Boston Scientific Corporation
's (
BSX
) Cardiac Rhythm Management (
CRM
) should record higher sales with the US Food and Drug
Administration (FDA) approving Incepta, Energen and Punctua cardiac
resynchronization therapy defibrillators (CRT-Ds) and implantable
cardioverter defibrillators (ICDs). These devices are meant to
treat heart failure and sudden cardiac death.
Though expected, the US approval comes even earlier than the
company's original guidance of late 2011 or early 2012. CE Mark
approval for these defibrillators was received in the second
quarter of 2011. The company is confident of the ready adoption of
these devices as they come with improved therapy options, advanced
battery longevity and a DF4 universal connector system. The company
also announced an extended warranty for these devices in the US and
many international countries of up to 10 years. The latest approval
is all the more significant as declining sales of ICD's and drug
eluting stents (
DES
), contributing more than 40% of total sales, have been a major
area of concern.
During the most recent quarter, worldwide ICD sales declined 11%
year over year to $360 million (14% down at CER) with a 20% decline
in the US sales to $225 million and a 7% rise in international
sales (down 2% at CER) to $135 million. The contraction in the US
ICD market is because of several factors - pricing pressure,
physician reaction to study results published by the Journal of the
American Medical Association regarding evidence-based guidelines
for ICD implants, US Department of Justice (DOJ) investigations
into hospitals' ICD implant practices, the expansion of Medicare
recovery audits and an ongoing physician alignment to
hospitals.
Moreover, according to the company's assumptions, the US ICD
market weakened further in July and August compared to the second
quarter. Although the situation improved marginally in September
and early October, the company needs another couple of quarters to
assess if the market has indeed stabilized.
A similar scenario is observed at other major ICD players namely
St. Jude Medical
(
STJ
) and
Medtronic
(
MDT
). Recently, St. Jude Medical has received FDA approval for its
much awaited Unify Quadra CRT-D and Quartet Left Ventricular
Quadripolar Pacing Lead, shipment of which is expected to begin
shortly.
Approval of the new devices is a huge breakthrough for both
Boston Scientific and St. Jude Medical with the potential to turn
around the ailing ICD business. Earlier this year, Medtronic had
received approval for its next generation Protecta ICD, capable of
partially offsetting pricing pressure.
The approval of the new line of ICDs for Boston Scientific comes
on the heel of US approval of Promus Element Plus stent last week,
well ahead of the company's original expectation of a mid-2012
approval. Promus Element now represents $200 million in additional
annualized gross margin contribution from the US and Japan by 2012
end.
Besides, the next generation Ingenio family of pacemakers is
slated for launch in the US and EMEA in the first half of 2012,
subject to regulatory approvals. The string of recent and impending
approvals is expected to support the company's growth in 2012 fired
by new product launches.
We have a Neutral recommendation on Boston Scientific, in line
with the short-term Zacks #3 Rank (Hold).
BOSTON SCIENTIF (
BSX
): Free Stock Analysis Report
MEDTRONIC (
MDT
): Free Stock Analysis Report
ST JUDE MEDICAL (
STJ
): Free Stock Analysis Report
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