Dive Brief:
- BD told investors Tuesday worse-than-expected foreign exchange rates, a depressed market for paclitaxel-coated balloons and pricing pressures from a new volume-based tender process for basic devices in China were among the top challenges for the company during its fourth quarter.
- CEO Vince Forlenza said BD remains confident the temporary suspension of operations at its Covington, Georgia sterilization facility will not result in supply chain disruption. The impact of anticipated regulations on commercial ethylene oxide sterilizers from the federal Environmental Protection Agency, which were expected last month, is still unclear.
- The company posted fourth-quarter revenues of $4.58 billion, a 4.1% increase over last year, with full-year revenues coming in at $17.29 billion.
Dive Insight:
Unless FDA rescinds its August letter that said BD's Lutonix paclitaxel balloon is not approvable for a below-the-knee indication in its current form, drug-coated balloon sales will not recover to normal, Simon Campion, president of BD's interventional segment, told investors.
"In relation to the second letter FDA pushed out in August, we didn't see any initial uptick or decline in DCB utilization," Campion said. But the executive touted market response to an independent analysis of safety data the company released Sept. 28 the company's sales force is pushing.
On Oct. 28, BD entered into an agreement with the Georgia Environmental Protection Division to suspend sterilization operations at the facility from Oct. 30 to Nov. 6 before resuming sterilization operations at a reduced capacity. The agreement came after the state's Department of Natural Resources filed a complaint and motion for a temporary restraining order in the Newton County Superior Court.
BD in a Securities and Exchange Commission filing said it does not expect a material impact to operations, but noted it agreed to not expand operations at the Covington or Madison, Georgia facilities as it adds new emission controls.
"We are confident we can continue to meet customer demand for these essential products without interruption," Forlenza said. "Science has confirmed that our operations are both safe for both employees and the community."
BD also is planning upgrades to its Alaris infusion pump, including changes to alarm prioritization, according to CFO Chris Reidy. In July, FDA classified a recall of some of the pumps as a Class I event after faulty bezels on some of the pumps caused patient injuries.
"We are in discussions with FDA about the timing of these upgrades and the possibility of bundling them with a new software version release," Reidy told investors. "This is expected to move some sales from Q1 to the balance of the full fiscal year."
BD executives said the integration of Bard remains on track, with $100 million in projected fiscal 2020 savings on the horizon.
"We also continued to deleverage in the fourth quarter, paying down approximately $675 million dollars of debt, and $2 billion dollars for the full fiscal year," Reidy said. "As a result, our gross leverage ratio declined to 3.5x as of September 30. We remain on track to achieve our commitment to delever it below 3x over the three years ending December 2020."
After BD pays off more debt, it will have about $11 billion freed up to spend from 2021 to 2023, according to Reidy.
"As we think about allocating that, I think it gives us room to do a lot of things," Reidy said. "First and foremost, we would look at M&A and tuck-in acquisitions. We see lots of opportunities. There will still be money left over from that $11 billion to buy back shares. It will be a combination of those two areas."
Tariffs are expected to negatively impact growth by 1%, foreign currency headwinds are expected to be 2.5% and a 5% hit from the expiration of BD's Gore royalty are the primary obstacles in the upcoming fiscal year, according to Reidy. The company gave a fiscal year 2020 guidance range of $12.50 to $12.65 in adjusted earnings per share, up from $11.68 in fiscal 2019.
Wall Street analysts at Cowen, Evercore ISI and RBC said 2020 guidance of constant currency revenue growth of 5% to 5.5% is "reasonable," "makes sense" and "in line with our expectations."
BD's stock was down nearly 4% in late morning trading.
