Medical Devices Weekly Update: Medtronic and Boston Scientific

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Last week was eventful for Medtronic (NYSE:MDT) and Boston Scientific (NYSE:BSX) within the medical device sector. Medtronic has taken significant steps to expand its Diabetes business by acquiring Diabeter, a Dutch based company, and forming a partnership with DreaMed, an Israeli company.

On the other hand, Boston Scientific acquired Xlumena, a venture-backed medical device company, to further expand its Endoscopy division.

Medtronic

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Last week Medtronic acquired Diabeter, an independent healthcare institution in Netherlands that treats over 1,500 children and young adults with diabetes. The financial terms of the deal were not disclosed. Though the deal is not expected to significantly impact Medtronic’s annual earnings, this is a step towards foraying into the integrating health solutions segment, beyond its already existing diabetes management device market. According to the terms of this acquisition, existing physicians at Diabeter is expected to maintain autonomy with respect to operations and decision-making within the institution. [1]

Medtronic sells insulin pumps through its Diabetes division, which contributes about 10% of the company’s total revenues. In 2014, the company’s MiniMed 530G system (with Enlite CGM sensor) bolstered sales in the Diabetes division by over 9% y-o-y to $1.75 billion. MiniMed is the first system in the market, which has an in-built automated insulin delivery system that releases insulin in the blood based on pre-determined insulin levels. Medtronic estimates that this product could drive sales significantly in the near term as it focuses on international expansion. Last week Medtronic entered into an agreement with DreaMed to further penetrate the insulin delivery device market.

Medtronic’s agreement with DreaMed is focused towards developing and marketing DreaMed’s MD-Logic Artificial Pancreas algorithm in Medtronic insulin pumps. One of DreaMed’s primary product is the GlucoSitter, which incorporates this algorithm. GlucoSitter, which is CE approved, works like an artificial pancreas and regulates glucose level in the body. Medtronic will be paying royalty on future sales from products that use this technology. The sum of the royalty is not yet disclosed. In addition, Medtronic also invested a small amount of $2 million towards DreaMed’s diabetes solution. [2]

The global market for insulin delivery devices is estimated around $9.4 billion and is expected to grow at a CAGR of around 7% and reach $14 billion by 2020. Based on these figures, Medtronic’s current share in the market is approximately 18.5%. [3]

  • Trefis has a $69 price estimate for Medtronic, which is about 10% below the market price.
  • We estimate the company’s FY 2015 revenues to be around $18.6 billion for an earnings per share of $4.23, compared to a consensus of $4.22 according to Reuters.

See our full analysis for Medtronic

Boston Scientific

Boston Scientific reached an agreement to acquire Xlumena for $75 million. Xlumena develops minimally invasive devices for Endoscopic Ultrasound (EUS) guided drainage through an expanding catheter placed along the inside of a blood vessel, which targets areas within the digestive tract. Boston Scientific will make an upfront payment of $62.5 million to Xlumena and the remaining $12.5 million is subject to Xlumena receiving FDA approval for its HOT AXIOS product. [4] The Axios stent and delivery system received FDA approval to treat pancreatic pseudocysts in 2013. However, the HOT AXIOS and AXIOS devices for the gall bladder and bile duct have only received the CE marked and are currently not available for sale in the U.S. Boston Scientific anticipates that this acquisition will not significantly impact Boston Scientific’s earnings for the next two years. Thereafter, it is likely to show an incremental impact on earnings.

Boston Scientific’s investment in Xlumena is likely to strengthen its Endoscopy division, which contributes about 18% of the company’s total sales. In 2014, the endoscopy segment of the company grew 3% y-o-y on a constant currency basis driven by sales of biliary devices, hemostasis products and metal stents.

  • Trefis has a $15 price estimate for Boston Scientific, which is about 18% above the market price.
  • We estimate the company’s FY 2015 revenues to be around $8 billion for an earnings per share of $0.85, compared to a consensus of $0.91 according to Reuters.

See our full analysis for Boston Scientific

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Notes:
  1. Medtronic Acquires Diabeter, Innovative Diabetes Care Provider, Press Release []
  2. DreaMed Diabetes and Medtronic Enter Strategic Collaboration, Business Wire []
  3. Global Insulin Delivery Devices Market Will Reach $14,093.3 million in 2020, Persistence Market Research []
  4. Boston Scientific Agrees to Acquire Xlumena, Press Release []