excludes the impact of foreign currency fluctuation and organic revenue, further excludes the impact of certain acquisitions, including Vertiflex and BTG in the relevant periods for which there are no prior period-related net sales, as well as the divestiture of the global embolic microspheres portfolio.

On this call, all references to sales and revenue, unless otherwise specified, are organic. Also of note, this call contains forward-looking statements within the meaning of federal securities laws which may be identified by words like anticipate, expect, believe, estimate and other similar words. They include, among other things, the impact of the COVID-19 outbreak on the company's results of operations; statements about our growth and market share; new product approvals and launches; clinical trials; cost savings and growth opportunities; our cash flow and expected use; our financial performance, including sales, margins and earnings; as well as our tax rates, R&D spend and other expenses. April trends refer to month-to-date results, and actual results may differ materially from those discussed in these in any forward-looking statements.

Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K and subsequent 10-Qs filed with the SEC. These statements speak only as of today's date, and we disclaim any intention or obligation to update them. At this point, I'll turn it over to Mike for his comments.

Mike Mahoney -- Chairman and Chief Executive Officer

Thank you, Susie, and thank you to everyone for joining us today. I hope that you and your families are healthy and braving the COVID-19 pandemic as well as possible. I'm truly honored to be part of Boston Scientific as I see every day the resilience of our employees across the globe, who are helping us to navigate the crisis and emerge stronger on the other side. We're humbled to be able to continue to serve our customers, patients, employees and community needs in the COVID-19 pandemic.

Our focus is to communicate with transparency and take actions consistent with our core values while keeping employees safe and informed, providing patient support to customers and effectively managing our operations. We've expanded our capabilities in virtual physician education, remote clinical support, digital sales enablement and training. We're also partnering with our customers to enable a fast recovery while also acting to reduce operational expenses and preserving our cash position. We have taken these immediate actions with the goal to preserve as many jobs and strategic programs as possible.

We've also leveraged our capabilities to develop countermeasure technologies, such as the Coventor personal respirator, which was developed and approved in just four weeks, as well as face shield and donations of personal protective equipment. I'll now provide some highlights on first-quarter '20 and will focus most of my comments on the impact of COVID-19. While we're not providing specific revenue and EPS guidance at this point, we will offer insights into our segments, along with recent businesses and geographic sales trends and highlight some 2020 launches. I'll then wrap up with some key sustainability updates as our teams continue their dedication to innovation and long-term commitments to the environment and our communities.

For the first quarter of 2020, total company sales grew 3.2% on an operational basis with the U.S., up 3%; EMEA, up 1%; and Asia Pac, down 5% operationally. Total sales declined 2.9% on an organic basis, reflecting the impact from COVID-19 and in line with our April 2 pre-announcement. Sales are tracking to expectations of both January and February before significant negative trends kicked in, in mid-March. These first-quarter sales results were led by low single-digit growth in our MedSurg segment with uro-pelvic health, up 3%; endo, up 2%; and both our cardiovascular and rhythm and neuro segments declined organically.

Within cardiovascular, interventional cardiology sales were down 3%, peripheral interventions was down 2%. Operationally, within PI, BTG interventional medicines contributed 390 basis points to total company growth, led by TheraSpheres, which grew mid-teens in the quarter. In rhythm and neuro, CRM sales declined 10%, EP dropped 5% and neuromodulation declined 7%. Neuromod did grow 3% operationally with a 70-basis point contribution to company sales from Vertiflex.

And specialty pharma sales of $41 million in the quarter was ahead of forecast and contributed 160 basis points to total company growth. Despite taking immediate actions to reduce costs, the lower overall sales levels led to a challenging P&L for the quarter as adjusted operating margin fell to 21.6%, down 400 basis points year over year, and adjusted EPS of $0.28, which is a 21% decline versus Q1 '19. Now to turn to outlook for the rest of the year. As I mentioned, Q1 sales were tracking to expectations until mid-March when we started to see significant declines in U.S.

and European revenue as a result of procedure deferrals in those geographies across all of our businesses. Generally, those negative trends in the second half of March have continued in the first three weeks of April. We are currently planning for the most significant negative impact of COVID-19 in Q2. And within Q2, we expect April to be the toughest month with global revenue for the month of April down approximately 45% to 50%.

From a regional perspective, we see varying results based on the different phases of recovery. Through the first three weeks of April, regional sales results have trended down 15% in Asia Pac, down 45% in Europe, Middle East, East Africa and down 55% in the U.S. versus prior year. Importantly, we've seen a very recent slight improvement in April sales trends as some facilities to varying degrees have begun to reopen for elective procedures.

We anticipate some sequential monthly improvement throughout Q2 but with net sales results still down significantly year over year for the second quarter. We also expect Q3 revenue will likely contract on a year-over-year basis but improve from Q2 rates of decline. And then we aim to return to growth in Q4, but there are obviously still many uncertainties. Despite the procedure volume impact from COVID-19, the global pipeline across our businesses remained very strong with several ongoing launches and recent approvals now poised for commercialization as soon as the broader environment improves.

I'll also provide color on procedural urgency, along with trends in April. We framed our major product lines across the spectrum from emergent, which is measured in hours to days; to semi-emergent, which is measured in weeks; to elective, which is measured in months. And note that several product families cross over categories and majority of conditions we treat have a relatively high level of acuity, including those that are elective and thus generally can't be deferred for extended periods. In addition, when estimating the overall pace of recovery, site of service is an important consideration, and the recent guidelines for reopening from a range of physician societies enable elective outpatient procedures to restart before inpatient procedures.

