Good morning, and welcome to the Boston Scientific Third Quarter 26 Earnings Call. All participants will be in listen only mode. After today's presentation, star then 1 on your telephone keypad.
To withdraw your question, please note this event is being recorded. Would now like to turn the conference over to Lauren Tengler, Vice President, Investor Relations. Please go ahead.
Thank you, Drew, and thanks to everyone for joining us. With me today are Mike Mahoney, Chairman and Chief Executive Officer John Monson, Executive Vice President and Chief Financial Officer. During the Q and A session, Mike and John will be joined by Joe Fitzgerald, Executive Vice President and Group President, Cardiology and our Chief Medical Officer, Dr. Ken Stein.
Issued a press release earlier this morning announcing our Q3 26 results which included reconciliations of the non GAAP measures used in this release The release, as well as reconciliations, of the non GAAP measures used in today's call can be found on the Investor Relations section of our website. Please note that on the call, operational revenue excludes the impact of foreign currency fluctuations and organic revenue further excludes certain acquisitions and divestitures, for which there are less than a full period of comparable net sales. Guidance excludes our previously announced agreement to acquire Penumbra, which we expect to close in early 27.
For more information, please refer to the Q3 financial and operating highlights deck which may be found on the Investor Relations section of our website. On this call, all references to sales and revenue are organic and relative growth is compared to the same quarter of prior year unless otherwise specified. This call contains forward looking statements regarding, among other things, our financial performance, business plans, market expectations and product performance and development.
These statements are based on our current beliefs using information available to us as of today's date and not intended to be guarantees of future events or performance. If our underlying assumptions turn out to be incorrect or certain risks or uncertainties materialize, actual results could vary materially, from those projected by the forward looking statements. Factors that may cause such differences are discussed in the earnings release we issued earlier this morning and our periodic reports and other filings with the SEC, including the Risk Factors section of our most recent annual report on the Form 10 ks.
Boston Scientific disclaims any intention or obligation to update these forward looking statements except as required by law. In addition, this call does not constitute an offer to sell or the solicitation of an offer to buy any securities or solicitation of any vote or approval in connection with the proposed transaction with Penumbra. Boston Scientific has filed with the SEC a registration statement on Form S-4 containing a proxy statement of Penumbra and a prospectus of Boston Scientific that contains important information about Penumbra, Boston Scientific, the proposed transaction, and related matters.
At this point, I will turn it over to Mike.
Michael F. Mahoney
Chairman & CEO
Thanks, Lauren. Thank you to everyone for joining us today. I want to begin by walking through our third quarter results, provide some fourth quarter outlook and then assumptions behind our updated view of 2027.
I will then provide more details on both the region and business unit performance and outlook. Q3 total company organic sales grew 1.5% our original guide of 3% to 5% Q3 adjusted EPS of $0.73 $0.73 declined 3% versus our guidance range of $8.00 to $8.02 Our Q3 results were impacted by our previously reported cyber security incident which we estimate reduced our sales growth by approximately 300 basis points adjusted EPS by $0.07 in the quarter. Importantly, after a 2-week outage as a result of this cyber incident, all operations are back up and running as of September 8.
I am very proud of our team's resiliency and the efforts they made to help us return as quickly as possible to supporting physicians and their patients for their products. Turning to Q4, we anticipate that it will be a 200 basis to 300 basis points of impact from the cyber incident we work through elevated customer orders at the end of Q3 to replenish inventory levels. Additionally, since our second quarter earnings call, EP share pressure has intensified, further accelerated by the cyber incident.
We have also seen pricing dynamics in China become more challenging. To that end, we are guiding to organic revenue declines of -1% to -3% for fourth quarter 26 and adjusted EPS of $0.77 to $0.79 This results in a full-year 2026 organic revenue growth guide of 4% and EPS of $3.16 to $3.18 Boston Scientific has enjoyed several years of exceptional growth. Driven by strategic investments and strong execution globally.
Particularly within our EP and Watchmen franchises. In 2026, we have seen that cycle turn and those 2 businesses are now weighing on our total-company growth as we navigate competition and market dynamics. We believe that 2027 will be the trough in the cycle and we have several investments and new innovations coming over the course of the next 3 years that we expect will support stabilization and growth for both the EP and WATCHMAN business.
While the remaining 75% of our business is growing consistently, we anticipate there will be additional price headwinds in China in 2027, and the growth likely will not be enough to offset the pressure from EP and Watchmen next year. As a result, we believe we will be challenged to grow sales and adjusted EPS in 2027 excluding our pending acquisition of Penumbra. Having said all that, we are taking immediate actions to prepare for the future including through our previously announced restructuring program and the evolution of our operating structure.
While ensuring that we continue to make the right strategic investments across a number of growth platforms. We have a very strong cadence of launches in 2027, 2028, and anticipate entering several new markets over the next few years that will lock $25 billion in new market opportunity by 2030. Importantly, we expect these actions to drive meaningful improvement in both our revenue and adjusted EPS performance as we aim to exit the cycle in 2027 and return to delivering high performance in 2028, with further improvement expected in 2029.
I will now provide some more details on Q3 and full-year 2026. Turning to our regional performance, The U. S. Was flat year over year on an operational basis driven by ICBT, IoE and neuromodulation. Europe, Middle East and Africa grew 6% year-over-year on an operational basis with strong performance across many of our businesses.
