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Investment Overview for Boston Scientific (NYSE:BSX)
Below are key drivers of Boston Scientific's value that present opportunities for upside or downside to the current Trefis price estimate for the company's stock:
- Boston Scientific's market share in Interventional Cardiology: This is the most important division and the biggest source of revenue for Boston Scientific.s a result of pricing pressure and intense competition as well as some issues related to stent performance, we expect the company's market share to decline to below 10% by the end of our forecast period.
However, the recent launch of Promus Element, an improved version of the drug eluting stent (DES) technology, has shown some promises. Further, the exit of Johnson & Johnson from the DES market could help Boston Scientific protect its market share. As the segment is the largest revenue contributor and constitutes more than 25% of our price estimate, even a small out-performance with respect to our expectations will have a huge impact on the company's valuation. If the company is successful in improving its market presence and limits the decline in market share to 15% by the end of the Trefis forecast period, this could translate into an upside of nearly 10% to our price estimate.
Cardiac Rhythm Management
- Boston Scientific's market share in Cardiac Rhythm Management: This division is the second biggest revenue source for Boston Scientific. We forecast the company's market share declining from above 12% currently to about 7% by the end of our forecast period as a result of intense competition as well as some potential issues related to an FDA suit related to a subsidiary's implantable cardioverter-defibrillators (ICDs).
However, the acquisition of Cameron Health in 2011 and the launch of several improved products could counteract the aforementioned issues. The innovation and launch of new products are keys for medical devices company to survive. Cameron Health builds next generation implantable cardioverter-defibrillators (ICDs) called Subcutaneous ICDs. Its products have an advantage over other ICDs as they do not require a transvenous lead to connect the device to the heart. These products have FDA approval, and to the extent that they are effective could help the company fend-off its market share. If this could offset most of the pressure the company is facing for its core products and the decline in market share is limited to 10% by the end of the Trefis forecast period, this will represent a 10% upside to the Trefis price estimate.
Founded in 1979, The Boston Scientific Corporation develops, manufactures and supplies medical devices across the world. These devices are primarily sold in the following areas of medicine - Interventional Cardiology, Cardiac Rhythm Management, Endoscopy, Peripheral Interventions, Urology/Women's Health, Neuromodulation and Electrophysiology.
Boston Scientific supplies its devices in around 98 countries in the world, mainly the U.S., Europe, the Middle East, Japan, Canada, China, India and Brazil. The company historically has been very acquisitive in order to strategically expand its operations and sales.
Its main competitors are Johnson & Johnson, Medtronic and St. Jude Medical and the company's largest sources of revenue are sales of Interventional Cardiology and Cardiac Rhythm Management devices.
Interventional Cardiology, Endoscopy and Cardiac Rhythm Management are the major sources of revenue for the company. This is explained as follows:
Continuous innovation and product improvement
Coronary stents are implantable tubes which help in opening blocked arteries and ensuring smooth blood flow. These are the largest revenue driver for Boston Scientific as it is the only company in the world to provide a two-drug platform. The company keeps launching improved versions of these stents to maintain its market leadership position. Following the same trend, the company launched Promus Element, an improved version of its drug-eluting stent (DES) technology in 2011 along with the next generation line of defibrillators and pacemakers. Continuous innovation and product improvement should allow the company to maintain a healthy market share and increase revenues.
Acquisitions to capture more market share
Acquisitions have always been an integral part of Boston Scientific's growth strategy. In 2011, the company acquired Sadra Medical and Atritech in order to increase the market share of its respective structural heart therapy and atrial fibrillation businesses, which fall in the Interventional Cardiology division. It also acquired Cameron Health which will strengthen the sales of its Cardiac Rhythm Management business.
Launch of new devices
Boston Scientific spends a significant portion of its revenues on research and development. As a result it has been able to launch many self-manufactured products in the market. In 2011 the company launched new devices in almost every segment. We expect that the company will remain committed to heavy R&D expenditures in order to grow long-term revenues.
Acquistions in all segments
Following its historical acquisition strategy, Boston Scientific has acquired several companies in the last few years in order to expand its product portfolio.
Boston Scientific is undertaking a restructuring program which aims to improve efficiency and innovation. This should help improve its market presence while also cutting costs, benefiting margins.
Healthcare reform could impact selling prices
Stringent healthcare regulations have implemented checks on the pricing structure of medical device companies, which could have a negative impact on global revenues.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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