Transvaginal Mesh Lawsuits Haunts Boston Scientific Again

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In a recent crackdown on the medical device companies, the FDA has classified transvaginal mesh devices to a high risk – class 3 category. [1] Further, the FDA also requires the medical device makers to submit a premarket approval application (PMA) to prove the safety and effectiveness of these devices. Transvaginal mesh devices are used in the treatment of pelvic organ prolapse (POP) and stress urinary incontinence (SUI). With more than 300,000 women undergoing transvaginal surgeries each year since 2010, the market for these devices has grown considerably, inviting more companies to enter the lucrative market.

However, the tightened FDA approvals and a classification of transvaginal mesh devices to a high risk category can affect the sales of the leading medical device makers such as Johnson & Johnson (NYSE:JNJ) and Boston Scientific (NYSE:BSX) that hold a major portion of this market. Further, due to the growing awareness among women about the potential high risks associated with the device, they may avoid the implantation of this device. Moreover, a law firm separately accused Boston Scientific for using counterfeit resin smuggled from China to manufacture the vaginal surgical mesh and also called for a ban on the sale of these devices from the company. [2] The aforementioned factors together can weigh down the company’s profitability going ahead.

Below we analyse the impact of the regulatory warning and the litigation charges on Boston Scientific’s stock price in detail:

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Our price estimate of $15 for Boston Scientific is approximately 20% below the current market price.

See our complete analysis for Boston Scientific here

Transvaginal Mesh Lawsuits A Long Standing Issue For Boston Scientific

According to reports, transvaginal mesh law suit could be the largest in terms of the amount required to settle the charges. This seems quite evident as medical device companies such as Boston Scientific had more than 30,000 pending cases linked to transvaginal mesh complications against it by November 2015. Moreover, the company had paid more than $100 million in April 2015 to settle around 3,000 cases related to mesh complications.

Further, the latest stance by FDA that classifies transvaginal mesh as high risk devices and requires a PMA for these products can affect the sales of these devices even more. In the past, FDA warnings have affected the sales of many companies. For instance, an FDA warning in 2014 about the use of power morcellators in surgeries affected the sales of the leading surgical robots manufacturer, Intuitive Surgical. [3]

Latest Allegations Quite Serious

The transvaginal mesh lawsuit on Boston Scientific is not new and can drag on for years. However, the latest allegations that accused the company for importing counterfeit plastic resins from China to make vaginal mesh, if proven true, can induce a large drop in the sales for Boston Scientific. This comes from the fact that these devices are permanently implanted in a human body and patients are very particular about the efficacy of such devices. Moreover, users may question the efficacy of other products made by Boston Scientific, which can lead to a drop in the sales in other segments too. Furthermore, such accusations, if proven true, would cast serious doubts in the mind of investors about the ethical standards and business practices followed by Boston Scientific.

A Drop In Transvaginal Mesh Sales Not A Major Concern

Although there can be a drop in transvaginal mesh devices sales for Boston Scientific in the coming months, it must be noted that the transvaginal mesh revenues constituted a very small percentage of the overall revenues. Transvaginal mesh sales are a part urology and women’s health segment of the company, which constituted less than 7% of the overall revenues in 2014.

In the worst case scenario, even if a ban is imposed on the sale of these devices, the company can suffer losses of only up to $542 million, assuming that transvaginal mesh accounted for the entire 7% of the urology and women’s health segment. We believe that Boston Scientific can suffer more losses from the litigation charges than the losses due to a potential ban on the sale of these devices. To illustrate the effect of litigation charges, it must be noted that the company paid more than $100 million in 2015 to settle around 3,000 cases and it still has around 30,000 cases outstanding for the same issue.

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Notes:
  1. FDA Finalizes Tougher Stance on Transvaginal Mesh, MDDIonline, January 2015 []
  2. MOSTYN LAW CALLS ON FDA AND BOSTON SCIENTIFIC TO STOP THE USE OF COUNTERFEIT SURGICAL MESH, SATPRNEWS, January 2016 []
  3. FDA’s Cancer Warning: Bad News for Surgical Robots, Wall Street journal, April 2014 []