Within the quarter, there was some impact from cyber offset by a transient headwind in third quarter of 25 from our ERP platform go live. Asia Pacific declined 1% operationally with growth impacted by the cyber incident as well as price pressure in China. Pricing dynamics in China continue to evolve and a number of our businesses have seen VBP and other pricing impacts as a result.
We expect growth in this market will moderate to single digit growth. Turning to our business units, I will start with Neuromodulation. Sales grew 13% year-over-year and pain growth was broad based across the portfolio with exceptional performance with our Nalu PNS technology.
Within the quarter, data was presented from the IMPROVE study evaluating our Intracept technology with real world outcomes showing improvements in pain function and quality of life at 3 months. In brain, growth was driven by our Cartesia X lead and Illumina 3 d software, enabled more precise placement and programming. Urology declined 3% year-over-year this quarter with impact from the cyber incident as well as expanding price pricing pressure in China.
Stone management has received a number of approvals for key products including FDA clearance of our Navigator Flex Suction Sheath, and CE Mark and FDA clearance for distribution of the 7.5 Fr SlimScope, and FDA clearance of our LithoVue Elite single-use ureteroscope. As we look forward, we expect these new stone launches as well as stabilization and productivity from our S and M commercial organization to help our urology improve its growth profile over the course of 2027. Endoscopy sales declined 1% versus Q3 25 inclusive of an impact from China VBP and cyber.
Importantly, the underlying performance of this business continues to be strong led by Axios, our differentiated technology And as we look ahead we expect our endoscopy performance to be slightly closer to mid single digit market growth until we annualize the impact from the China VBP in fourth quarter 27. Cardiovascular sales delivered growth of 2% Interventional Cardiology and Vascular Therapies sales grew 12% year-over-year. Our interventional cardiology business had another exceptional quarter growing 19% year-over-year with continued strength in our global imaging franchise and drug eluting technologies.
Had another outstanding quarter of our agent DCB, is backed by strong clinical evidence. And now has been used to treat over 400 thousand patients to date. We remain focused on both the near and longer term growth opportunities for this business, And last quarter received IDE approval of the VITAL PCI trial that is studying our Vitalist circulatory support technology in the high-risk PCI population.
However, considering the evolving clinical evidence in the space, we have made a decision to shift our strategy and focus our development and clinical efforts on the AMI cardiogenic shock. We believe that our device design has the potential to be well suited to treat patients experiencing cardiogenic shock and look forward to initiating clinical efforts in 2027. Our Vitalist program is 1 of the largest internal R&D programs and an important long term growth driver.
To solidify funding for the AMI shock program, we have entered an agreement with Blackstone Life Sciences and aim to bring this important technology to market in 2030. Our vascular therapies business grew 1% year-over-year with some impact from cyber as well as TCAR supply constraints. Importantly, we anticipate that our TCAR supply to improve throughout fourth quarter with full resolution by early next year.
Our seismic launch continues to go well and within the quarter we received FDA clearance for SEISMIQ IVL, sorry, seismic IVL to treat patients with severely calcified peripheral artery disease in small vessels, expanding our SEISMIQ to now treat above the knee and below the knee. Also received FDA approval for the 35 drug coated balloon offering an expanded size and providing a highly complementary offering as most IVL procedures that are performed in lower limbs are also followed by drug eluting technologies. We remain excited about the opportunity to add Penumbra team to the we are excited about the opportunity to add the Penumbra team and their highly differentiated in the complementary portfolio to Boston Scientific.
We continue to work with regulators and now expect to close in early 27 subject to the receipt of the remaining regulatory clearances. Our interventional oncology and embolization business grew 5% year-over-year driven by strong performance in our cancer therapies franchise. Partially offset by some supply constraints that we anticipate will be resolved in early 27.
We continue to see strong adoption of any-day dosing of TheraSphere Y-90 as well as momentum with our hepatic artery infusion technology providing a portfolio of options for cancer treatment. Cardiac Rhythm Management sales declined 2% year-over-year with some impact from the cyber incident. As we navigated usage and activation of technologies that leveraged remote monitoring while our systems were down.
In Q3, our Diagnostics franchise grew high single digits our low voltage business declined mid single digits and high voltage business declined low single digits. We anticipate that our performance will improve over the course of 2027 with new launches and ongoing momentum. Before I turn to Watchman and EP, I want to acknowledge the pressures in these 2 businesses and the impact that it has on our overall growth.
We are acting now to strengthen the LAC market. And focus our EP resources where we can compete most effectively. While investing in innovation that we believe can improve over time.
On Watchmen sales declined, declining 7% year-over-year in the U.S. And growing 4% internationally. Within the US, concomitant procedures grew approximately 35% year-over-year and standalone procedures declined high teens versus third quarter 25. Continue to believe that the overall LAC market slowdown primarily reflects changes in patient identification and referral patterns.
As physicians assess the clinical evidence published over the last year. Importantly, we are executing against our investment priorities that we laid out in our 2Q call. We held over 200 medical education events in second quarter and third quarter, providing an opportunity for more than 2,000 referrers and implanters to gain a deeper understanding of the clinical evidence available.
We have added more dedicated commercial resources to WATCHMAN to support both concomitant and standalone procedures and support the referral pathway. In the third quarter, we saw increased patient engagement, further reinforcing the strong demand for alternatives to oral anticoagulation and highlighting the significant unmet need among patients who cannot, should not, or will not take lifelong OAC. We continue to believe that focusing on these priorities will support improvement in the LAC market over time.