Site of service varies by business, but overall, based on 2018 Medicare claims data, our 2019 U.S. revenue split was approximately one-third inpatient and two-thirds outpatient. The two-thirds mix within the outpatient setting spans across hospital outpatient, physician office labs and ambulatory surgery centers. Please refer to Slide 12 of our investor relations website for supporting details to the commentary.

Urology and pelvic health, given the high mix of deferrable procedures, trends through the first three weeks of April were down roughly 60% versus prior year, with sales from our Stone franchise and SpaceOAR products showing better resilience and more pressure in our prostate health, prosthetic urology and pelvic org franchises. We believe Uro PH may have one of the faster potential recovery curves, aided by a higher office ASC mix for most elective procedures, as well as specific products playing a key role such as the recent launch of the Tria Stent in the U.S. and Europe. And LithoVue, which is our single-use urethroscope, could benefit as the current environment supports the speed and utility of single-use scopes.

SpaceOAR is also an important technology for the recovery as treatments for cancer patients will be prioritized. And hydrogel spacing is now included in NCCN Guidelines. In BPH Rezum, which is an entirely office-based procedure, recently reported five-year clinical data in which the surgical retreatment rate through five years was 4.4%. Importantly, this is unchanged from the published results of Rezum's four-year data, and it compares to a 13.6% retreatment rate for competitive MIS technology.

Finally, given the multiple strategic priorities and investment opportunities within the broad uro PH portfolio, we're announcing today that we've reached a definitive agreement to divest our commercialized Intrauterine Health portfolio to Minerva Surgical. In addition, we've made a decision, at least for the near term, to stop funding additional clinical or R&D work for Cytuity. Cytuity is a potential platform for ovarian cancer diagnosis that we acquired from nVision in 2018. Unfortunately, while we recognize the strong need for improved ovarian cancer detection options, particularly for women who have a high risk, our view of the clinical evidence necessary to establish practically utility of the product, as well as the current reimbursement landscape have extended the cost and time horizon to realize the commercial potential of Cytuity.

Turning to endoscopy. April month-to-date trends are down 45% year over year, reflecting a higher mix of nondeferrable procedures within our MedSurg business. ERCP procedures for the pancreas and bile ducts are deferrable. However, patients typically can't wait longer than four to six weeks for stone removal, tumor biopsies and other related procedures.

In single-use scopes, the EXALT-D launch is progressing, albeit slowly, due to COVID-restricted hospital access and capacity. The current pandemic certainly emphasizes the need for infection prevention, and we continue to believe that our therapeutic imaging portfolio of single-use scopes represent a multibillion-dollar market opportunity over time. We're also pleased that the next scope in this franchise, SpyGlass Discover, received CE Mark approval in early April, and we're working toward a second-half U.S. clearance and a global launch.

Also in April, we received FDA clearance for the WallFlex Colonic and Duodenal Soft Stent systems in our next-generation hemostasis clip, Res 360 Ultra remains on track for approval in Q3. Turning to CRM. Sales in April are down approximately 50% year over year, with de novo brady implants and replacements holding up slightly better than ICDs. And this reflects a slightly higher mix of nondeferrable procedures and pacers, including the majority of patients suffering from heart block and those who more urgently need replacements.

In defibrillators, nondeferrable procedures, including secondary prevention ICD and CRTD therapy and a subset of replacements. CRM recovery will be led by HeartLogic, S-ICD replacements, as well as the ongoing U.S. launches of our INGEVITY+ Lead and 3,300 programmer with the remote service offerings. Importantly, we continue to expect midyear FDA launch and clearance of our Lux Dx implantable cardiac monitor.

We also look forward to two virtual HRS late breakers in our CRM franchise, the PRAETORIAN and untouched trials, which should continue to support the global growth of our S-ICD franchise. Electrophysiology sales in April are down approximately 65% year over year as this franchise is a higher deferrable mix in CRM with a low double-digit percentage of highly symptomatic and unstable arrhythmias considered nondeferrable. Our EP recovery will be driven by our strengthening portfolio, including POLARx, which is our second-generation single-shot cryoablation catheter that will resume its European launch in Q3 when access to labs improves. DIRECTSENSE, which monitors the effect of RF energy delivery via changes in local impedance around the catheter tip, received approval in mid-April.

We also anticipate Q3 approval in Europe for our four-sensing stable point therapeutic catheter. In neuromodulation, the first three weeks of April have seen a decline of 90% in sales versus prior year, given the very high rate of elective deferrability for SCS and DBS procedures. So to offset this, we continue to leverage our digital competencies to maintain connectivity with patients and physicians that were ready to serve them as procedures resume. Given that a majority of all SCS trial procedures occur in the office or ASC setting and that many implanting physicians have access to an ASC, we believe SCS procedures will likely experience an earlier and faster recovery than DBS, which is typically 100% hospital-based.

For interventional cardiology, April sales are trending down about 40% versus prior year, with coronary therapy sales more resilient and structural heart sales more impacted, which reflects a higher mix of nondeferrable procedures within coronary therapies. Similarly, with structural heart, TAVR procedures are generally less deferrable than WATCHMAN. And overall, the relatively low April sales decline in IC reflects that it's one of our highest mix franchises, both in terms of emergent and acute procedures. We believe this will drive the recovery curve as the procedures may be deferrable near term but pose a significant threat for future morbidity or mortality.

