BSX Grows US CRM Portfolio - Analyst Blog

By Zacks Equity Research,

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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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: BSX , CRM , DES , MDT , STJ

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