With our third quarter performance largely in line with expectations despite the cyber incident, we are maintaining our previous outlook for our WATCHMAN business. In fourth quarter, within The U. S, we anticipate no improvement in the year over year standalone procedure performance, and continued deceleration in concomitant procedure growth against a very high baseline. Internationally, we anticipate similar performance in Q3 and Q4 resulting in sequential flat low single digit declines versus Q3 26 globally.
Turning to 2027, we believe our investments along with the potential label change will improve the market over time. However, until we see the market improve, we are assuming that the market performance will be similar to Q4, with additional pressure due to a new competitive launch. We believe in the benefit of this therapy and continue to innovate and invest for the future, Within the quarter, we commenced enrollment in the ELITE AF clinical trial to evaluate the safety and effectiveness of the next generation WATCHMAN FLX Pro platform.
Anticipate bringing this fourth generation technology to market in 2029. And additionally, we look forward to the late breaking data presentation of our SIMPL-AFY trial at TCT. Studying post implant drug therapy using WATCHMAN FLX Pro and assessing whether a less intensive drug regimen may help mitigate post implant bleeding risk.
Turning to EP. Sales declined 5% year-over-year, with a decline of 8% in the U.S. And 2% growth internationally. Estimate that the cyber incident contributed to roughly half of our miss, primarily within our international region.
Within the quarter, we continue to expand our Opel footprint and drive more utilization of our mapping systems with our FARAWAVE and FARAPOINT catheters. The EP market has transformed over the past few years led by our differentiated FARAPULSE platform. We have seen our strong market share position erode as new technologies are introduced and adoption of these different PFA form factors has been highly dynamic.
While the cyber incident has accelerated some of the share shift, we do expect continued erosion of our PFA share position until we launch FARAWAVE Ultra, now expected in early 2028. We expect our EP performance to meaningfully improve in 2028 as we expand our PFA ecosystem with 2 d ICE in the second half of 2027 and FARAWAVE Ultra in 2028 and FARAFLEX, a wide area focal catheter in 2029. In the near term, we are focusing our teams where we know we can win.
We have the most utilized and studied technology for de novo atrial fibrillation procedures with our FARAWAVE catheters. We have a differentiated portfolio available including our VersaCross transseptal needle, and WATCHMAN technology and we continue to invest to bring differentiated innovation to this large and fast growing market. Closing, I wanna restate that I remain very confident in Boston Scientific's long term outlook.
We operate in attractive markets with approximately 75% of our business historically growing approximately 6% to 7% for many quarters. We have an impactful cadence of future growth catalysts anticipated in 2027, 2028 that we expect to drive meaningful improvement to our growth profile in 2028 and beyond. We remain focused on execution delivering our updated 2026 guidance.
Taking appropriate action to evolve our organization that will create greater focus, speed, and accountability while ensuring we are continuing to invest in our long term growth drivers. Incredibly grateful to our global employees for their resiliency and winning spirit. Across all of our businesses and regions, I have seen our colleagues step up in extraordinary ways adapting quickly and supporting 1 another and doing what it takes to ensure we are focused on what matters, improving patient lives through a relentless pursuit of innovation.
With that in hand, I will hand over to John to provide more details on our financial performance.
Thanks, Mike. Before I provide details on our third quarter financial performance, I want to express my gratitude to our customers, physicians and employees for their patience and partnership as we work through the recent cyber incident. Very proud of our global teams who have worked diligently to restore operations and continue to support our customers and the patients they serve.
The cyber incident caused significant disruption to our business operations, and materially impacted our third quarter financial results. Despite these challenges, we remain focused on taking the necessary actions to drive improved financial performance. So turning now to the quarter, Third quarter consolidated revenue of $5.14 billion represents 1.5% reported growth versus third quarter 25 and includes a neutral impact from foreign exchange.
Which was in line with expectations. As a result, operational and organic revenue growth were also 1.5% in the quarter, below our third quarter guidance range of 3% to 5%. We estimate the cyber incident had a net negative impact of a approximately 300 basis points on third quarter organic revenue growth This impact reflects the 8 business day disruption to our global network during which we are unable to manufacture or ship product.
Partially offset by revenue recovered as operations resumed. Third quarter 26 adjusted earnings per share were $0.73, which declined 3% year-over-year versus 2025. Below our third quarter guidance range of $0.80 to $0.82 As Mike mentioned, third quarter results include an approximate $0.07 unfavorable impact from the cyber incident primarily driven by lower than expected sales and the additional manufacturing and operating costs associated with the cyber incident.
Adjusted gross margin for the third quarter was 68.0%, representing a 300 basis-point decrease versus the third quarter of 25 primarily driven by unfavorable manufacturing absorption during the cyber related disruption. Third quarter adjusted operating margin was 26.5% contracting 150 basis points versus the third quarter of 25 primarily driven by the impact of the cyber incident on gross margin. On a GAAP basis, third quarter operating margin was 16.1%, year-over-year.
These results include an approximate $80 million charge primarily related to certain product liability cases. Moving to below the line, third quarter adjusted interest and other expenses totaled $124 million which was in line with expectations. On an adjusted basis, our tax rate for the third quarter was 14.3% which was higher than expected due to certain discrete tax items.
