Should Boston Scientific’s Investors Be Worried Of Abbott’s Absorb?

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In 2015, Boston Scientific (NYSE: BSX) received FDA approval for its third generation partially absorbable drug eluting system (DES), Synergy. The product and its predecessors have been significant revenue generator for the company’s Interventional Cardiology segment and we expect it to drive sales and boost margins going forward. However, with the FDA approval of Abbott’s (NYSE: ABT) Absorb, a fourth generation fully absorbable stent (BVS), Synergy could potentially face some notable competition. Still, according to our estimates, even though there is chance that Absorb may steal some market from Synergy, it should not be seen as too much of threat to Boston Scientific’s valuation.

Our price estimate of $25 for Boston Scientific is slightly higher than the current market price.

See our complete analysis for Boston Scientific here

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Why Absorb May Give Competition To Synergy

Absorb better in long term

The benefit that Synergy provides over traditional DES is reduced chances of thrombosis (blood clotting) and inflammation. Absorb has an added advantage of vascular retention therapy (VRT).  Absorb has been found to be statistically non-inferior to Abbott’s existing DES Xience.  Furthermore, it is also helpful in cases where future procedures may be required. Over short-term, the performance of both the products are similar but in long term the fully absorbable nature gives Absorb advantage over Synergy.

Price of the two products are comparable

From price perspective, both Absorb and Synergy are priced at premium to first and second generation DES. Bio-absorbable stents are priced at about 2x of conventional stents. According to a report by The Wall Street Journal, the average price of conventional DES is around $1,200 to $1,400.  A look at import data of Synergy and Absorb to India indicates no significant price difference.

Absorb has first mover advantage

At present, only Abbott’s Absorb has both CE Mark and FDA approval. The other fully absorbable stents are DESlove by Elixir Medical and Pure by Arterial Remodelling Technologies. However, they have only CE Mark approval and have low penetration and adoption.

Is There Significant Potential Downside To Boston Scientific’s Value?

The market size of DES is about $5 billion. GlobalData research expects the market share of BVS (fully-absorbable stents) to grow to 27% by 2020 from 7% currently. DES constitutes about 15% of total revenue and 54% of the segment revenue for Boston Scientific. According to our estimate, Synergy makes up for about 50%-55% of the company’s DES revenue. This translates into Synergy’s market share of about 14%.

Even in a scenario where Synergy loses about 5% of its market share over Trefis forecast period, the impact on Boston Scientific’s value would not be material (in low single digits).

Additional Reasons That Add To Our Scepticism 

Both Absorb and Synergy have been present in Europe since 2012, but Absorb has not yet been able to gain a significant market share from Synergy. Furthermore, Thrombosis rate for Absorb has been found to be about 1.5% while that for Xience was 0.7% after one year. It is worth noting that this difference is statistically insignificant. For Synergy the Thrombosis rate is 0% over four years giving it a perception of being safer device.

In light of these we believe that Boston Scientific’s investors should not lose sleep over Absorb’s FDA approval, at least not now.

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