STIFEL 2026 HEALTHCARE CONFERENCE - LIVANOVA PLC

Financial Performance:

• Reported a "terrific quarter" with double-digit growth in both the Cardiopulmonary and Epilepsy business units.
• Epilepsy revenue grew 11% driven by three tailwinds: a 50% improvement in reimbursement for new patient implants (NPIs) and replacements, new clinical data supporting VNS therapy, and an 8-year-old innovation drought ending.
• Cardiopulmonary growth is balanced across Heart-Lung Machines (HLMs) and Oxygenators, with Oxygenator volume surging to fill unmet demand.
• The company operates with "annoyingly conservative guidance," consistently beating expectations, though specific revenue and margin figures for the current quarter were not explicitly detailed in the transcript.
• Cash flow and operating performance are described as "top-notch," with a focus on expanding margins through scale and efficiency.

Guidance and Future Outlook:

• Oxygenators: Expect double-digit manufacturing capacity expansion in 2027; aiming for an additional 800 basis points (bps) share gain over the strategic plan horizon, currently operating at 40% market share (up from 30% two years ago) with ongoing backlogs.
• HLMs: Targeting 80% penetration of the "Essence" platform this year, rising to nearly 100% in 2027; a subsequent upgrade cycle is expected due to the aging installed base of legacy S5 units (approaching 20 years).
• Epilepsy: Framework targets mid-to-high single-digit growth for new patient implants and low-single-digit growth for replacements; confirmed CMS reimbursement rates for 2027 match the previous 50% improvement.
• OSA (Obstructive Sleep Apnea): Long-term target of $400 million revenue by 2030; launch expected in 2027 with scale accelerating in 2028 following the implementation of new Category 1 coding on January 1, 2028.
• Depression: Pursuing CMS review of 36-month clinical data; a formal submission is pending feedback on this data.

Business Segments and Product Lines:

• Cardiopulmonary:
  • Oxygenators: Competing against three main rivals after one competitor exited; a new, clinically differentiated oxygenator launching in 2028 with improved gas transfer, lower pressure drop, and better platelet preservation.
  • Manufacturing: Expanded capacity via a new production line and a strategic partnership with Thermo Fisher for critical components, removing supply chain bottlenecks.
• Epilepsy:
  • VNS Therapy: Next-generation, digitally-enabled Implantable Pulse Generator (IPG) launching next year featuring remote programming via an FDA-approved cloud platform.
  • Commercial Impact: New device will be available for both new implants and battery replacements, addressing patient logistics (40-mile travel, 10-12 annual visits).
• Sleep (OSA):
  • Product: Polysync technology targets 30% of patients previously ineligible (complete concentric collapse) with an 85% responder rate.
  • Synergy: Leverages the same neuromodulation digital platform and market access teams used in epilepsy to drive efficiency.

Market and Competitive Landscape:

• Oxygenators: Market growth has accelerated from low-single to mid-single digits; Livanova has gained 10 percentage points of market share in two years and operates in a high-scale, high-volume, low-value environment where size creates competitive tailwinds.
• Epilepsy: Reimbursement environment has significantly improved; the new digital IPG addresses a market gap for remote management, a feature currently unique or underdeveloped among competitors in the vagal nerve stimulation space.
• OSA: Livanova enters as a follower but differentiates via broader patient eligibility (non-collapsible airway) and clinical data; competition involves overcoming the "pioneer advantage" through innovation.
• Coding/Reimbursement: New Category 1 codes for OSA expected in 2028 will standardize the market, removing previous ambiguity that acted as a growth headwind.

Risks and Challenges:

• Supply Chain: While mitigated by the Thermo Fisher partnership, high capital intensity and scale requirements remain critical for the Oxygenator business.
• Regulatory/Reimbursement: OSA growth is contingent on the July 2027 determination of physician payment rates under the new codes; Depression segment growth depends on successful CMS dialogue regarding 36-month data.
• Market Adoption: Success of the new OSA product depends on convincing the ENT/sleep community of its clinical value compared to established alternatives.
• Legacy Product Mix: HLM price/mix benefits from the "Essence" upgrade cycle will diminish post-2027, requiring reliance on volume growth and future heater/cooler upgrades.

Management Commentary and Tone:

• Tone: Highly confident and forward-looking; management expressed satisfaction but a refusal to be complacent ("not satisfied," "keep driving the agenda").
• Philosophy: Emphasis on "quality of growth" rather than just top-line numbers, citing balanced geographic, segment, and product-level drivers.
• Strategic Focus: Clear prioritization of organic growth in core businesses (Cardio/Epilepsy) to fund expansion into high-unmet-need markets (OSA/Depression); M&A viewed as optionality rather than a necessity to meet targets.
• Confidence: Strong conviction in the 2028 OSA launch and the 2027/2028 epilepsy device refresh, citing superior clinical data and digital integration.

Analyst Questions and Answers:

• Q: Oxygenator capacity utilization? A: A, currently operating with backorders; 2027 capacity expansion aims to meet this unmet demand and capture share.
• Q: OSA market entry strategy? A: Differentiation via patient eligibility (30% of market previously excluded) and clinical efficacy (85% responder rate), leveraging existing neuromodulation infrastructure.
• Q: Depression data status? A: 36-month data published and shared with CMS; waiting for feedback to determine next steps in the formal submission process.
• Q: M&A appetite? A: No immediate need for M&A to hit targets; team is building capabilities for disciplined, strategic inorganic opportunities if they arise, with a priority on organic pipeline execution.
• Q: Margin implications of OSA? A: Significant margin upside expected due to synergies in digital platforms, supply chain, and market access teams shared with the Epilepsy business.

Other Key Points:

• Ecosystem Synergies: The "digital health cloud platform" is a cross-segment asset, enabling remote programming for both Epilepsy (launching next year) and OSA (launching in 2027), creating economies of scale in software and service.
• Market Access Teams: The same commercial teams responsible for the 50% Epilepsy reimbursement increase successfully drove the creation of Category 1 codes for OSA, demonstrating transferable capabilities.
• Clinical Data: New VNS study data highlights the procedure as minimally invasive with outcomes comparable to more invasive alternatives, strengthening the value proposition.
• Capital Allocation: Thermo Fisher partnership cited as a key strategic enabler for supply chain resilience and growth acceleration.