Fully diluted weighted average shares outstanding ended at $1.42 billion in the third quarter and free cash flow for the third quarter was $867 million with $1.05 billion from operating activities less $180 million in net capital expenditures. As of September 30, 2026, we had cash on hand of $690 million and our gross debt leverage ratio was 1.9x. Our capital allocation approach remains disciplined and growth oriented.
Our top priorities remain strategic tuck in M&A, and opportunistic share repurchases, while we continue to evaluate and fund those opportunities that we believe will create the greatest long-term value for our shareholders. Look forward to closing our acquisition of Penumbra, which we believe will strengthen our long-term growth profile through its innovative portfolio and strong strategic fit. Within our cardiovascular business.
In addition to tuck in M&A, we are leveraging strategic partnerships to advance innovation, ensuring we are directing capital toward high growth opportunities. Consistent with this approach, we recently entered into an agreement with Blackstone Life Sciences to co fund the development of our Vitalist Circulatory Support System for the treatment of patients with cardiogenic shock Under the agreement, Boston Scientific will receive funding from Blackstone which will be recognized as a reduction to R&D expense as the related costs are incurred. Upon achievement of certain milestones, expected starting in 2030, Blackstone will be eligible to receive a return on the actual amount funded for the program plus royalties on sales of Vitalist.
This agreement allows us to continue advancing Vitalist while accelerating investments in other high growth opportunities. Before I discuss guidance, I want to acknowledge that we need to rebuild confidence in our forecast. We have implemented meaningful enhancements to our forecasting process which we believe provide a stronger foundation for more accurate forecasting going forward.
So now I will walk through our guidance for the fourth quarter and full-year 2026. We now expect full-year 2026 reported revenue growth to be approximately 4.25% year-over-year versus 2025. Excluding an approximate 50 basis point tailwind, from foreign exchange based on current rates, expect full-year 2026 operational and organic growth to be approximately 3.75% year-over-year.
We expect fourth quarter 26 reported revenue decline in a range of down 3% to down 1% versus fourth quarter 25. We anticipate no impact from foreign exchange based on current rates and therefore expect fourth quarter 26 operational and organic revenue to also decline in a range of down 3% to down 1%. As Mike mentioned, our fourth quarter guidance contemplates a headwind from the cyber incident reflecting elevated customer ordering at the end of the third quarter, which we expect to normalize over the course of the fourth quarter.
We expect full-year 2026 adjusted gross margin to be below full year 2025 reflecting a less favorable product mix investment in our global supply chain and quality systems and the additional impact of the cyber incident. Now expect full-year 2026 adjusted operating margin to be approximately 27.6%, reflective of gross margin pressures We continue to expect full-year 2026 adjusted below the line expense be approximately $485 million Under current legislation, including enacted laws and issued guidance, we now expect a full-year 2026 adjusted tax rate of approximately 12%. expect full-year 2026 free cash flow to be approximately $3.6 billion reflecting a reduced operating income outlook. We expect full-year 2026 adjusted earnings per share to be in a range of $3.16 to $3.18, representing growth of 3% to 4% year-over-year versus 2025 including an approximate $0.06 headwind from foreign exchange We expect fourth quarter adjusted earnings per share to be in a range of $0.77 to $0.79 As Mike outlined, we anticipate continued top line pressure into 2027 which we expect will make it challenging to grow revenue and adjusted earnings per share excluding Penumbra.
We expect our underlying business dynamics in Q4 to persist into 2027, and believe our fourth quarter guidance provides a reasonable baseline for next year's revenue and adjusted earnings per share outlook. Importantly, we are taking decisive actions to drive greater focus speed, and accountability. Most notably through our company wide restructuring program.
This comprehensive initiative is focused on org structure evolution, supply chain optimization, back office transformation and reductions in other categories of spend. We expect these efforts to deliver sustained cost efficiencies, while allowing us to prioritize investments that support long-term growth. In closing, we believe we are well positioned in attractive markets, we are making the right investments and taking the necessary steps to strengthen our financial performance.
I am confident that these actions will position us to stabilize Boston Scientific in 2027 and then drive improved revenue and adjusted earnings per share growth in 2028 and then further acceleration in 2029. For more information, please check our Investor Relations website for third quarter 26 financial and operational highlights outlines more details on third quarter results and 2026 guidance And so Lauren with that, I will turn it back to you to moderate the Q and A.
Thanks, John. Let's open it up for questions for the next 30 minutes or so. In order for us to take as many questions as possible, please limit yourself to 1 question.
Drew, please go ahead.
Thank you. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys.
If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Again, please limit yourself to assemble our roster. Our first question comes from Robbie Marcus with JPMorgan.
Please go ahead.
Hi, good morning. Thanks for taking the question. A lot to dig into.
I will stick with 1 here and focus on guidance. Marie you could and there is a lot of questions I am getting from investors. So hopefully this will help clarify How do we think about sort of the actual underlying impact from the hack disruption in third quarter It sounds like there was some order benefits what is the actual impact and why bleeding into fourth quarter And with the no growth comment on 2027, how much of that is conservatism related to the hack?
And how much is new information of end market and, product timing? Thanks a lot.
Michael F. Mahoney
Chairman & CEO
You wanna take the cyber question?
Sure. Yeah. Thanks.
Robbie. So let me lay out the impacts of cyber. So in Q3, we estimate a roughly 300 basis point headwind to our revenue from cyber.
