Boston Scientific Preview: Market Outlook More Important Than Revenue

by Trefis Team
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Boston Scientific (NYSE:BSX) is set to announce its Q2 earnings on July 25, and we expect the medical device maker to continue to post a decline in revenues for the sixth consecutive quarter. Its key divisions, Interventional Cardiology and Cardiac Rhythm Management (CRM), continued to see weakness in the U.S. and Europe in Q2. We expect growth in the Endoscopy and Peripheral Interventions businesses to partially offset some of the decline. Emerging markets including China and India should continue to show robust growth. For the quarter, we expect operating margins to remain stable during the quarter.

We currently have a $8 price estimate for Boston Scientific, which represents a discount of about 15% to the current market price. Boston Scientific’s shares have risen almost 80% this year. While the business environment in the U.S. is gradually improving and the company’s new products are gaining traction, we believe that after a sharp run-up, the current stock price reflects all these factors. Below we take a look at key trends impacting the company’s performance during Q2.

See our complete analysis of Boston Scientific

Revenue To Decline, Cost Cutting Efforts To Offset Pricing Pressure

On a yearly basis, we expect the company to record a decline in sales in its Interventional Cardiology franchise due to a relatively weak but gradually improving U.S. stent market and pricing pressure. Europe is also reeling under the economic slowdown. However, its own updated version of the Promus Element stent has been doing pretty well and should continue to lend support. Additionally, the limited launch of its next generation of stent, Synergy, has received a good response in Europe. The BridgePoint acquisition will also add to revenues on a yearly basis. (Read Boston Scientific Acquires BridgePoint Medical To Bolster Interventional Cardiology Business) In this segment, we will keep a watch on updates on the ongoing Evolve-II trial in the U.S. The trial is being conducted to prove the efficacy of Synergy and success here will pave the way for FDA approval.

The CRM business is also expected to weigh on growth as demand for implantable cardioverter defibrillators (ICDs) continued to remain weak in the U.S. and Europe. However, what can help the company is its next-generation subcutaneous-ICDs that don’t require leads. Last quarter, Boston Scientific mentioned that during its limited launch, demand outpaced supply by a wide margin. The pacemaker business should get support from higher sales of an upgraded platform of the Ingenio line of pacemakers. The Watchman devices, which are used to treat atrial fibrillation patients, are seeing strong demand in international markets. We are, however, waiting for further updates on its pending approval in the U.S. as data from recently completed PREVAIL trial has been submitted (Read New Data On Boston Scientific’s Atrial Fibrillation ‘Watchman’ Device Could Lift Outlook).

The Peripheral Interventions and Endoscopy businesses should offset part of the expected decline in revenues as there have been a number of product launches in the U.S. and international markets. However, our eyes are on the performance of Vessix Vascular’s radiotherapy-based system (RDN), which is used to treat high blood pressure. Boston Scientific recently acquired Vessix Vascular to gain entry into the lucrative RDN market. The company is now directly competing with Medtronic and a number of players in the European market as Vessix’s RDN system is already approved in the region. (Read Boston Scientific: A Look At The Peripheral Intervention Business).

While we expect overall revenues from the U.S. and Europe, Middle East and Africa (EMEA) to register a slight decline, emerging markets are expected to register robust growth and therefore will see their overall revenue contribution to the company growing. The company took a number of cost-cutting measures last year in a bid to offset pricing pressure. The steps include moving manufacturing to offshore locations and several rounds of job cuts. We expect these steps to result in stable operating margins despite pricing pressure and U.S. dollar appreciation.

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