Boston Scientific’s (NYSE:BSX) stock rallied over 5% on Thursday after the medical device maker released the much-awaited four-year follow-up data from the “PROTECT AF” clinical trial pertaining to its “Watchman” devices. In this new data, Watchman exhibited better efficacy over Warfarin in preventing death and strokes in atrial fibrillation patients. ^[1]

This could come as a major boost for Boston Scientific which has been grappling with declining sales and market share in the Cardiac Rhythm Management (CRM) division. The CRM division consists of products that help in the treatment of abnormal heart conditions by the use of pacemakers and implantable cardioverter defibrillators (ICDs). Below we take a detailed look at how this event could impact the division and our price estimate.

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Efficacy Over Warfarin Could Boost Watchman Sales

Atrial fibrillation (irregular heartbeat) is one of most common cardiovascular conditions affecting almost 3 million people in the U.S. alone. ^[2] Boston Scientific’s Watchman is implanted in atrial fibrillation patients to reduce the risk of strokes. The device is approved in many international markets, including Europe, and has seen a huge uptake in international markets with double digit growth in implants. However, the device is an investigational product in the huge U.S. market as the FDA has been holding back its approval due to a higher rate of complications in previous clinical data from “Protect AF” trial.

However, earlier in March, Boston Scientific released results of a detailed clinical trial “Prevail”, where Watchman demonstrated better safety results compared with “Protect AF” trial. ^[3] The device posted a significant drop in serious complications (build-up of fluid around the heart and stroke) rate compared with the previous Protect AF trial. With the updated results, we expect the device to receive FDA approval in a couple of months.

Once launched in the U.S., we expect the device to see strong growth on par with international markets. It will be the only device of its kind in the U.S. for the next couple of years, providing Boston Scientific the first mover advantage in a potentially large market. However, what put a cap on the enthusiasm was that Watchman’s efficacy was similar to the standard blood thinner Warfarin in the Prevail trial. Warfarin is widely used in atrial fibrillation patients to prevent stroke.

This was expected to limit the use of the device to patients with high risk of bleeding, a serious side-effect of Warfarin. Therefore, we originally estimated Watchman devices to not be able to completely offset ongoing declines in revenues from implantable cardioverter defibrillators (ICDs), which constitute a significant chunk of the CRM division. (Read Boston Scientific’s Earnings Show Improving Outlook)

However, new follow-up data from the “Protect AF” trial showing Watchman’s better efficacy over warfarin can come handy in promoting the device’s use to a wider patient base. This should help Boston Scientific achieve its peak revenue target of $500 million from the device in the next four years. ^[2] Total sales from the CRM division stood at $1.9 billion in 2012 compared with an estimated market size of $18 billion. While the market is expected to register 5-6% growth, an addition of $500 million in revenue will lift Boston Scientific’s market share in the CRM division instead of our current expectation of a decline.

As the CRM division is the second biggest revenue and value source for Boston Scientific, even a small over performance with respect to our expectation will have a big impact on the company’s valuation.

We currently have a $8 price estimate for Boston Scientific, which is now in line with the current market price. We will soon update our model to reflect the development.

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1. New Four-Year Data From Boston Scientific Demonstrated WATCHMAN® Device Was Superior To Warfarin For Mortality And Primary Efficacy In Patients With Atrial Fibrillation In Long Term Follow-Up Of The PROTECT AF Trial, Boston Scientific, May 09 2013 [↩]
2. Boston Scientific atrial fibrillation device proves safe -study, Reuters, March 09 2013 [↩] [↩]
3. WATCHMAN® Device Continues to Demonstrate Positive Clinical Outcomes for Patients with Atrial Fibrillation, Boston Scientific, March 09 2013 [↩]