So call it roughly a $150 million of headwind on the top line and then bottom line impact to EPS of $0.07. So the impact of the lost sales we did have unfavorable manufacturing absorption that contributed to the $0.07 of EPS. As well as other direct costs expedited shipping, cost of experts, that impacted Q3 cyber.
For the fourth quarter, expect an ongoing impact of approximately 200 to 300 basis points. And so what we saw Robbie coming out of the cyber incident is a level of stocking from customers. And over the third.
Fourth quarter, we will burn off some of those inventory levels. So that is why you see the ongoing impact into the fourth quarter. Of that 200 basis points to 300 basis points.
And then that drops through down to EPS roughly $0.04 to $0.05 of impact in the fourth quarter.
Michael F. Mahoney
Chairman & CEO
Marie just some comments on the 2027 question. When we think about it, we obviously aim to exceed these, expectations. But just to frame and we will give our guidance obviously in January.
We really do expect some of the underlying business dynamics that we see in the fourth quarter to persist in 2027. So if you look at that, you have got a number of our businesses doing extremely well, interventional cardiology, vascular, IoE, endoscopies, underlying business is doing quite well despite the pressures in China. So the overall base business we feel is consistently growing about 6% year-over-year We expect about a point of impact due to the comp pricing issues and that represents about 75% of the business.
So the 2 key areas questions are, what will be the impact of Watchmen and EP in 2027? So for the basis of our early framing of guidance, we wanted to be appropriately conservative. So we are assuming that the WATCHMAN market dynamics do not improve over current state.
And we are obviously doing a lot to turn that around. But those underlying markets today are growing about -7% to -8% in that area, and we do have a competitive launch coming in 2027. So the error bars around the market around the Watchman assumptions are quite wide.
Given that we are assuming no improvement in the market despite some of our efforts and anticipated label change. We are assuming that the market baseline stays similar to Q4 with competitive, entry in 2027. Similarly in EP, EP will be a challenging year for us in 2027 and we are very optimistic about 2028 and 2029 based on our product launch cadence.
In 2027, we are lacking new product launches The market continues to be fairly healthy, but we expect to continue to cede share in 2027 in EP similar to the rates that we have seen in the second half of 26 until we successfully launch a ICE program in second half of 2027, an excellent platform upgrade with FARAPULSE Ultra ideally late fourth quarter, early first quarter 27, And as you know, we have initiated our clinical trial on our FerriFlex platform, which will be an early 2029 launch. So hopefully that gives you some context for 2027. Thank you.
The next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.
Hey guys, thanks for taking the question. So super helpful color on 2026 and 2027. Mike, just talk about your confidence in improving sales and EPS growth in 2028.
I am not looking for specifics obviously, but what are the drivers It looks like FARAFLEX the launch was pushed out to 2029 in the slides, if I am reading that correctly. And I think there are some concerns about new PFA competition coming in 2028. With the novel waveform.
And so how are you factoring that in? Thank you.
Michael F. Mahoney
Chairman & CEO
Yeah. Thank you. Yeah.
Just a backdrop a bit and maybe not new news. 2023 to 2025, we experienced a very high growth cycle. Much on the heels of our base business being strong, and the tremendous growth of our WATCHMAN and EP. We also had a decent first half, despite some of our forecasting challenges growing 8% in first half of 26.
We are clearly in the middle of a down cycle which is a short term phenomenon for Boston Scientific that you will see that we predicted in fourth quarter based on our guide in 2027. We are very confident about the return to growth and kind of pushing off the bottom in 2027 as we enter 28. And the high level formula for, growth in 2028, you know, potentially below our WAMGR, but solid growth, and growth above our WAMGR in 2029.
Really are that if you look at our 3 segments, Our biggest segment, as you look at 2028, will be our interventional cardiology, vascular and penumbra business. We expect that collection of businesses to comfortably grow above their market WAMGR as Penumbra goes organic and they continue to drive excellent momentum. So with a very strong portfolio cadence in that business, with our IVL platforms and peripheral and vascular potentially hypertension in 2028, a strong cadence of imaging, capabilities as well as launches within our VT IoE platform.
So that will represent our biggest segment very much on offense growing above WAMGR and propelling the growth of the company. Our med surg business with a number of key launches you saw a couple of key approvals just this quarter in our urology business. We expect our med surg segment businesses to essentially grow at our market WAMGR or grow at their market WAMGR, call it mid single digits.
So then it really comes down to what happens to EP and Watchman and CRM. The good news in CRM is we will be launching a significant platform launch with Denali, our defibrillator platform, we expect CRM to comfortably return to growth in 2028 to help that segment. And then in Watchmen, we will anniversary a competitive launch in 2028.
We will be in the midst of a trial of our fourth generation platform. You know, we have got very, very strong share in WATCHMAN and we expect to maintain that strong leadership position during this case. We will also aim to have an approved label change ideally by 2028.
So we see the WATCHMAN business at a maximum down in 2027 and we will return to healthier position in 2028. Similar with our EP business, again, it is driven by portfolio and cadence. And as I mentioned before, we will have our ICE platform launch our full year of FARAPULSE Ultra, and pending approval of our FLEX business.
So we expect the overall Rhythm Solutions business with a stronger growth in CRM and improving cadence of effective launches in EP and Watchman to significantly improve the growth profile of Rhythm in 28. Whereas 2027 that segment is driving the challenges.
The next question comes from Joanne Wuensch with Citi. Please go ahead.