Importantly, we're planning for eight coronary therapy launches across our major markets later in 2020, highlighted by SYNERGY XD, SYNERGY MEGATRON and our SYNERGY 48 mm, two enhancements to our Rotablator atherectomy platform and enhancements to our PCI Guidance platform. We're also very proud of the team that achieved our ACURATE neo2 CE Mark approval earlier this month, and we plan to begin a limited market release in Europe as the healthcare systems resume a more regular cadence of TAVR procedures. Similarly, the ongoing launch of LOTUS Edge in the U.S. and Japan has been challenged by COVID-19 restrictions that limit proctor travel and the delivery of training, but we do look forward to the recovery in procedure volumes.

We also continue to plan for a second-half 2020 U.S. launch of WATCHMAN FLX and a way presentation of the PINNACLE FLX results in May as an HRS late-breaking clinical trial. And although WATCHMAN procedures are largely deferrable, patients seeking this therapy are eligible based on their need for an alternative to blood thinners, and physician operators we've surveyed are confident that postponed procedures will be rescheduled when facility capacity and/or protocols allowed for increased elective procedures. Turning to peripheral interventions.

April-to-date revenue is down approximately 30%, and the estimated mix of deferrable to nondeferrable procedures ranges by therapy category: arterial, venous, and interventional oncology in order of highest to lowest mix of deferrable procedures. We have a strong cadence of product launches coming in this PI business. In arterial, we plan U.S. launches of the Ranger DCB and athletes balloon, along with a China launch for Eluvia in DES in China.

In venous, we received approval for the venous indication for WALLSTENT and anticipate approval for a new controller for the EKOS thrombectomy system and a new IVUS catheter. Also, the VT vitro reverse deployable stent and the Angiojet clot hunter system all will be launched in 2020. In interventional oncology, we plan to launch a new heat FX microwave ablation system and the true select microcatheter, so a very rich pipeline of launches in PI in 2020. So turning now to lessons learned from our Asia team.

Q1 sales in the region declined 5% year over year, mainly driven by declines in China and Korea, which were partially offset by growth in Japan, Australia and New Zealand. In China, we estimate that the COVID-19 impact to procedures was close to $70 million in the first quarter. And since the government announced on March 18 that the country has passed the peak of the epidemic, we continue to see improvement each week in China. Leading physicians are also citing concerns that patient deaths from deferral of elective procedures could outnumber COVID-19-related patient deaths.

And bans are now starting to lift on interprovincial travel, and this is helping larger city hospitals recover as patient flow from lower-tier cities is restored. We are leveraging the China team's experience, including customer engagement via online hospital seminars and remote case support. And overall, we believe that China could recover back to its pre-COVID-19 trajectory in Q3 and potentially be above plan in Q4. Our Japanese business has been less impacted year to date but remains uncertain.

In Japan, we look forward to launching Ranger DCB, SYNERGY XD and LOTUS Edge in the second half of 2020. So turning to the balance sheet, as we announced last week, we believe that we are in a strong liquidity position with our recent bank deal resulting in over $2.6 billion in near-term liquidity. And Dan will provide more details on the transaction, as well as commentary on our cost-cutting and cash preservation initiatives. Consistent with the deferral of elective procedures, we have witnessed a slowdown in ongoing clinical trial enrollments and thus would expect a delay to many of our clinical time lines of approximately six months.

We're also temporarily suspending the quarterly update to our pipeline chart in our financial highlights decks, but we'll reinstate at one of our future earnings calls. Instead, this quarter, we have provided a summary of our important 2020 new product launches on Page 13 of the deck. I'd also like to highlight the online release of our 2019 integrated performance report, which combines financial disclosures with our sustainability report, updates on our 2030 carbon-neutral pledge and reporting on our diversity and inclusion goals. Recall that, in 2017, Boston Scientific was the first medical device company to pledge carbon-neutrality by 2030.

And importantly, we've made significant progress toward this goal, with the latest step being last week's announcement that we have finalized our first virtual power purchase agreement, which is a 15-year solar energy purchase deal to provide 100% renewable energy electricity for our U.S. operations. We've more than doubled the percent of energy used from certified renewable sources in 2019 alone to 11% and achieved a reduction of nearly 34,000 tons of greenhouse gas emissions since 2015. We recycle 80% of all solid waste manufacturing sites and a 95% rate of landfill avoidance.

So in closing, I'm incredibly proud of our team at Boston Scientific. Our fundamentals and long-term outlook remain strong, given our people, our pipeline, our high rate of acuity in our portfolio and our category leadership strategy across diversified markets. I'd like to thank our employees for their winning spirit and commitment to emerge stronger in the recovery post-COVID. I'd also like to thank the frontline workers for their unwavering commitment, dedication and selflessness during this time.

Now I'll turn the call over to Dan.

Dan Brennan -- Executive Vice President and Chief Financial Officer

Thanks, Mike, and allow me to echo my gratitude and respect for all of the frontline healthcare workers and members of the Boston Scientific team. The focus of my prepared remarks today will be to provide high-level Q1 financial results, insight into our P&L, cash controls and leverage, as well as an overview of our strong financial position. Given the challenges the COVID-19 pandemic has brought upon the healthcare community and uncertainty regarding the duration and the impact, we will not be issuing Q2 or full-year 2020 guidance at this time. But as Mike said, we will try to provide as much transparency and disclosure as possible.

First-quarter consolidated revenue of $2.543 billion represents 2% reported revenue growth and reflects a $29 million headwind from foreign exchange. On an operational basis, revenue growth was 3.2% in the quarter. Sales from the Vertiflex and BTG acquisitions contributed 70 and 560 basis points to total company growth, partially offset by the divestiture of our legacy embolic beads portfolio for a net 610 basis point contribution. This resulted in an organic revenue decline of 2.9%, driven by the negative impact of COVID on elective procedures, as Mike detailed.

