Boston Scientific Earnings Preview: New Products In Focus

Boston Scientific (NYSE:BSX) is expected to announce its Q4 earnings on Wednesday, February 4. In the third quarter, the company reported a strong set of results, with robust growth across divisions. The company’s largest division – Interventional Cardiology (IC) – reported an impressive 8% year-over-year (y-o-y) growth in sales in the quarter, continuing the growth momentum from Q1 and Q2 2014 after consistent sales declines in 2013. The Cardiac Rhythm Management (CRM) division, contributing over 26% of the company’s top line, also continued its growth momentum with 4% sales growth y-o-y on a constant currency basis. Other divisions such as Endoscopy, Peripheral Interventions and Urology reported consistent mid to high single-digit growth. ^{[1] [2]}

As Boston Scientific comes out with its fourth quarter earnings, we expect its global sales to grow in the 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 $1.875 billion – $1.925 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 71.1% in Q3 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 discount of about 10% to the current market price.

See our full analysis for Boston Scientific

New Products In 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% year-over-year in Q3 2014 to $480 million, backed by strong sales growth in Europe and the U.S. Defibrillator sales grew 5% y-o-y to $348 million, driven by the growing adoption of new products such as S-ICDs, MINI ICDs and the X4 quad pulse generator. It will be interesting to see whether the company was able to achieve its target of $100 million in S-ICD sales in 2014. On the other hand, global pacemaker sales were flat at $132 million in Q3 2014 as growing acceptance of the INGENIO product family in international markets offset weakness in the U.S. Going forward, we expect rising sales of new products 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, in 2013. The IC division reported an operational sales increase of 8% y-o-y in Q3 2014 due to strong performance from the Promus PREMIER and SYNERGY DES products. DES sales were up 13% in the U.S. and 12% in Europe, which helped global DES sales grow 10% y-o-y. Following the successful launch of PREMIER DES in Japan in Q2, the company said that it witnessed sequential market share gains in this market in the country during the third quarter.

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 third quarter as well. Endoscopy, which contributes about 18% of the company’s total sales, grew 7% y-o-y on a constant currency basis on account of strong sales of new products, especially biliary, tissue acquisition and metal stents. Neuromodulation sales were flat because of a difficult comparable period. The company aims to grow faster than the market in this segment and is confident about achieving this goal on account of sustained demand for its Precision Spectra system and encouraging physician feedback for its new CoverEdge 32 contact paddle. Urology sales increased 5% y-o-y to $137 million in Q3 2014, attributed to strong performance in key international markets including Europe. Going forward, the company expects 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. Press Release, Boston Scientific, Oct 22 2014 [↩]
2. Boston Scientific Corporation’s CEO Discusses Q3 2014 Results – Earnings Call Transcript, Seeking Alpha, Oct 22 2014 [↩] [↩]