Boston Scientific (NYSE:BSX) returned to operational sales growth in 2013, with all of its divisions contributing to the turnaround. The medical device maker’s revenues increased by 2% to $7.143 billion during the year on a constant currency basis, driven by mid single-digit growth in Endoscopy and Peripheral Interventions. Sales in the largest divisions -Interventional Cardiology (IC) and Cardiac Rhythm Management (CRM) – stabilized in 2013 following near double-digit decline in the past few years. The company gained from increasing acceptance of its new products and expansion in emerging markets. For the current year, Boston Scientific expects operational sales to grow 3%-5% backed by its new products.
In this article, we look at some of the promising new products that are likely to contribute to the company’s top-line as well as bottom-line growth in 2014.  We currently have a price estimate of around $12.50 for Boston Scientific, which is roughly in line with the current market price.
New Products To Drive Sales and Margin Growth In 2014
Boston Scientific has been remodeling its product portfolio and has made at least 11 acquisitions in the past two years to accomplish this goal.   Here is a division-wise look at some of the most promising product launches by the company:
Interventional Cardiology (IC)
‘SYNERGY’ Stents: SYNERGY is a next-generation stent that dissolves inside the body within three months. It received CE approval in Europe in Q4 2012 and has shown impressive uptake despite its premium price. In the U.S, the device is currently being clinically tested and is expected to be rolled out in 2015-2016. Based on its performance in Europe, we expect SYNERGY to also perform well in the U.S. once it is launched.
‘Promus’ Stents: Boston Scientific earlier sourced the PROMUS drug-eluting stents from Abbott Labs (NYSE:ABT). However, the company has now started producing them in-house, which has had a positive impact on its gross margins. Boston Scientific also has an advanced version, called PROMUS Premier, that received CE approval in Europe in Q1 2013 and FDA approval in the U.S. in Q4 2013. Given their recent performance, we expect PROMUS and SYNERGY to continue growing in the next few years and stem the decline in Boston Scientific’s IC market share.
‘Vessix’ Renal Denervation System (VRDS): Boston Scientific entered the renal denervation market in 2012 by acquiring privately-held Vessix Vascular Inc. VRDS uses radio frequency to control high blood pressure in patients who are resistant to oral hypertension medicines. Vessix has been selling in Europe and many parts of Asia for the past few years. In the U.S., it is in the process of finalizing its IDE trials. There were concerns about its future in the U.S. market after global leader Medtronic, Inc. (NYSE: MDT) was reported unsuccessful in FDA trials of its renal denervation device, ‘Simplicity’, earlier this year. However, Boston Scientific remains optimistic about its second generation catheter-based platform and plans to carefully move forward with its clinical program in the U.S. in 2014. The company forecasts the global market size for renal denervation to grow to about $1 billion by 2020. It can gain a substantial part of this market if it manages to get an FDA approval for VRDS in the next couple of years.
‘Lotus’ Transcatheter Aortic Valve (TAVR) device: This device is used to replace impaired heart valves in patients who are too weak for traditional open heart surgery. Boston Scientific received CE approval for this device in Q4 2013 and expects to start IDE trials in the U.S. this year. The company is likely to face tough competition from established players like Edwards Lifesciences’ (NYSE:EW) SAPIEN device and Medtronic’s CoreValve device in this market, which we estimate to be valued at around $360 million (U.S.) in 2013 (see Medtronic’s CoreValve Gets Early FDA Approval; U.S. Sales Likely To Get A Boost).
Cardiac Rhythm Management (CRM)
Subcutaneous-Implantable Cardioverter Defibrillators (S-ICD): Boston Scientific’s CRM division acquired Cameron Health in 2012, and with it a next generation ICD (known as S-ICD) that does not require a transvenous lead to connect to the heart. The limited launch of this device is seeing robust demand, and we expect the trend to continue as hospitals prefer advanced S-ICDs over traditional ICDs due to safety concerns about the leads used in traditional devices. The company has managed to overcome initial supply limitations and will be focusing on imparting training to physicians to boost acceptance of this product in 2014.
‘Watchman’: Another promising product in Boston Scientific’s CRM portfolio is Watchman, which is implanted in atrial fibrillation (irregular heartbeat) patients to reduce the risk of strokes. The device is already approved in many international markets including Europe and has seen a huge uptake, with implants growing over 50% on a yearly basis. In the U.S., it is expected to receive regulatory approval by Q2 2014. Boston Scientific estimates the overall market for the device to reach $500 million by 2020. ((Boston Scientific’s Mahoney Says Watchman Key to Growth, Bloomberg, May 11, 2013))
We expect the growth in S-ICDs and Watchman to help stabilize Boston Scientific’s market share in the CRM market going forward.
Rhythmia Mapping System: This is the next generation of cardiac mapping using 3-D technology. It is used to diagnose and treat arrhythmia (irregular heart rhythm) condition in patients with improved accuracy as well as speed. Boston Scientific received CE approval for this device in May 2013 and FDA approval a month later. We expect sales of this device to help the EP division sustain its mid single-digit sales growth in 2014 as well.
‘Alair’ Bronchial Thermoplasty System: This device uses heat to reduce constriction in the throat during an asthma attack in patients suffering from severe asthma. It is also effective in reducing the frequency and acuteness of such attacks. This FDA approved device reported 28% sales growth y-o-y in 2013 and the company expects to sustain this growth in the near future backed by growing demand in established markets and expansion in emerging markets including China. Notes:
- Boston Scientific Management Discusses Q4 2013 Results – Earnings Call Transcript, SeekingAlpha, February 04, 2014 [↩]
- Boston Scientific’s CEO Presents at Morgan Stanley Global Healthcare Conference, SeekingAlpha, September 9, 2013 [↩]
- Boston Scientific Corporation at JPMorgan Healthcare Conference, Boston Scientific, Jan 14, 2014 [↩]
- Boston Scientific Alair® Bronchial Thermoplasty System Approved In China, Boston Scientific Press Release, Oct 23, 2013 [↩]