We delivered Q1 adjusted earnings per share of $0.28, which includes $0.02 of inventory charges related to near-term lower demand and $0.01 charge related to a discrete tax item in the quarter. Adjusted gross margin for the first quarter was 70.5% and reflects the impact of the inventory charge. As we face top-line headwinds related to COVID, there are some opportunities to leverage cost of goods sold, but not as many as other lines of the P&L, which I will detail shortly. Our tax rate for the first quarter was 10% on an adjusted basis and includes an $11 million discrete tax charge.

Our tax rate may have some variability for the remainder of this year as COVID-related uncertainties and different regional and national recovery time lines could materially impact our geographic mix of profits and therefore the tax rate. Adjusted free cash flow for the quarter was $218 million. As of March 31, 2020, we had cash on hand of $370 million, a purposeful increase of $150 million over the prior quarter. Given the uncertain environment, we intend to maintain approximately $300 million of cash on hand throughout the remainder of the year, roughly $100 million higher than recent historical trends.

Turning to our P&L leverage and cost-containment initiatives. At a high level, in the short term, our spend is roughly 70% fixed, 30% variable. This is based on operating expense structure that's approximately two-thirds fixed with cost of goods sold slightly higher than that. We're currently focused on cutting back approximately two-thirds of the targeted variable spend while preserving critical investment spend.

As Mike mentioned, to offset the lower expected revenue, spend reductions are already in place, including cutbacks in travel, hiring, clinical programs and certain longer payoff research and development projects. We've also shifted to a temporary four-day work week for most salaried employees. Sales rep compensation has been evaluated with strategic flexibility, and named executive officer and board salaries have been reduced by 50%, while Mike is foregoing nearly his entire base salary for up to the next six months. In addition, we've temporarily closed some manufacturing sites in an effort to align our build plans to the current demand environment, thus reducing inventory on hand and freeing up working capital.

We believe these proactive initiatives will enable us to weather the short-term storm while still being in a strong position to build momentum once the recovery begins. However, given the relatively high fixed cost nature of our business, we would expect a high decremental margin rate on lost revenue, including a sharp decline in adjusted operating margin in Q2 versus Q1, improving sequentially into Q3 and then Q4, where our goal is to return to revenue growth and ultimately more normalized margins, although certainly uncertain at this time. I can use the month of April using round numbers to illustrate the point. In general terms for April, pre-COVID, we would have expected to be north of 70% adjusted gross margin with opex being SG&A, R&D and royalties in the mid-40s as a percentage of sales, resulting in an adjusted operating margin in the mid-20% range.

As Mike said, April revenue is down 45% to 50% versus April 2019, which implies roughly $500 million lower revenue versus our pre-COVID expectation of slightly less than $1 billion for the month. With lower production due to the lower demand, we're not fully absorbing the fixed overhead in the manufacturing plants. As a result, the overall adjusted gross margin rate will be negatively impacted by unfavorable production variances, which will hit the P&L instead of being capitalized within inventory on the balance sheet. Pre-COVID, we would have expected to spend approximately $450 million in opex, with $300 million being fixed and $150 million being variable.

Given the lower sales, we've taken actions to reduce the variable spending by two-thirds or roughly $100 million in the month. So you're left with $350 million of opex, which would be roughly 70% of April sales. When you combine this with an all-in gross margin that's likely to be below 70%, the net is that the month of April could actually see a negative operating margin. We've implemented the same level of spending actions for each of April, May and June.

So as revenue increases as is planned in each of those months as per our recovery scenario, the monthly margin should improve correspondingly. We're working hard to strike the right balance of short-term actions to reduce costs while preserving the development of the long-term portfolio and pipeline to enable us to capitalize as the recovery gains momentum. But there's no doubt short-term operating margins will be under pressure. Again, our expectation is for sequential improvement as revenue increases, resulting in more normalized margins by Q4.

Our other key area of focus from a finance perspective has been available liquidity. As a reminder, our largest source of liquidity is our $2.75 billion revolving credit facility, which matures in 2023. We ended the first quarter with $1.36 billion borrowed against the revolver, mostly related to refinancing commercial paper earlier in the quarter due to market volatility. This left $1.39 billion of capacity, resulting in Q1 total available liquidity of $1.76 billion, including the $370 million cash on hand.

As announced last week, we've successfully negotiated a $1.25 billion term loan and amendments to the maximum leverage covenants on our existing $1 billion term loan due 2021 and our revolver. The new term loan was used to pay down $850 million of borrowings from the revolver, as well as the $400 million remaining balance on the existing term loan due this December, thus increasing our available liquidity and clearing all 2020 maturities. As of this completed bank deal, we had $2.6 billion in available liquidity with $2.3 billion capacity on the revolver and $300 million cash on hand. The revolver in our term loans, which comprise approximately 25% of our outstanding debt are the only debt instruments subject to debt covenants.

Another important aspect of last week's transaction was the amendment of these covenant calculations to use an average of 2018 and 2019 quarterly EBITDA or approximately $670 million regardless of reported EBITDA for the remaining three quarters of 2020, as well as to increase the leverage ratio to 4.75 times for the remainder of 2020. The term loans will come due in February and April of 2021. For the revolver, which extends through 2023, this max leverage ratio will continue to step down by 0.25 turn, 0.25 times, starting in Q1 2021, continuing each quarter thereafter until reaching 3.75 times in Q4 2021. The remaining 75% of our outstanding debt is comprised of public bonds, which are not subject to any financial covenants related to our operating performance.

Our next bond maturity is not until 2022 and is $500 million. And thereafter, our bonds mature at various times over the next 29 years and no year's bond debt maturities are expected to exceed more than 50% of available cash flow in any one year, with most significantly less than 50% of expected available cash flow. For note, 2027 has the highest maturity with approximately $1.01 billion due. We believe this represents a very prudent debt maturity profile.