Good morning and thank you for taking the questions. 2 parts. 1 part is internally, it sounds like you are doing quite a bit to build the bridge between today and 2028, which could include any number of things, such as Salesforce realignment, expense reduction, et cetera, et cetera. Could you please address what you are doing internally to build that bridge? And then second of all, the penumbra delay, is there a way to share the steps to that resolution And thank you.
Michael F. Mahoney
Chairman & CEO
Sure. We are And John, you can comment a bit more. As you would expect, we are aligning our cost structure to a reality of what we see in fourth quarter and 2027.
So the team has gotten ahead of that, you know, about 6 months ago. Are implementing a pretty, meaningful restructuring program both in terms of where we are discretionary spend and headcount. We want to delayer the company a bit more increase some of the spans and layers in the organization.
And get after some SG and A offset. So that program is very much in flight. Importantly, we maintain the really important culture values of Boston Scientific that makes it a special place to work.
And focus on advancing science for life and our winning spirits. So we believe we will continue to drive a important culture within Boston Scientific focused on the future despite the needed restructuring initiatives. Importantly, while we are doing that, we are also continuing to invest in these big growth platforms that will drive the company's growth back to its decent growth in 2028 and above market WAMGR and entering all these new markets that we are, taking on.
I think it is important that we show the discipline to drive those cost savings and invest in our growth drivers at the same time.
And Joanna, I would just add with the restructuring program, I will fill in a couple pieces there. So anticipate to achieve over $500 million of savings from the program over the next 3 years. Been some tough decisions, but I have been very pleased with how we have been tracking.
We are a little ahead of where I thought we would be at this point, within the program. I expect to achieve over half of those savings exiting 2027. So back to Robbie's question, that contributes to our confidence in 2028.
Mike went through the top line, but from an EPS perspective as well. Program itself, focus on streamlining, org structures, back office transformation to streamline our processes, leverage shared services. there is a supply chain optimization looking across our global supply network. To better leverage technology, AI and streamline across supply chain and then a broader initiative, just looking at other pools of spend like T and E meetings, like use of external vendors to reduce our spend there.
So it is a very broad initiative but very focused. And again, I have been pleased with how I have been tracking. We are a little ahead of schedule there.
Michael F. Mahoney
Chairman & CEO
And Joanne, on the Penumbra comments, maybe some good and bad news. Overall, we are super impressed with the Penumbra results. For 2026.
And the good news is with a bit of an extended closing period, We have continued to get to know the Penumbra team extremely well. How they run the business, the synergies that are very obvious on growth side and some on the cost side. When you combine 2 powerful businesses interventional cardiology, vascular and the penumbra business.
So we are very bullish on the Penumbra team. The progress, the innovation pipeline they have. And how they will, work very seamlessly within Boston Scientific.
To drive ongoing strength in Penumbra and our ICBT business. And the regulatory process has taken a bit of time. We are still very confident in closing the transaction.
But based on some of the discussions with the regulatory authorities, we anticipate an early first quarter close. Thank you.
The next question comes from Rick Wise with Stifel. Please go ahead.
Mike, I was hoping maybe you could further unpack the med surg outlook a little bit. You said, I think, just a moment ago, you expect it to the combined business to grow mid single digits sort of in line with the WAMGR market growth. But maybe talk us through each piece Historically, these are businesses that in totality grew 7% or 8%.
You know, why cannot we dream or aspire for you to get back to that kind of range? And maybe what needs to happen in urology and endoscopy and neuro to get back there. And what are the key drivers here?
As we look ahead to the next year or 2? Thank you.
Michael F. Mahoney
Chairman & CEO
Yes, I would agree. 5 to 6 mid single digit growth is not what we want MedSurg to be and not what it is been and not what its potential is. Just to break through the 3 of them really quickly, neuromodulation is doing very well. Our brain franchise is doing well.
We have really diversified our pain business. Into more minimally invasive alternatives in addition to spinal cord stim. We continue to have additional growth drivers in that business with a whole new SCS launch that will happen in 2028.
So overall, I would assume, kind of over period of time, the neuromod business will continue to be accretive to the MedSurg growth profile. Our Endo business is very strong. We have got a list of quite a few product launches in that area with scopes.
And our versatile platform and a number of others. The headwind in 2027 for Endo is China. Significant pricing erosion we will see in our China business in 2027.
So the Endo business will anniversary that China pricing impact in fourth quarter 27. So we expect kind of our Endo business to be that mid single digit growth range in 2027 and accelerate in 2028 based on launching and getting lapping that China piece. The challenge quite frankly has been urology and we have been wrong on calling the growth trend in urology.
Obviously, a lot of efforts are going on in that area. So we expect the urology business to improve in 2027, not back to its previous levels, but certainly not at a negative growth profile that we see in 2026. And this business is all about people and portfolio.
We just announced in my, in our script there, we have got 3 stone product launches that or 3 stone product approvals which has been the 1 business segment that is been lagging the growth for that franchise. We expect our core stone business to improve in 2027. As you know, you have heard for many quarters now, we have struggled a bit with Axonics integration.
We have done great with the Silk Road integration, with the Nalu integration, but we struggled with Axonics. Based on significant commercial turnover. We have done a lot to hire a lot of new reps and clinical people in that area.
It takes a bit of time for them to get seasoned in their territories. We expect to see improvement in that in 2027. So in short 2027 we think endo and uro will be in that kind of lower to mid single digit range.
