The Opportunity Cost Of Delay In Device Launch To Boston Scientific

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In the last quarter earnings call, Boston Scientific‘s (NYSE: BSX) management indicated that headwinds in the cardiac rhythm management (CRM) segment had arisen with the delay in launch of the new MRI-compatible transvenous implantable cardioverter-defibrillators (TV-ICD). The company has pushed out the launch of a device in this category to the end of 2017. In this article we try to estimate the impact of this product gap on revenue and earnings. It is worth noting that Medtronic’s Evera SureScan is the only device in MRI compatible TV-ICD category to have approval from medical regulators of most countries.

Our price estimate Boston Scientific is $25, just above where it now trades.

According to the research firm MarketsandMarkets, the size of implantable cardioverter-defibrillators (ICD) market is expected to grow from $10 billion in 2016 to about $14 billion in 2021. About 60% of patients need an MRI within suggests there is a strong market for MRI-compatible ICDs. In August 2016, the company got approval for its MRI enabled Emblem subcutaneous ICD (S-ICD). While this device would certainly help improve Boston Scientific’s top and bottom line, it cannot fill the gap of MRI enabled TV-ICD devices.

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The table below estimates the market size of MRI compatible TV-ICD:

bsx_icd1

If Boston Scientific is able to launch its MRI compatible TV-ICD by end of 2017 or early 2018, we expect it to start adding to the company’s top-line from second quarter of 2018. A 25% market share for this device translates into a cumulative revenue loss of about $400 million for the company. We are estimating loss at 25% market share instead of Boston Scientific’s present market share in ICD because the segment has limited competition. Using the above estimates we arrive at the following estimates for opportunity lost:

bsx11

 In terms of adjusted EPS opportunity lost translates into about 2% over the most recent EPS guidance. It is worth mentioning that Boston Scientific’s management adjusted EPS guidance is in the range of $1.07 to $1.11 for 2016. While in percentage terms it may look minuscule but we must take note that this is opportunity cost due to just a single device. Also, we have been conservative in estimating the market size of MRI compatible ICDs (8% of the total ICD market size). At a higher percentage, the opportunity cost will be even higher.

Note:
1) If you like or have any questions about our analysis, please write us back at content@trefis.com. We hope this communication sparks thinking, and encourages you to ask questions. The purpose of this analysis is to help you focus only on a few important things. 
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Boston Scientific 

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