With no remaining debt maturities this year as a result of these transactions, we are prioritizing cash preservation and optimization activities. Beyond the cost-containment and inventory initiatives previously discussed, we're also able to delay a material amount of capital expenditures without impacting current business performance. Of our original $450 million to $475 million in 2020 expected capex, we estimate a roughly 50-50 split between maintenance and investment, which we can delay given the temporary reduced need for capacity expansions. We have no plans to initiate a share repurchase or a dividend.

And with respect to our mesh litigation, there is no change to our reserve nor to our having settled over 95% of mesh-related claims. For those claims that have not yet settled, we will likely slow the pace of reaching new settlements with plaintiffs' attorneys, and thus now expect remaining payments into the qualified settlement fund of approximately $100 million to extend into 2021. Despite current unprecedented challenges, our team has worked diligently and effectively to pursue a prudent strategy to minimize risk and preserve our strong financial profile. We believe we are in a good position with our rating agencies and our lenders based upon frequent communication and our proactive risk mitigation plans, as well as our commitment to our investment-grade profile.

We believe we are striking the right balance between the need for short-term reductions in spend and preservation of cash with the ability to capture fully and emerge stronger for the recovery opportunity. Thank you for your time, and thank you again to our stakeholders, our employees and the global finance team. Please check our investor relations website for Q1 2020 financial and operational highlights, which outlines more detailed Q1 results, our debt maturity and liquidity profile and the schedules Mike referenced for procedure acuity. With that, I will turn it back to Susie, who will moderate the Q&A.

Susan Lisa -- Vice President of Investor Relations

Thanks, Dan. Kevin, let's open it up to questions for the next 25 minutes or so. In order to enable us to take as many questions as possible, please limit yourself to one question and one related follow-up. Kevin, please go ahead.

Questions & Answers:

Operator

Thank you. [Operator instructions] We will go to the first question. That question is from the line of David Lewis of Morgan Stanley. Please go ahead.

David Lewis -- Morgan Stanley -- Analyst

Good morning and thanks for taking the questions. Mike, I just had a couple here on recovery. So thanks for all the details this morning, very much appreciated by us and investors. So it's pretty clear based on your internal budgeting, you're forecasting growth in the fourth quarter.

I wonder if you can share with us when you're thinking about from budgeting perspective about "normalcy." Can that incur in the first quarter of '21, the first half of '21? And some companies have discussed this notion for capturing procedures are running higher than normal either in the fourth quarter or next year. I want to get your thoughts on that and had a quick follow-up.

Mike Mahoney -- Chairman and Chief Executive Officer

Yeah. Good morning, David. Thanks for the question. It's really difficult to call that at this point in time.

As you might expect, we have a number of different scenarios that we've laid out, and we've looked at various triggers that we would pull to reduce cost or fuel investment faster. But our base-case assumption is really what we laid out here, which is the most significant decline in second quarter. Encouragingly, we have seen an improvement recently in April, which gives us some optimism based on new centers opening up, and that sequential improvement, obviously, in third quarter and a goal to get back to growth in the fourth quarter. But at this stage, I think it's probably premature to estimate whether it will be kind of a surge beyond that.

So we'll keep you posted. But it's difficult for us at this point to project kind of the starting point for 2021.

David Lewis -- Morgan Stanley -- Analyst

OK. And just kind of related follow-up, Mike. Just as you think about pipeline procedures coming out of COVID, as hospitals resume procedures, when I think about key drivers this year like cryo ex U.S. EXALT or even LOTUS that was still sort of in a phased rollout, what do you sort of assume in terms of how hospitals or physicians approach sort of new procedures? Do they focus on core procedures first? And how do you think that new procedures will be prioritized by physicians and the sales team as we come out of COVID? Thanks so much.

Mike Mahoney -- Chairman and Chief Executive Officer

Sure. We spent quite a bit of time trying to create this chart for you in the investor website on emergent, semi-emergent and elective. And clearly, you're seeing the results in April. Many of our businesses have more highly emergent procedures, particularly in PI, particularly in interventional oncology and many -- in interventional cardiology, as well as some in endo.

So I think those emergent that we've laid out in this chart will occur most quickly. And then the semi-emergent and the elective categories will likely trail those. But I think importantly that we've laid out in our chart, two-thirds of our business is done in an outpatient setting, whether be an outpatient centers, OBL or surgery center. So that two-thirds is helpful for us because we believe those procedures will come back more quickly.

So thankfully, we have our portfolio that's more heavily weighted toward outpatients. And also, many of our procedures are also -- which is helpful, and that's profitable for hospitals. You've seen significant improvement in reimbursement on the procedures like WATCHMAN and others. So I think the focus will really be on these emergent procedures and then followed by the semi-emergent or elective but were helped by the mix of the outpatient facility mix that we have.

Operator

OK. Next, we have Bob Hopkins of Bank of America. Please go ahead.

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

Thank you and good morning. And thank you for taking the questions. Two sort of big-picture questions. First one is on your comments on cost cutting.

And I realize we haven't heard from the whole medical device universe in the first quarter, but it does seem like the actions that you're taking are, perhaps, a little more aggressive on the cost-cutting front than some of your peers. And I guess that could create at least some concern that it might -- for the next, whatever, six to 12 months, set you back a little bit competitively versus those that are willing to just spend right through it. And so Mike or Dan, I was wondering if you could just kind of maybe address that concern and talk a little bit more about exactly where the cuts are and where they are not.

