After rallying by around 25% this year, Boston Scientific’s (NYSE:BSX) stock is trading near its 52-week high. While this appreciation is in tandem with the S&P index, there are some company specific factors for the optimism around the medical device maker’s stock. One of them is its acquisition of Vessix Vascular, a developer of a radiotherapy-based system to treat high blood pressure. The acquisition has put Boston Scientific on par with its major competitors including Medtronic (NYSE:MDT) and will be a major growth driver in the Peripheral Intervention division.
Peripheral products help in the treatment of peripheral vascular diseases, which cause artery blockage or narrowing in the neck, arms, legs and abdomen. These diseases can cause strokes, high blood pressure and kidney problems. In the last couple of years, Boston Scientific has seen its market share declining in the peripheral intervention market as it couldn’t outpace market growth, which has been significant on the back of new product launches by competitors. Despite getting some support from the acquisitions of S.I. Therapies and Revascular Therapeutics in 2011, the company’s current market share hovers around 15.5% in the $5 billion peripheral intervention market, well below its 2008 market share of 18%. However, going forward we expect a near term increase in its market share mainly due to the Vessix Vascular acquisition.
Renal Denervation Devices: Huge Market Potential
Vessix Vascular is in the development of renal denervation (RDN) devices, which have proven 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.  While overall RDN devices sales are still in a nascent stage, the market potential can be gauged from the fact that over 75 million people in the U.S. and about 1.2 billion people worldwide suffer from hypertension (high blood pressure). An estimated 10% of the these patients get no relief from currently available drugs. 
How The Vessix Acquisition Helps Boston Scientific
Until now, Boston Scientific was lagging behind in the rush for lucrative renal denervation devices as the space has witnessed huge R&D activity and seen many acquisitions of late. Medtronic, one of Boston Scientific’s largest competitors, is the market leader with its “Symplicity” RDN, which it inherited through the acquisition of Ardian in January 2011. In 2012, St. Jude and Covidien followed the same path and acquired companies developing similar products. 
With the acquisition, Boston Scientific will gain access to Vessix’s RDN system, which has already been approved in Europe. Vessix’s RDN system is a second generation RDN device, which can help Boston Scientific compete with Medtronic’s Symplicity, a first generation RDN device.  Symplicity is estimated to have garnered over $25 million and $50 million in sales in 2011 and 2012, respectively.  We expect Vessix’s RDN system to initially generate sales along similar lines following its introduction in the Europe.
However, what could hinder Boston Scientific from gaining significant market share is that competition is lining up in Europe. Currently, an estimated 30 companies are developing similar devices and many competitors have already launched their RDNs in these regions  Further, the device still has a long way to get FDA approval in the lucrative U.S. market as it has yet to begin clinical trials in the country. While no similar devices have been approved for sale by the U.S. FDA, Medtronic’s Symplicity RDN is the front runner and could nab approval by the end of 2014. This could again create some pressure on Boston Scientific’s market share despite revenue growth.
We have a $8 price estimate for Boston Scientific, which represents a 5% premium to the current market price.Notes:
- Medtronic’s Revolutionary Device To Control High Blood Pressure, Seeking Alpha, Oct 23 2012 [↩] [↩] [↩] [↩]
- Boston Scientific Corporation – Analyst/Investor Day, Seeking Alpha, Feb 12 2012 [↩]
- Medtronic: ‘Symplicity’ And The Renal Denervation Market, Seeking Alpha, Oct 24 2012 [↩]