Medtronic’s Setback In Renal Denervation Could Be An Opportunity For Boston Scientific

by Trefis Team
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Boston Scientific (NYSE:BSX) will be treading cautiously with its Vessix renal denervation platform in the U.S. after Medtronic‘s (NYSE:MDT) SYMPLICITY HTN-3 trial failed to meet its efficacy endpoint last month. [1] Medtronic’s unsuccessful trial prompted many experts to voice doubts about the effectiveness of renal denervation in treating hypertension patients. However, renal denervation as a therapy may not be as ineffective as the trial results seem to indicate.

For instance, the European Society of Cardiology has accepted renal denervation as an effective technique in reducing blood pressure in hypertension patients resistant to traditional treatment. [2] Additionally, the fact that the FDA and CMS (Centers for Medicare & Medicaid Services) made a combined decision to accept Medtronic’s SYMPLICITY renal denervation system for parallel review in the U.S. indicates that the regulatory bodies considered renal denervation to be a viable technique for treatment, but just found Medtronic’s approach to not be very effective. [3]

Although the SYMPLICITY trial results are being seen as a major setback for the global renal denervation industry, there is hope that it will gradually recover given that there is still some positive sentiment in the market regarding its effectiveness. Boston Scientific’s CEO Michael Mahoney stated recently that they are “very positive” about the future of their Vessix platform and will extensively analyze Medtronic’s trial results to address any shortcomings. We believe that there is a huge opportunity for Boston Scientific to gain share at Medtronic’s expense, if it can deliver on its pivotal trial plans in the U.S. ahead of rivals.

We currently have a price estimate of around $12.50 for Boston Scientific, implying a discount of about 5% to the current market price.

See our full analysis for Boston Scientific

Growth Opportunity Both Domestically and Internationally

More than 1 billion people globally, including about 100 million in the U.S., are affected by hypertension. Experts estimate that about 10-15% of these hypertension patients do not respond to oral medication. This is where renal denervation comes into play, using radio frequency through minimally invasive catheters to treat high blood pressure.

Boston Scientific’s CEO stated in an interview last month that renal denervation had the potential to be a multi-billion dollar industry by the end of the decade, and that the market just needs a company to deliver on its trials and reinstill the confidence of the medical community in the technology. [4] If Boston Scientific can deliver on its U.S. trials, it could be a revenue opportunity worth hundreds of millions of dollars for the company in the long run, as U.S. trials usually have a spill-over effect on sentiment in international markets as well.

There are several factors which might work in Boston Scientific’s favor. The company claims that its Vessix product is more advanced than SYMPLICITY as it uses a bipolar system, which is more precise and therefore reduces the risk of burns and deeper-tissue damage. It also claims to be much faster at attacking the problem than rivals, with a treatment time of under 30 seconds. The company will immensely benefit from studying Medtronic’s trial data as well, considering that Medtronic was the first medical device maker to undergo such rigorous trials for a renal denervation device in the U.S. Another factor which could work in Boston Scientific’s favor is reduced competition. In the last couple of months, Covidien stopped production of its OneShot renal denervation device and St. Jude Medical cancelled its U.S. trials. ((St. Jude Cancels EnligHTN IV U.S. Renal Denervation Trial Due to “Anticipated Recruitment Challenges”, Angioplasty.org, Dec 12 2013)) [5]

Although it is still too early to comment on the fate of Vessix trials in the U.S., there is a huge opportunity for Boston Scientific to leap ahead of its peers in this market. In our model, we estimate renal denervation’s potential as part of the larger Interventional Cardiology market. In the U.S., one in every three people is hypertensive, which comes to around 100 million people. Out of all the hypertension patients, roughly 10-15% can be assumed to be resistant to oral medication, in accordance with the global average. Therefore, the number of prospective patients who could benefit from renal denervation may be around 10-15 million. Considering that a regular renal denervation procedure is quite expensive, involving an upfront cost of about $12,500 and $1,000 in annual hypertension management costs, we conservatively estimate that only about 1.5-2 million people are likely to undergo this procedure in the U.S. by the end of the decade. 1.5-2 million people spending $1,000 annually would imply a market valued at about $1.5-$2 billion by 2020. Our current price estimate for Boston Scientific assumes a conservative 10% share in the market for the company in this time period. If the company delivers on its U.S. trial and expands its market share to about 25%, we could see an upside of about 4% to our price estimate. However, if the company fails to deliver and its market share declines to 5%, we could see a downside of about 1% to our price estimate.

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Notes:
  1. Medtronic’s U.S. Renal Denervation Trial Fails to Meet Efficacy Endpoint, Angioplasty.org, Jan 9 2013 []
  2. ESC Recommends Patients and Centres for Renal Denervation, Angioplasty.org, April 2013 []
  3. Medtronic Renal Denervation Program Advances in U.S., Angioplasty.org, March 7 2013 []
  4. Boston Scientific stands fast on renal denervation, MassDevice, Jan 14 2014 []
  5. Press release, Covidien, Jan 21 2014 []
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