Boston Scientific’s Growth In Key Businesses Helps In Delivering Solid Q4 Results

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Global medical device maker Boston Scientific (NYSE:BSX) continued to sustain its momentum and delivered strong fourth quarter results with its sales reaching $1.89 billion, a 7% year-over-year (y-o-y) increase in its operational revenue owing to robust growth in emerging markets. Emerging markets, contributing 10% of total sales, grew at 17% y-o-y in the last quarter.

Interventional Cardiology (IC), the company’s largest division, grew 10% y-o-y on a constant currency basis in the last quarter. The Cardiac Rhythm Management (CRM) division, which contributes over 26% of the company’s top line, reported a moderate growth of 3% y-o-y on a constant currency basis. Peripheral Interventions grew by 10% y-o-y in the last quarter. Other divisions, such as Endoscopy and Urology and Women’s Health, reported consistent mid to high single-digit growth. However, sales for Neuromodulation declined by 2% y-o-y in the last quarter. The company also reported robust sales growth of 23% y-o-y in Electrophysiology (EP), primarily driven by the Rhythmia mapping and navigation system, which received FDA approval in 2013. [1]

Net income declined from $108 million in Q4 2013 to $87 million in Q4 2014 due to higher sales and litigation expenses and impairment of intangible asset charges. Excluding one-time charges such as restructuring charges, litigation and amortization expenses and acquisition related expenses, net income increased by 4.4% to $303 million in Q4 2014. Adjusted gross margins expanded by 140 basis points y-o-y and reached 71.4%. [2]

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Going forward, the company expects its operational sales to grow within a range of 3-6%, backed by growth in key businesses and growing acceptance of new products such as S-ICDs (Subcutaneous-Implantable Cardioverter Defibrillators), SYNERGY and Promus PREMIER stents and the bronchial thermoplasty system Alair. The company expects to get FDA approval for its anti-stroke Watchman device in the first half of 2015.

We have a price estimate of $14 for Boston Scientific, which is slightly below the current market price.

See our full analysis for Boston Scientific

Key Businesses Continue To Drive Growth

Interventional Cardiology (IC) and Cardiac Rhythm Management (CRM) are the two biggest divisions for Boston Scientific, comprising of over 50% of the company’s total sales. While the IC division derives its revenues mainly from coronary stents and catheters, CRM’s primary products are pacemakers and defibrillators. Sales for both these divisions picked up in the last quarter.

Operational sales for the CRM division grew by 3% y-o-y to $468 million last quarter. The demand for S-ICDs, a type of defibrillator that does not require a transvenous lead to connect to the heart, continues to drive growth as the company exceeded its revenue target of $100 million for the device in 2014. S-ICDs are expected to continue to grow following the approval of TRICARE, a health care program of the U.S. Department of Defense Military Health System that has about 10 million members. This approval will allow for the reimbursement of S-ICDs to active and retired military personnel, which could further increase the demand for the device. The IC business grew 10% y-o-y on a constant currency basis as the Promus Premier Stent system held on to its leadership position in the drug-eluting stent (DES) markets in the U.S. and Japan.

Other Divisions Maintain Growth

Boston Scientific’s other divisions sustained their growth momentum in the fourth quarter except for Neuromodulation, which declined by 2% y-o-y. Endoscopy, which contributed about 18% of total sales, grew 5% y-o-y on a constant currency basis. Latin America accelerated sales in the Endoscopy segment by posting growth of over 20% for the third consecutive quarter. Urology and Women’s Health reported a 9% y-o-y increase in sales to $140 million.

New Products To Look Out For In 2015

The company continues to innovate in its key businesses. In February 2015, Boston Scientific launched its Extended Longevity (EL) ICDs, including DYNAGEN EL and INOGEN EL device models. The company claims that these models have better longevity compared to competitors’ devices and last for 12 years. This technology is likely to reduce the size of the device by 11% and also make it 24% thinner, which will help lower the frequency of replacement and reduce patient costs. [3]

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Notes:
  1. Boston Scientific’s (BSX) CEO Mike Mahoney on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha []
  2. Boston Scientific Announces Results For Fourth Quarter And Full Year Ended December 31, 2014, News Release []
  3. Boston Scientific Launches World’s Longest Lasting ICD, News Release []