Dan Brennan -- Executive Vice President and Chief Financial Officer

Yeah, absolutely. Yeah, we're not concerned at all about the cost cutting and its ability to impact our competitiveness. We actually think it's smart. They're rational cuts, and our employees support it.

So we have reduced down some of the inventory builds because we don't want to stack up too much inventory, which makes sense from a cash flow perspective, but we're very mindful of the need for surge capacity. So we ensure that we have ample supply, which we're very comfortable with based on the tracking that we do and the agility of our operations team. So we're doing this with a mindset that we're going to have a stronger recovery as the months move on here in second quarter and third quarter. We're highly confident we have ample supply, which is the most important one.

Secondly, many of the actions that we've taken, actually, I think we led in this area, has been to secure our very important sales team, so we won't give the details there. We've ensured certain levels of compensation for our sales teams despite the significant sales misses that are occurring. So we feel like we've built strong loyalty and support from our sales team by taking those actions earlier than most. And also, we have moved to a four-day work week, and the goal for that would be for it to be a second-quarter impact only, but we'll see how that progresses as the recovery returns.

And quite frankly, that's been met pretty well with our employee base. They're highly engaged. They're working very effectively from home. We're building new capabilities in digital, and it's really a one team approach.

And also with the support of the Cares Act, some of those employees are also benefiting from some of the financial relief in certain states in that area. So actually, we think all the actions are what smart companies would do. And if anything, I think it's built potentially greater loyalty among our employee base within changes we've made.

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

OK. Yeah, thanks for that. One other big-picture question, Mike, for you. The Boston Scientific stock price is down as much companies with much less defensive mixes of businesses within med tech.

And just curious as to kind of the message to you or from you to investors on that front. Again, just it's notable for the relative underperformance this year so far. I'm just curious what your kind of messages to investors on the ability of Boston to kind of come back.

Mike Mahoney -- Chairman and Chief Executive Officer

Yeah. Well, that's why we want to lay this out in detail. We want to give you as much transparency as possible. We gave you the April results.

We've seen some recent improvement, and we're quite confident in the recovery plan that we outlined with the improvement in third quarter and fourth quarter. And I think that's -- what I mentioned with David's comment on the procedure mix that we have, heavily weighted toward outpatient procedures is very helpful for us. And I think most importantly, as procedure volumes get back, it's really about the portfolio that we have. And we have an impressive cadence of launches that we outlined many of those across all of our businesses.

And we have a very robust pipeline. We're keeping the key R&D projects alive beyond this. And so you'll continue to see us, we believe, having one of the most differentiated med tech portfolios in the business, a highly engaged workforce and the financial flexibility to weather the storm. So I would consider it a very good buying opportunity.

Dan Brennan -- Executive Vice President and Chief Financial Officer

And I think the other thing, Bob, from my perspective is, if I think of the conversations I've had with investors over the last 90 days, leverage and liquidity kind of crept into that conversation where it hadn't been before. So we're a little bit more highly levered than some of the peers, so I think we took a little bit more of a decline based on that. I'm super proud of what the team did on the bank refinancing last week. I think we've answered that question.

We have ample liquidity, have things where we need on that front. So I think that's hopefully been asked and answered, and that was a little bit of a concern that folks had over the last quarter as well.

Operator

We'll go to the line of Robbie Marcus, JP Morgan. Please go ahead.

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

Thanks. And I want to say thank you for giving us such great color both on the top line and down the P&L. I think it will be helpful for all of us for the rest of earnings. Maybe turning to my question.

A big part of the Boston Scientific story has always been the pipeline, and that's obviously hit a bump here as running trials is pretty difficult. You pulled the future product launch page. Hopefully, it will come back once you could get trials restarted. But how are you thinking internally about the delays to new product launches and something that was in the pipeline that had a trial involved with it?

Mike Mahoney -- Chairman and Chief Executive Officer

Yeah. So this impact isn't exclusive to Boston Scientific. Any company that's in the midst of ongoing clinical trials is going to see a similar time frame delay. So I think that's unfortunate, but getting patients to enroll in new clinical trials during the pandemic obviously hasn't been effective.

So that's why you see the delay. And that will be consistent with any company who's enrolling any clinical trial. So I think in the near term, that's why we have in the materials, the launches that we had in 2020. So we have some very large launches in 2020 with the WATCHMAN FLX, with the DCB balloon with the POLARx product in EP.

We've got a number of product launches in coronary and like eight of them in PI, so there's a significant number of launches that will occur in 2020. And then we've got a rich pipeline of other things. But it's, call it, a three- to six-month delay likely based on the clinical timing. So I don't think that will be unique to Boston.

The near-term pipeline is strong. We talked about pre-COVID growing faster than most of our peers, improving operating margins. And in terms of growing faster than peer group, that remains the goal, and we aim to continue to deliver that once the recovery happens, and we have the pipeline to do that. So the near-term pipeline looks very good and the clinical delays, I think you'll see across the board in the industry.

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

Great. And maybe as a follow-up, maybe a little bit of a moot point here, but I just wanted to check, what were the trends like up through the middle of March in some of the businesses that faced a shortfall in fourth quarter? I believe ICD replacements were one. EP was another. How did those businesses trend before COVID really hit developed markets around the world? Thanks.

Dan Brennan -- Executive Vice President and Chief Financial Officer

Yeah. This is Dan, Robbie. Before COVID, kind of pre mid-March, things were kind of going pretty nicely on the rails. So obviously, we saw in Asia, particularly in China, we had the impact that started in January, but for the U.S.

and EMEA and unaffected areas in Asia Pac, things were going pretty nicely. So the impact that you saw and the results that you see in Q1 is of China and Asia Pac impact across the full quarter, but really those last two weeks of March where it hit the brakes hard in the U.S. and EMEA. And so those trends have kind of continued into April.

