Doctors’ Opposition To Expanded Carotid Stent Use Could Hurt Medical Devices Companies

Medical devices manufacturers including Abbott Labs (NYSE:ABT), Boston Scientific (NYSE:BSX) and Johnson & Johnson (NYSE:JNJ) may have to brace themselves to forgo potential revenues, if the U.S. federal government pays heed to doctors’ request to not extend Medicare coverage to carotid stents. Medical devices makers have been seeking wider Medicare coverage of carotid stents to prevent strokes in patients with no symptoms. However, doctors have argued that there is no significant difference between current prescription drugs and carotid stents at stroke prevention.

See our complete analysis for Abbott Labs

Carotid stents are used to unblock narrowing of the carotid artery to prevent stroke. In the U.S., about 125,000 patients are treated with either carotid surgery or carotid stents each year. With the extended Medicare coverage,  an additional 100,000 patients could become eligible each year. The extension of the coverage could bring in millions of dollars in revenue each year to carotid stent manufacturers. This explains why these companies have been aggressively lobbying for  wider coverage of carotid stents. ^[1]

However, doctors have argued that the majority of patients won’t get any benefits from stents or surgery and that they cost about eight times that of drugs. Therefore, the cost-benefits trade-off doesn’t make sense. We believe this could weigh heavily on the Medicare decision as health payers seek cost-effective treatments in the wake of national health reforms.

A decline for wider coverage will certainly not bode well for the manufacturers, especially Boston Scientific, which has been grappling with declining sales in the interventional cardiology business. Also, a strong outlook for the U.S. dollar amid the dwindling global economy and pricing pressure following the healthcare reforms continue to pose concerns in the short term. An approval, however, could open an additional revenue stream and may trigger a slight upside for these companies.

We have a $6 price estimate for Boston Scientific and $67 price estimate for Abbott Labs, which are in-line with the current market price. Our price estimate for JNJ stands at $74, about 10% ahead of current market price.

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1. Are Stroke Drugs Better Than Stents?, Wall Street Journal, Sept 18 2012 [↩]