Dive Brief:

• Boston Scientific on Wednesday morning reported another quarter of falling sales across all of its segments and geographies.

• Still, the results improved sequentially from the double-digit declines seen in the second quarter and beat analyst expectations. Boston Scientific expects the improvement to continue into the fourth quarter, leading it to predict a return to growth excluding certain costs related to its Watchman devices.

• Boston Scientific is moving to a different inventory model for Watchman FLX. The change was a headwind in the third quarter but Boston Scientific expects it to pay off as sales of the left atrial appendage closure device ramp up.

Dive Insight:

Earlier this month, Johnson & Johnson signaled the medtech industry may have turned a corner with third quarter results that showed its U.S. medical device unit had returned to growth. Abbott, with the benefit of its diabetes business, added to the impression demand has returned after the pandemic-driven deferral of elective procedures by reporting a 2.6% increase in organic growth at its medical device unit. 

However, analysts had lower expectations for Boston Scientific. Estimates collated by Zacks showed analysts were looking for Boston Scientific to generate sales of around $2.5 billion. That would have represented a 7% decline compared to the third quarter of 2019.

Boston Scientific beat those forecasts, generating sales of close to $2.7 billion in the quarter. That is up on the $2 billion Boston Scientific collected in the second quarter but still down almost 6% on an organic basis versus the third quarter of 2019.

The decline was driven by falling sales across the business. The peripheral interventions franchise was the only source of growth. However, the franchise’s 2% organic growth was too small to mitigate the 17% drop in interventional cardiology sales, causing revenues across the cardiovascular segment to fall 10%.

The cardiovascular segment was hindered by the effects of converting U.S. users of the Watchman left atrial appendage closure device to a consignment inventory model, as well as the transition to the newer Watchman FLX product. Boston Scientific said those changes had a negative 2.3% impact on its organic sales results, a short-term hit CEO Mike Mahoney argued will pay off in the longer term.

“We believe the strategic shift to the consignment model strongly complements the launch of this highly clinically differentiated product and we are purposefully making this investment given the potential for FLX growth,” Mahoney said on a third-quarter results conference call with investors. FLX is now in a full launch. Boston Scientific aims to complete the conversion to the new Watchman model by mid-2021.

Other segments fared better. Low-single-digit declines in endoscopy and urology and pelvic health sales led the MedSurg segment to post a 2% drop in revenues. Revenues at the rhythm and neuro segment fell 4%, driven by an almost 8% drop in electrophysiology sales.

Sales fell in all geographies on an operational basis, although all regions improved sequentially. U.S. sales dipped 4%, having plummeted 28% in the second quarter. Latin America and Canada was again the laggard, reporting a 17% drop in sales. Boston Scientific suffered low-single-digit declines in other regions. For the second consecutive quarter, growth in China was a bright spot. 

The recovery of the Chinese business points to how other markets may develop if they start to get the coronavirus outbreak under control. Based on the progress countries have made in balancing the demands of COVID-19 and routine healthcare, Boston Scientific expects its results to improve again in the fourth quarter. 

“Trends continue to evolve largely as we've expected, with the worldwide organic revenue improving sequentially in the third quarter, even in those regions experiencing COVID flare-ups. We aim to return to organic revenue growth in the fourth quarter, excluding the impact of the shift to consignment for Watchman and with the obvious caveat of COVID uncertainty,” Mahoney said. 

Mahoney said determining the remaining backlog and estimating the new patient funnel “remain a challenge” and varies by business and region. Overall, Mahoney estimates Boston Scientific has now worked through a “meaningful portion” of its backlog, leaving it reliant on new patients for growth in the coming quarters. Mahoney said new patient referral rates are improving toward normal levels.