As Mike said, we're seeing some signs of encouragement here recently in April, and he gave you all the figures of what each business is down in April. But the Q1 results are really defined by the last two weeks of March in the U.S. and Europe.

Operator

And next, we'll go to the line of Vijay Kumar, Evercore. Please go ahead.

Vijay Kumar -- Evercore ISI -- Analyst

Hey, guys. Thanks for taking my questions, and again, appreciate all the color. This is probably the most detailed we've gotten from any company. Mike, maybe on the second-half recovery, right, I guess one of the questions we're struggling with is you'll have all these social distancing measures.

When you think about your sales force reengaging with physicians, right, how does that dynamic play? Does it have any impact at all? Or I'm just curious on how that impacts your new product that you mentioned, the rollout. How does it get impacted?

Mike Mahoney -- Chairman and Chief Executive Officer

Yeah. So I would say, clearly, the physicians are managing a pandemic on their mind every day. But without a doubt, physicians are very anxious to bring back their procedure volume. They know patients are waiting for it.

They're encouraging them to come back to the hospital, and you're seeing some hospitals open up. So I think there's a great alignment in terms of hospitals' desire appropriately at the right time to bring back elective procedures, and there's very high alignment by physicians in wanting to do that. And some physicians and OBLs are talking about working six, seven days a week, multiple shifts to make up for that backlog, so I think there's a lot of industry alignment with the motivations of the hospital and the physician community to bring that back. In terms of our sales reps, we've had excellent retention, obviously, during this period.

They want to support -- their inherent nature is to support their customers, and they do it in a safe way. We give them, obviously, the proper PPE. The local testing will really be a local event in terms of the requirements that our sales reps would go through to work with their physicians in terms of what testing protocols. I think that will vary by city, by state, likely.

And we obviously have our own internal programs. But I don't see the social distancing as a deterrent in terms of our sales reps collaboration. We'll go through the right testing protocols. We'll have PPE.

And importantly, our ability to work for those who need more remote support, we have excellent capabilities here across CRM, Neuromod, PI, across our businesses to support our sales reps remotely with remote proctoring, remote training, remote support, remote device checks. So we have excellent capabilities there, but I don't think the social distancing will be a big impact on the recovery.

Vijay Kumar -- Evercore ISI -- Analyst

That's helpful. And then one follow-up maybe on -- maybe pricing environment in a post-COVID world, maybe some general comments on -- as you see your customers being under pressure, does it change behavior? And maybe thoughts on how the industry is set up to respond to it. Thank you.

Mike Mahoney -- Chairman and Chief Executive Officer

Yeah. I think we'll do everything we can to support our customers like we always do with clinical support, with excellent product supply and great innovation. Many of our procedures help support hospitals financially based on the reimbursement that they receive, based on the clinical value. And pricing is always a topic in med device since I've been in the industry forever.

And we'll continue to manage that with our VIP cost improvements and bringing new innovation and partnering in many ways with customers beyond just price.

Operator

We'll go next to the line of Joanne Wuensch of Citibank. Please go ahead.

Joanne Wuensch -- Citi -- Analyst

Good morning, and thank you very much for all the information you've provided. I have two questions. I'll put them right upfront. I'm curious how you're doing with some of the integration of the acquisitions you've made over the last 18 months, particularly BTG in this current environment and what you're really seeing there.

And then my second question is I'm looking generally in life right now for silver linings. So during this period of time, what are you learning about your business, your employees that help you on the other side? Maybe it's telemedicine. Maybe it's expenses. Maybe it's something else.

Thank you.

Mike Mahoney -- Chairman and Chief Executive Officer

Sure. On the integration front, the largest one, BTG, has performed extremely well during the pandemic. So if you want to build a pandemic portfolio, you want to have TheraSphere. So TheraSphere is doing extremely well, grew, I think, mid-teens in the quarter, taking share and is really not a procedure that can be deferred.

So the interventional oncology business broadly is doing well, really driven by TheraSphere. So I'd say -- and the sales piece of it -- and they also saw spec pharma do quite well. So from a sales standpoint, the BTG portfolio has been more robust than legacy BSC, which is great news. And integration, we got ahead of that pre-pandemic, so we're very much on track with the cost synergies commitment that we've made, which is the summer.

And most of that work had already been done and implemented pre-COVID pandemic. There's a few facility closures that we're working through that may be temporarily delayed. But overall, I would say the cost synergies are on track, if not ahead of track. And the integration of the commercial teams has really kind of taken place.

I think that's all systems go, and then we'll launch other deals. Vertiflex performed quite well pre-COVID. In terms of capabilities, it's been a really interesting time. I'm very proud of what we've seen.

I would say the people are frustrated because they want to get out and see customers. And I think most people in this industry don't love social distancing, but we've learned a lot from it. I would say our global capabilities have accelerated. Many of our digital capabilities that maybe were isolated in certain regions or certain businesses have really accelerated in terms of global implementation.

So this period where people are working from home really has put a greater emphasis on our digital capabilities internally, our remote training capabilities with physicians, remote training internally. And we're seeing a much, I would say, an acceleration of those capabilities over the past 60 days, which, quite frankly, wouldn't have happened at near that speed in a normal environment. I don't know. Dan, anything else?

Dan Brennan -- Executive Vice President and Chief Financial Officer

No. Obviously, I'd point to finance. If you had said two months ago that we could close the books globally, conduct earnings call, file our 10-Q and then refinance our bank deal all virtually, I think you would have had some doubters. And now the team did that, and we've learned a lot of new capabilities that will serve us well for years to come.