And neuro slightly higher. And endo and euro both lapping significant China VBP price in fourth quarter 27 have a stronger 2028. But we overall, we do aim to get back to kind of that 7% to 8% number that we used to say.
Thank you.
The next question comes from Travis Steed with Bank of America. Please go ahead.
Hey, thanks for the question. I wanted to ask on the pipeline. There was a lot of things kind of across the board pushed out.
Is there something bigger picture going on, on the pipeline or a derisking the pipeline And also, John, you mentioned better forecasting ability. So just curious if you could elaborate on that as well. Thanks a lot.
Yeah, Travis. I will I will start on, the forecasting question and then turn to Mike and Joe's in the room here. To go through the pipeline. 2026 has been a challenging year for us.
As Mike said, after several years of exceptional growth, driven in large part by EP and Watchman we have seen that cycle turn. So we are a tough business cycle now because of the dynamics predominantly within those 2 businesses and we. We have struggled to forecast that this year, and we need to be better.
I, you know, I recognize that, Mike knows that. Joe knows that. The whole team here knows that.
We feel we have got a clearer picture of the business dynamics now. We have laid that out. We are taking action with the restructuring program.
We have our new operating model. Which will drive greater focus greater speed, greater accountability. And from a forecasting process perspective, we have made a number of enhancements, implemented more sensitivity and scenario analysis, more objective models, more third party data that we pull in.
So we feel with all of that together, you will see improved forecasting accuracy from us on a go forward basis. And with the guidance that we put forth for the fourth quarter here and the framework for 2027, very focused on delivering on that.
Michael F. Mahoney
Chairman & CEO
Mike, Joe, pipeline. But maybe just a quick comment. You know, We pride ourselves in executing 2026 in a year where we have executed so well.
So we have done a lot to tighten our performance. John just went through some of our forecasting areas. In terms of overall business, the business has gotten larger So 1 of the reasons for the, for Joe now becoming COO and breaking up the sectors is to give they have even more focused on these sectors So we improve our efficiency and reliability in terms of the dates that we give you for these big launches.
Do have a very impressive pipeline. that is coming for the company. We are down for a bit, but we are far from out. And these pipeline products will come through and return Boston Scientific to its high performance, reputation that we wanna earn back with you.
Some of these products are complicated with clinical trials and regulatory processes. So we have kind of seen about a 6-month delay. In some of these big platforms.
We wanna make sure we launch them at that high scale with high quality. And we aim to do that. But the pipeline is very rich.
We can go through some of those elements or Joe can provide more detail. We are not happy with some of these slips. We are we are, put a lot of focus on it.
We know the impact that it has in the business. Thank you.
The next question comes from Joshua Jennings with TD Cowen. Please go ahead.
Good morning. Thanks for taking the questions. Mike, was hoping to just clarify just the outlook for the WAMGRAS as you have given strong high good high color high-level color on 2027 percent and 26, WAMGR is 7%.
You have got some pipeline products potentially could expand, but is the assumption baked into some of your high level color in the out years that WAMGR is sustainable at 7% level? And then just a side question, maybe just hoping to get an updated outlook on your view of the market, the U.S. EP market, and growth there. As we move into 2027, 2028.
Thanks for taking the question.
Michael F. Mahoney
Chairman & CEO
Yes. And on the WAMGR, we do not. We are not used to growing below our WAMGR.
We think it is still about 7%. We have seen some pressure overall and maybe the euro market and endo markets that pushed it down a bit. To that 7% level.
EP market continues to remain very strong. Obviously, the Watchman market has pulled that WAMGR to that 7% range, but the WATCHMAN market is about a $2 billion market, overall. Importantly, as you look at the LRP, we are entering market that grow faster than our WAMGR.
The IBL market potentially the hypertension market, and some big launches in EP and segments we do not play in today with ICE and also with Ferraflex. So I think overall, kind of that 7% WAMGR today and in that 7 that maybe. And then you are adding Penumbra, which is at scale, like, an accretive WAMGR to the business or at least in line.
I think that kind of 7% range now and maybe 7% to 8% over the next 3 years is about the right way to call it. When we look at 27 based on the comments that we made, you know, or sorry, when we look at 2027, obviously, growing below the WAMGR based on the comments that we made. And in 28, we aim to get back closer to those WAMGR numbers and beyond.
Thank you.
The next question comes from Marie Thibault with U. S. Bank BTIG. Please go ahead.
Hi there. Wanted to circle back to the commentary on no growth for 2027. When it comes to EPS.
We heard John talk about some of the restructuring efforts that are being put in place. I know this quarter, you were able to offset things like expedited shipping costs related to the cyber attack you were able to offset some of that with better OpEx control. So thinking about all of this, when we think about no growth in adjusted EPS next year, is it really about product mix and some of those less products being the contributors to sales growth?
Or why else should not we expect some adjusted EPS growth given some of the efforts you are putting in place? Thanks for taking the question.
Mix is the biggest factor Marie. So as we talked about. Do you see pressure on the top line?
That pressure predominantly is with Watchman and EP. So we will feel the mix impact of that within gross margin. And then with the China pricing pressure, that we see escalating, that will also impact gross margin in 2027 as well.
We do have some investment that we continue to make across supply chain, our quality systems, So as you look ahead to 2027, and we will give the guide and all the detail on the Q4 earnings call, but expect significant pressure in gross margin next year. And we will continue to invest in the portfolio. We have a lot that we are excited about in the portfolio and want to make sure we are fully funding those initiatives.
