Significant Revenue Gains In Store For Boston Scientific
Summary
•Boston Scientific receives approval from the Food and Drug Administration (FDA) to market its Watchman Heart Device in the US.
•The global atrial fibrillation market is expected to grow to $16 billion by 2020 while the Watchman Heart Device is expected to bring in $500 million in additional annual revenues.
•BSX agreed to buy the American Medical Systems' urology portfolio from Endo International Plc for approximately $1.6 billion.
•The newly acquired portfolio generated $400 million in sales and an operating income of $130 million in 2014 and should assist the company's Urology and Women's Health division.
•BSX shares hover at $17.62 per share, but show strong potential over coming year as new access to the US market for Watchman devices can prove to be a game changer.
Boston Scientific (NYSE:BSX), the Marlborough, Massachusetts-based medical devices manufacturer, has at long last received approval from the Food and Drug Administration (FDA) to market its Watchman Heart Device in the US. The revelation was well received by Wall Street as the stock climbed by more than $1 per share over the past week since the news hit the markets. So the question remains on how important this approval is for the Massachusetts-based medical equipment developer?
The Watchman Heart Device is a device that is implanted on the left atrial appendage of the heart and helps prevent blood clots. Atrial fibrillation devices, such as the Watchman device, are often used as substitutes for anticoagulants by those patients who cannot use standard drugs like warfarin due to its side effects or a refusal to use them altogether. When it comes to market potential for the device, the global market is expected to continue to grow at an annual compounded rate of 13% and should reach a total size of more than $16 billion in terms of revenues. The growth is primarily going to be lead by the rising number of geriatric patients prevalent in the market. In the US alone, around 3 million patients suffer from atrial fibrillation, and the number is expected to cross the 10 million mark by 2050.
Up till now, Watchman Heart Devices were widely available across other countries besides the US since 2005, having been denied by the FDA over the years due to its efficacy and complexity when it comes to installing the device. The device lies under the Cardiac Rhythm Management (CRM) division of Boston Scientific and is expected to increase annual revenues by $500 million. Currently, CRM makes up about 26% of total sales for the company, and an additional $500 million annually (which should grow with time) will make the segment contribute about 30% of the company's total revenue. Moreover, the FDA approval will act as a small reputation boost for its market overseas where the new approval can be used as a marketing strategy to gain more traction. This approval will bring in much needed growth in the CRM division, which has remained flat over the year only experiencing a meager 1% growth over the past year.
However, it won't exactly be smooth sailing for Boston Scientific's Watchman. First of all, the FDA's approval was accompanied with a report that still said that the device lacked efficacy as compared to its pharmacological substitute, thereby insinuating that it should only be used as an alternative for those patients to whom warfarin does not suit well or those who refuse to take the drug. Moreover, there are a variety of anti-coagulants available in the market, and the device is bound to face some decent resistance despite its new approval.
In other positive news for the company, earlier this month, Boston Scientific agreed to buy the American Medical Systems' urology portfolio from Endo International Plc for approximately $1.6 billion. The purchase is expected to assist the company in strengthening its Urology and Women's Health division, which boasts an annual turnover of $535 million. The newly acquired portfolio generated $400 million in sales and an operating income of $130 million in 2014.
More recently, the company also announced the approval of its EMBLEM Subcutaneous Implantable Defibrillator (S-ICD) system by the FDA and CE (European Conformity). The device, which provides protection for patients at risk of sudden cardiac arrest, has been introduced to limited markets in Europe with a more comprehensive launch planned for the third quarter of 2015.
As far as the company stock goes, many analysts have revised their ratings of the stock since it announced its earnings on 4th February. The company had revenues of $1.89 billion for the quarter as compared to the consensus estimate of $1.91 billion, but managed to beat analysts' expectations by posting earnings per share of $0.22 for the quarter as compared to the consensus estimate of $0.21. This resulted in analysts at BMO Capital Markets and Credit Suisse revising their price target on Boston Scientific shares from $18 per share to $19 per share, giving the company a rating of "outperform".
Currently, the stock is trading at $17.62 per share, having gone up by more than 30% over the year. Given that the company now has access to the US market for its lucrative Watchman Device, we can expect an annual boost of $500 million over the next couple of years even if this number does not grow. There will be a lot riding on this device and will potentially face headwinds from alternatives such as warfarin since the device has yet to prove superiority over the drug. Along with the new acquisition of the urology portfolio from Endo International, we can expect some significant revenue gains for the company this year.
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