Challenges In Boston Scientific’s Business

Boston Scientific‘s (NYSE:BSX) Q2 2017 earnings were solid, but they don’t hide the fact that the company’s biggest segments are facing some challenges. It is almost easy to overlook Boston Scientific’s sluggish growth in rhythm management, considering how its MedSurg business is doing. MedSurg includes endoscopy, urology and pelvic health, and neuromodulation, each of which has grown in double digits in the first half of 2017. However, rhythm management – which includes cardiac rhythm management and electrophysiology – slowed down significantly in Q2, registering just 2% growth. This segment accounts for nearly 25% of Boston Scientific’s revenue. This percentage contribution has come down in the first half of this year compared to the same period in 2016 as a result of the limited growth. Interventional cardiology has a similar story to tell as well, albeit less serious. While this isn’t alarming – after all, the segments are still growing – but amid all the hoopla surrounding the MedSurg segment, the risks shouldn’t be ignored. Below we discuss some of the challenges these segments are facing.

Our price estimate of $27 for Boston Scientific is in line with the market.

Boston Scientific’s Challenges

For an illustrative example, let’s take a look at interventional cardiology, and one of the segment’s key products, coronary stents. The market for stents is very competitive and has a number of players including Medtronic, Abbott Labs and others vying for market share. Boston Scientific’s coronary stent sales have declined due to issues surrounding the performance of some of its drug-eluting stents. Another product is the Lotus Edge valve system, which ran into trouble in 2016. The company voluntarily removed the devices from Europe due to a defect in early 2017 and hasn’t reintroduced them yet. On the other hand, the Watchman implant, which offers an alternative to warfarin medicine, is doing well.

Boston Scientific’s cardiac rhythm management sales growth has also slowed down significantly of late. The figure stood at just 1% in the second quarter. However, much of that has to do with the broader market challenges, such as the pacemaker and defibrillator markets flattening in the U.S. This segment accounts for another quarter of the company’s revenues.

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