Now again, we will have restructuring that will help to offset some of those costs. We will continue to be very disciplined with spend in 2027. But as you put that all together, and I would expect our EPS next year to be roughly in line with revenue.
And again, on our commentary, expect to be challenged to grow next year. Thank you.
The next question comes Pito Chickering with Deutsche Bank. Please go ahead.
Hey, good morning guys. Thanks for taking my question. Can you talk about what is causing the delay of the Thrive data and therefore the TIVUS launch and on VITALIST?
You said you were not looking at high risk PCI. Can you talk about what you are seeing the product? And do you think the market is still attractive with just SHOCK?
Thanks.
Yes, Pito, it is Ken. let me start with Vitalist. So, you know, there is data from a competitor released last year that I think called into question the broad use of mechanical circulatory support for high risk PCI. We still believe that there is a role for that therapy there.
But we do, I think, as a field need to figure out you know better patient selection. The pivot to first studying cardiogenic shock is, I think, a very important to realize just how much of an unmet medical need there is in AMI cardiogenic shock. There is still mortality approaching 50% in patients who present with acute MI shock, and it occurs in up to 10 percent of patients who are having ST elevation MI data was presented a couple of years ago, the DANGER-SHOCK trial showed beyond a doubt that mechanical circulatory support can reduce mortality in those patients.
So this is both an area of major need and an area where we know that mechanical circulatory support can improve outcomes. And we believe that with our vitalist platform we have differentiated advantages over the current incumbent in terms of dealing with shock. Vitalist has a novel catheter design that improves positional stability. that is particularly important in dealing with shock patients.
Where the catheter needs to play stay in place in the CCU for a longer period of time along with strategies aimed at just minimizing the complexity of managing these patients and minimizing vascular complications. And so that is why we are so excited about the potential for the Vitalist platform and why actually we like the move. Into AMI shock as the first trial.
And then on TIVUS, on TIVUS, really, again, it is just a matter of continuing to execute on enrollment in clinical trial. Enrollment. I think frankly, it is been a little bit slower than we would have hoped as we navigated the transition and the integration of the Relievant team into the Boston Scientific ecosystem.
But again, you know, are confident that we can get that on track and that we will eventually finish enrollment in the trial. Believe in the technology. We do believe that ultrasound is the best of the energy sources that we can use for doing renal denervation.
And we continue to believe that the TIVUS platform has differentiated advantages over the 2 current approved devices for renal denervation for hypertension. Thank you.
The next question comes from Matthew O'Brien with Piper Sandler. Please go ahead.
Good morning. Thanks for taking my question. Just to follow-up on the pushback on pipeline because that is what we are all kind of banking on at this point is the pipeline coming through.
You just you just mentioned, you know, TIVUS and what is happening there. But with Ultra and with Flex, is it product related? Is it enrollment?
Is it manufacturing? what is slowing things down in terms of getting those to market? Then just anything more you can provide on Penumbra and modest push on the timing there? Is it more regulatory questions?
Specific or product-related questions? Just anything on those things? Thanks so much.
Michael F. Mahoney
Chairman & CEO
Yes. We will not provide any more updates on Penumbra other than what I commented on. We are very bullish on the transaction.
And we are aiming to close that as early as we can. Likely it will be pushing into early 27. In terms of the some of the product delays, Joe is here.
Joe can just add comments.
Yes, I will take I will take, Ultra first. As you know, Ultra is a PMA supplement that does not require a clinical study. So, most of the issues we have there are just on getting through what we call design verification and validation.
And if you look at Ultra, that is a hardware, software, and a catheter project. So the let's call it 1-quarter delay that you see is just a summary of issues that we have to work through with V&V. It has nothing to do with anything on the clinical trial because we do not need clinical data to get ultra approved. On FARAFLEX, I would call it 3 things.
It is related to our negotiations with FDA on getting the actual IDE approved. We have had slight delays with CMS full approval and there are operational challenges getting everything that is needed to complete a FARAFLEX case done to expand the number of sites. So we believe we will have that largely.
We just got CMS and we believe our supply chain to support the study will be pretty robust by end of year. So I think when we get on the Q4 call, a good question for us will be how is enrollment going in the FARAFLEX study, which we expect that to ramp each successive week and month going forward. Thank you.
I understand there is time for 1 last. That would be from Matthew Taylor with Jefferies. Please go ahead.
Hi, thanks for taking the question. I wanted to follow up on Penumbra, not on the timing, but could you talk about the kind of growth that you expect from that platform? And before you had said in the first year could be $0.06 to $0.08 dilutive, but some of the math there has changed.
I was wondering if you could update us on that at all? it is decelerated a little bit in the last couple of quarters. So to get an update.
Yes. Thanks, Matthew. I will take the dilution piece.
And then Mike and Joe can give quick comments on the growth profile. But we are excited to add Penumbra. Can see from their results, they are, performing, very well, high growth.
Be a great addition. Our cardiovascular portfolio. As we announced Penumbra in mid January, We anticipate closing in early 2027 at this point.
At the time of announcement, we had so we expected $0.06 to $0.08 of dilution. That assumes no divestiture that assumes interest rates that were in place at that time. We have seen increases in interest rates since then.
So that will drive incremental financing costs and I think we will put additional pressure on the EPS dilution that we would expect. But once we close the deal, we will provide much more detail. Thanks so much, John.
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