In a bid to boost its peripheral intervention division, Boston Scientific (NYSE:BSX) is acquiring Vessix Vascular, a developer of a radiotherapy-based system to treat high blood pressure. Boston Scientific will shell out close to $425 million ($125 million up-front and up to $300 million in milestone payments) for the deal.  The acquisition will put the company on par with its major competitors including Medtronic (NYSE:MDT) and beef up its peripheral intervention business where the company has seen its market share declining due to fierce competition.
Hypertension Market And Vessix Vascular
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More than 75 million people in the U.S. and about 1.2 billion people worldwide suffer from hypertension (high blood pressure). While there are drugs available to control blood pressure, an estimated 10% of the patients get no relief from currently available drugs and until recently, doctors had not many choices but to prescribe more drugs. 
But, the new renal denervation (RDN) devices are proving to be effective in patients with high blood pressure who haven’t been helped by standard drugs. In hypertension patients, the renal nerves (that carry information from the kidneys to the brain and vice versa) are overactive, which in turn raises blood pressure. RDN calms hyperactive nerves in the kidneys and reduces their production of hormones affecting blood pressure.  Vessix Vascular has innovated a similar kind of system.
How The Acquisition Can Help Boston Scientific
The acquisition, if completed, will be part of the company’s peripheral intervention business which has various devices to treat peripheral vascular diseases that can lead to strokes, high blood pressure and kidney problems. The company has seen its market share shrink from 18% in 2008 to 15.6% in 2011 as revenues couldn’t outpace market growth, which has grown significantly.
Going forward, we expect a near-term increase in the company’s market share as its new product launches and acquisitions of S.I. Therapies and Revascular Therapeutics should offset competition. Thereafter, we expect a slight decline in market share as international competition and new product launches by competitors will lead to industry-wide growth outpacing the company’s revenue growth.
With the acquisition, Boston scientific will gain ready access to Vessix’s RDN system, which has already been approved in Europe even as it awaits the FDA approval in the lucrative U.S. market. To the extent that the product is effective, it could add to the company’s revenues and help defend its market share.
Is It Too Late?
Until now, Boston Scientific was lagging behind in the golden rush for lucrative renal denervation devices as the space has witnessed huge R&D activity and seen many acquisitions in the recent past. Currently, an estimated 30 companies are developing similar devices. The company’s one of the largest competitor Medtronic is the front leader in the market with its “Symplicity” RDN, which it inherited post the acquisition of Ardian in January 2011. In 2012, St. Jude and Covidien followed the same path and acquired companies developing similar products. 
We think it is still not too late for Boston Scientific as no similar devices have been approved for sale by the U.S. FDA and an approval for Medtronic’s Symplicity RDN could come as late as 2014.  Further, as with Medtronic, Vessix Vascular’s RDN is already approved in the other major market, Europe.
The peripheral intervention segment is the fourth largest revenue contributor and constitutes close to 15% of our price estimate, according to our estimates. Therefore, even a small out-performance with respect to our expectations will have a material impact on the company’s valuation. Looking at the $800+ million price that Medtronic paid for Ardian, the deal doesn’t seem too costly for Boston Scientific and could reap long-term benefits for the company. We believe, based on such acquisition, the company will overcome recent concerns about overall growth and ride to our $6 price estimate, a 10% premium to the current market price.Notes: