Boston Scientific Earnings Preview: New Products To Drive Sales

Boston Scientific (NYSE:BSX) is expected to announce its Q3 earnings on Wednesday, October 22. After several years of dismal sales, the global medical device maker returned to positive sales growth in 2013 and continued the momentum in the first half of this year. In the second quarter, the company reported a strong set of results with robust growth across divisions. The company’s largest division- Interventional Cardiology (IC) – reported low single-digit growth in the quarter, continuing the growth momentum it picked up in Q1 after consistent sales declines last year. The Cardiac Rhythm Management (CRM) division, contributing over 26% of the company’s top line, turned around in the quarter with 5% sales growth year-over-year (y-o-y) on a constant currency basis. Other divisions such as Neuromodulation, Endoscopy, Peripheral Interventions and Urology also reported consistent low to mid single-digit growth. ((Press Release, Boston Scientific, July 24 2014)) ^[1]

As Boston Scientific comes out with its third quarter earnings, we expect its global sales to grow in mid single digits driven by increasing acceptance of its new products such as S-ICD (Subcutaneous-Implantable Cardioverter Defibrillators), Promus PREMIER stent, the Lotus Transcatheter Aortic Valve (TAVR) device, the bronchial thermoplasty system Alair and the anti-stroke Watchman device. Accordingly, the company should be able to meet its operational sales guidance of $1.79 billion – $1.84 billion for the quarter. On the cost side, we expect margins to continue improving on account of the company’s effective implementation of its “Plant Network Optimization” strategy. The company reported adjusted gross margins of 70.3% in Q2 2014 and it expects full year 2014 gross margins to be in a similar 70-71% range. ^[2]

We have a price estimate of $13 for Boston Scientific, implying a premium of over 10% to the current market price.

See our full analysis for Boston Scientific

Key Businesses to Drive Sales

Interventional Cardiology (IC) and Cardiac Rhythm Management (CRM) are the two 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. Sales of both of these divisions have started picking up after rapid declines in the last few years, as macroeconomic headwinds weaken and newly launched products gain acceptance.

Operational sales in the CRM division grew 4% y-o-y in Q2 2014 to $497 million, backed by strong sales growth in the U.S., Europe as well as Asia. Defibrillator sales grew 3% y-o-y to $355 million, driven by growing adoption of new products such as Subcutaneous-Implantable Cardioverter Defibrillators (S-ICD), MINI ICD and the X4 quad pulse generator. On the other hand, pacemaker sales grew 6% on a constant currency basis to $142 million on the back of growing acceptance of the INGENIO product family. Going forward, we expect rising sales of new products such as S-ICDs and the ACUITY™ X4 QUAD Lead, as well as expansion in international markets, to help Boston Scientific stabilize its declining CRM market share.

In the IC market, the company launched a portfolio of drug-eluting stents (DES), including PROMUS Element, Promus PREMIER and SYNERGY, last year. The IC division reported an operational sales increase of 1% y-o-y in Q2 2014 due to strong performance of the Promus PREMIER and SYNERGY DES products. In fact, owing to its strong DES performance, Boston Scientific’s share increased by about 150 basis points in the U.S. DES market during the quarter. The company also gained share in the international DES market on account of strong performance in Europe and the successful launch of PREMIER in Japan. Going forward, we expect sales to continue to grow, driven by strong uptake of the Promus PREMIER stent system in the U.S., the launch of new products such as SYNERGY stent and Lotus TAVR, and expansion into Europe, Japan and emerging markets.

Other Divisions Likely to Sustain Growth Momentum

Boston Scientific’s other divisions have been growing consistently in the last several quarters, which continued in the second quarter as well. Endoscopy, which contributes about 18% of the company’s total sales, grew 4% y-o-y on a constant currency basis. Neuromodulation sales grew 3% on account of strong domestic as well as international sales, especially of its Precision Spectra system. However, the growth rate was impacted due to a difficult comparable period and this is expected to play a significant role in the third quarter results as well. Urology sales increased 7% y-o-y to $133 million, attributed to strong performance in key international markets and a turnaround in the U.S. Going forward, we expect these businesses to continue to grow, both domestically and internationally.

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. Boston Scientific Corporation’s CEO Discusses Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, July 24 2014 [↩]
2. ref:2 [↩]