Boston Scientific Earnings Preview: New Products To Drive Growth

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Boston Scientific

Boston Scientific (NYSE:BSX) is expected to announce its Q1 2015 earnings on Tuesday, April 28. In the last quarter, the company reported a 7% year-over-year (y-o-y) growth in operational revenue, as the company’s two largest divisions, Interventional Cardiology (IC) and Cardiac Rhythm Management (CRM), continued to maintain growth momentum from previous quarters. IC, accounting for around 28% of the company’s total revenue, grew by 10% y-o-y, while CRM, representing 26% of total revenue, grew by 3% y-o-y on a constant currency basis. Other divisions, such as Endoscopy, Urology and Women’s Health, reported consistent mid to high single-digit growth. The company also reported robust sales growth of 23% y-o-y in Electrophysiology (EP) following the FDA’s approval of its Rhythmia mapping and navigation system in 2013. [1].

In Boston Scientific’s upcoming earnings, we expect the company to meet its operational sales growth target of 3-6%, backed by growth in key businesses, growing acceptance of new products such as improved S-ICDs (Subcutaneous-Implantable Cardioverter Defibrillators), SYNERGY and Promus PREMIER stents, and the addition of new products including the Watchman device to its portfolio. Boston Scientific also reported 17% year-over-year growth from emerging markets in the last quarter. Revenue from emerging markets accounted for 10% of total company sales in 2014, compared to 9% in 2013 on a constant currency basis.

We have a price estimate of $15 for Boston Scientific, implying a discount of about 20% to the current market price.

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See our full analysis for Boston Scientific

New Products In Key Businesses To Drive Sales

In Q4 2014, the IC business grew 10% y-o-y to $523 million, driven by increasing acceptance of products in the drug-eluting stent (DES) markets in the U.S. and Japan. In the IC market, the company is likely to increase its footprint in the DES market, with growing sales of PROMUS Element, Promus PREMIER and SYNERGY, which were launched in 2013. DES sales were up 11% in the U.S. and 4% outside of U.S., which helped worldwide DES sales grow 7% y-o-y.

Operational sales in the CRM division grew 3% y-o-y in Q4 2014 to $468 million, backed by strong demand for Subcutaneous Implantable Defibrillators (S-ICD), a type of defibrillator that does not require a transvenous lead to connect to the heart. Boston Scientific successfully received FDA and CE approval for its Emblem S-ICD system. The Emblem S-ICD is an improved version of Boston Scientific’s conventional S-ICD in terms of parameters such as size and longevity of the device. The Emblem S-ICD is 19% thinner and can last 40% longer than the older version of S-ICD. This will aid in reducing the replacement cycle of the device and consequently reducing patient costs. The launch of this device is likely to bolster the company’s CRM revenue. In February 2015, the company also launched its Extended Longevity (EL) ICDs, including DYNAGEN EL and INOGEN EL, which are likely to drive growth in the division. [2]

In addition to the above developments, the CRM division added the Watchman device to its portfolio of products. The device, which was finally able to establish its efficacy over the standard anticoagulant, warfarin, received FDA approval last month. [3] The results of the company’s clinical trial concluded that the Watchman device could reduce the incidence of stroke in patients who could not take the warfarin due to certain side effects.

Other Divisions Likely To Sustain Growth Momentum

Endoscopy, the third largest division which contributes about 18% of total sales, grew by 5% y-o-y in the fourth quarter of 2014, attributed to strong performance in international markets. Endoscopy sales in Latin America grew by 18% y-o-y. This division is likely to maintain its growth momentum with its increasing presence in emerging markets.

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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 Launches World’s Longest Lasting ICD, Press Release []
  3. FDA Approves Boston Scientific’s Watchman Device, Wall Street Journal []