Boston Scientific Reports Strong Q1 Sales On IC Turnaround, New Products

Global medical device maker Boston Scientific (NYSE:BSX) reported strong first quarter financial results on April 29, with operational revenue – excluding the divested Vascular business – growing 4% year-over-year (y-o-y) to $1.77 billion. Although the company was able to meet its own guidance of $1.75 – $1.8 billion for the quarter, sales were $30 million short of the Reuters’ consensus estimate of $1.8 billion. The company’s stock dropped by about 6% in trading.

Other than Cardiac Rhythm Management, each of the company’s divisions contributed to the sales growth. The company’s largest division- Interventional Cardiology (IC) – reported low single-digit growth in the quarter, reflecting a significant improvement over its mid single-digit decline in the preceding quarters. Operational sales in the Neuromodulation business continued to grow in double-digits while other divisions such as Endoscopy, Peripheral Interventions and Urology also reported consistent mid single-digit growth. The company also reported robust sales growth of 68% y-o-y in Electrophysiology (EP), primarily driven by the acquisition of C.R. Bard’s EP business in November of last year. On the cost side, gross margins improved by over 250 basis points to 69.73% as overall expenses declined over 30% y-o-y from $1.5 billion at the end of Q1 2013 to about $1 billion by the end of Q1 2014. This was driven by lower R&D expenses owing to the timing of certain projects and the company’s efforts in improving R&D efficiency. ^{[1] [2]}

Going forward, the company expects its operational sales to continue growing in the 3-5% range, driven by the turnaround of key businesses and growing acceptance of new products such as S-ICD (Subcutaneous-Implantable Cardioverter Defibrillators), Promus PREMIER stent, the anti-stroke Watchman device and bronchial thermoplasty system Alair.

We have a price estimate of $13 for Boston Scientific, which is slightly ahead of the current market price.

See our full analysis for Boston Scientific

Key Businesses Provide Mixed Results

Interventional Cardiology (IC) and Cardiac Rhythm Management (CRM) are two of the biggest divisions for Boston Scientific, contributing about 55% of the company’s value, according to our estimates. While the IC division derives its revenues mainly from coronary stents and catheters, CRM’s primary products are pacemakers and defibrillators.

In the past few years, sales of both these divisions have declined rapidly owing to macroeconomic headwinds and increasing competition. However, both businesses are turning around on account of improving economic conditions and growing acceptance of new products. In the first quarter this year, IC sales grew by 1% y-o-y on a constant currency basis, to about $500 million. This can be attributed to improved sales of its Promus PREMIER drug-eluting stent (DES) system in the U.S. and Europe and solid sales growth in the Structural Heart business, which includes the anti-stroke Watchman device and the Lotus percutaneous valve system. Going forward, the company expects consistent sales growth in this business as it expands into Europe and emerging markets with its improved DES product line, which could help stabilize its declining IC market share as well.

CRM sales declined by 2% y-o-y on a constant currency basis to $466 million on the back of sluggish sales of its defibrillator systems in the U.S. Although the uptake of its S-ICD systems was ‘very positive’, the company faced headwinds for its CRT-D and ACUITY™ X4 QUAD Leads in several markets including the U.S., Japan and Australia. The company expects S-ICD systems to generate over $75 million in sales by the end of this year and we expect the systems to help Boston Scientific stabilize its declining CRM market share going forward.

New Products & Pricing Strategy Drives Sales

For the past few years, Boston Scientific has been extremely focused on remodeling its product portfolio, demonstrated by the fact that the company introduced about 11 new products in the last two years. ^[3] For the IC market, the company launched an innovative portfolio of drug-eluting stents including PROMUS Element, Promus PREMIER and SYNERGY. Primarily launched in established markets, where its premium price is more likely to be supported by customers, SYNERGY is a premium bio-absorbable stent product. On the other hand, the cheaper PROMUS stent is being targeted at price-sensitive emerging markets. This strategy to target specific IC products for particular geographies is starting to pay off with increased sales, and could help the company improve its IC market share in emerging markets as well. Boston Scientific’s overall operational sales grew 22% in emerging markets in the first quarter this year, taking the contribution of emerging markets in overall sales to 9%.

In the CRM market, Boston Scientific launched several promising products, including the S-ICD, ACUITY™ X4 QUAD Lead and the Watchman device for atrial fibrillation patients. The company recorded solid sales from the S-ICD in 2013 even though it was largely unavailable in the second and third quarters due to manufacturing problems. ^[4] ((Boston Scientific Pauses Hypertension Trial on Rival Failure, The Washington Post, Jan 16 2014)) We expect sales of the S-ICD and ACUITY Lead to increase going forward as supply issues are resolved to match the sustained high demand. The S-ICD device presents a great opportunity for Boston Scientific as the product currently has no major competitors, and the company estimates that the market will grow to over $750 million worldwide by 2020. The S-ICD product is also a significant aspect of the company’s plans to improve CRM margins within the next three years.

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)
Get Trefis Technology

1. Press Release, Boston Scientific, April 29, 2014 [↩]
2. Boston Scientific Corporation’s CEO Discusses Q1 2014 Results – Earnings Call Transcript, Seeking Alpha, April 29, 2014 [↩]
3. Boston Scientific’s CEO Presents at Morgan Stanley Global Healthcare Conference, SeekingAlpha, September 9, 2013 [↩]
4. Boston Scientific Management Discusses Q4 2013 Results – Earnings Call Transcript, SeekingAlpha, February 04, 2014 [↩]