Mike Mahoney -- Chairman and Chief Executive Officer

So it's also important to note that our R&D teams are still working. And so they're working from home, and they're working from -- we have engineers all over the world. So many of our key R&D programs are still in flight. You're still seeing the FDA has been very responsive, I would say, during this period.

So our regulatory teams are still working on filings for product approvals. You saw a bunch of new approvals just in April. And we will begin opening facilities in Minnesota in May as well ideally in Mass and likely in mid-May. And we'll be prioritizing anything that touches product development, quality and new product development in terms of our opening sequences.

So we'll prioritize those. Those that can work from home efficiently will continue to work for home, but those that are involved with product releases or new product development will come back to work in a safe way.

Operator

Next, we'll go to the line of Josh Jennings of Cowen. Please go ahead.

Josh Jennings -- Cowen and Company -- Analyst

Hi. Good morning. Thanks for taking the question. I wanted to just ask about Japan.

I apologize if I missed this in the prepared remarks, but you had a nice download in terms of what you experienced in China in February -- January, February, March and now April. Are you able to do the same thing with Japan, just there's been some concerns in April about state of emergency and potential second wave there?

Mike Mahoney -- Chairman and Chief Executive Officer

Yeah. So in the first quarter, Japan business is quite strong. It actually had some positive growth in Japan. There has been a little bit of an impact thus far in April but not to the same levels that we've seen in Western Europe or U.S.

And so we do expect Japan will likely soften a bit more than it did in the first quarter, but their handling of the crisis has been pretty efficient. And in terms of our business, we do expect some softening based on what you just indicated. But thus far, it hasn't been to the same level that we've seen in Western Europe or U.S.

Josh Jennings -- Cowen and Company -- Analyst

Great. And then just a follow-up, just with the recovery in the fourth quarter, those expectations. Are you baking in any assumptions around the potential seasonal second wave? Is that excluded from those expectations? Or are you assuming that healthcare delivery systems will be able to handle the second wave much more effectively and elective procedures will be able to continue at a higher clip than what we've seen in this first go around? Thanks again.

Mike Mahoney -- Chairman and Chief Executive Officer

Yes. So we won't go through our eight scenarios we have for the remainder of the year, which I think is important to have for any company and actions we would take depending in those scenarios, either positive upside or potentially softening. And so the base case that we believe is what we outlined. If there was an issue where there's additional second wave, they'd likely potentially could be a little bit smaller impact based on the readiness that our facilities have and hospitals have.

And we also would have the cost levers to pull in case that we see that. So we don't discount that additional waves may happen. We don't think it would be near to the same impact that we saw second half of March or April, but we continue to look at countermeasures we put in place in those cases.

Operator

And our final question will be from the line of Jayson Bedford of Raymond James. Please go ahead.

Jayson Bedford -- Raymond James -- Analyst

Good morning. Thanks for taking the questions. Just a couple of product line questions. It looks like you're losing a bit of share in CRM, and I realize there's a lot of noise out there.

But can you talk to this dynamic and specifically comment on S-ICD trends?

Mike Mahoney -- Chairman and Chief Executive Officer

Yeah. We talked about this a little early in the year. We don't believe that we're losing share in CRM, likely holding share. We have lost a little bit of share in pacemakers.

We just launched a new lead in pacemakers, which will help in that business. And we have easier comps, although the comps are kind of all messed up now. So I would say in pacemaker business, we have lost a little bit of share, and ICD, we believe that we've continued to hold share. The prior years, we gained share a number of years in a row in ICD and CRT-D, but we believe we're maintaining share.

And we have a couple of new launches besides the HeartLogic, which I think will really benefit. And the capabilities of HeartLogic will show through in the pandemic, the ability to manage the patient remotely and get a view of their heart diagnostics proactively is a beneficial feature to have during a pandemic. So I think those benefits will be seen, as well as the longevity benefits. S-ICD continues to do well, and we have two important trials that will read out at HRS for S-ICD.

So we're comfortable with our CRM market share broadly.

Jayson Bedford -- Raymond James -- Analyst

OK. That's helpful. And then maybe, Dan, can you just comment on the impact of selling the intrauterine health franchise? How big is that?

Dan Brennan -- Executive Vice President and Chief Financial Officer

It's about $35 million in annual sales, so pretty immaterial to the overall enterprise.

Jayson Bedford -- Raymond James -- Analyst

Thank you.

Susan Lisa -- Vice President of Investor Relations

All right. Great. With that, we'd like to conclude the call. Thanks for joining us today.

We appreciate your interest in Boston Scientific, and hope that you all can stay safe and healthy. And again, thanks to the frontline workers. Before you disconnect, Kevin will give you all the pertinent details for the replay.

Operator

Thank you. And this replay will be available starting today at 10:30 a.m. Eastern Daylight Time and will run through May 13 midnight. You may dial the AT&T System by dialing 1 (866) 207-1041 and entering the code of 4543494.

International callers may dial (402) 970-0847 with the access code 4543494. [Operator signoff]

Duration: 60 minutes

Call participants:

Susan Lisa -- Vice President of Investor Relations

Mike Mahoney -- Chairman and Chief Executive Officer

Dan Brennan -- Executive Vice President and Chief Financial Officer

David Lewis -- Morgan Stanley -- Analyst

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

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

Vijay Kumar -- Evercore ISI -- Analyst

Joanne Wuensch -- Citi -- Analyst

Josh Jennings -- Cowen and Company -- Analyst

Jayson Bedford -- Raymond James -- Analyst

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