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Boston Scientific (BSX) |
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WIKI ANALYSIS
Boston Scientific (NYSE: BSX) makes cardiology products such as drug-eluting stents and pacemakers, which each respectively accounting for 21% and 16% of total revenues. Drug-coated stents are used to prop up coronary arteries to help prevent heart attacks, but their effectiveness have been questioned after they were linked to a risk of blood clots, as well as competition from Abbott's stent Xience.[1]
Boston Scientific also makes Endosurgery and Neuromodulation products. The Endosurgery group includes esophageal, gastric, and duodenal intervention products; colorectal, pancreatico-biliary, and pulmonary intervention devices; and products for urinary tract intervention and bladder disease, prostate intervention, pelvic floor reconstruction and urinary incontinence, gynecology, and oncology. The Neuromodulation group comprises Precision Spinal Cord Stimulation system for the treatment of chronic pain of the lower back and legs, and HiResolution 90K Cochlear Implant system to restore hearing to the profoundly deaf. Boston Scientific Corporation markets its products through direct sales force, and a network of distributors and dealers.
Ultimately, Boston Scientific's continued success will depend heavily on how well it manages to maintain its market share in the face of increasingly tough competition and its serious quality-control issues, while continuing to invest in its strong development pipeline so that it will be able to compete in the next generation of medical devices.
Corporate Overview
Business and Financial Metrics
Second Quarter 2010 Results[2]
During the second quarter of 2010 Boston Scientific achieved sales of $1.928 billion, reporting GAAP earnings of $0.06 per share with adjusted EPS of $0.12. The company maintained its leadership position in the global drug-eluting stent (DES) market with 38 percent market share worldwide. The company also launched the third-generation TAXUS Elemen Paclitaxel-Eluting Coronary Stent System in the European Union and other CE Mark countries.
Net income for the quarter was $98 million, compared to $158 million in the second quarter of 2010.
Business Segments[3]
Cardiac Rhythm Management
The Company develops, manufactures and markets a variety of implantable devices that monitor the heart and deliver electricity to treat cardiac abnormalities, including implantable cardiac defibrillator (ICD) systems used to detect and treat abnormally fast heart rhythms (tachycardia) that could result in sudden cardiac death, including implantable cardiac resynchronization therapy defibrillator (CRT-D) systems used to treat heart failure, and implantable pacemaker systems used to manage slow or irregular heart rhythms (bradycardia), including implantable cardiac resynchronization therapy pacemaker (CRT-P) systems used to treat heart failure. A component of many of its implantable device systems is its remote LATITUDE Patient Management System, which enables physicians to monitor device performance remotely, while patients are in their homes, allowing for more frequent monitoring in order to guide treatment decisions. During 2009, the Company launched its LATITUDE Patient Management System in its Europe/Middle East/Africa (EMEA) region and certain Inter-Continental countries.
Electrophysiology
Within the Company’s Electrophysiology business, Boston Scientific offers medical devices for the diagnosis and treatment of cardiac arrhythmias. Included in its product offerings are RF generators, intracardiac ultrasound and steerable ablation catheters and diagnostic catheters. Its brands include the Blazer cardiac ablation catheter, the Chilli II cooled ablation catheter and the MAESTRO 3000 Cardiac Ablation System.
Endoscopy
The Company markets a range of products to diagnose, treat and ease a variety of digestive diseases, including those affecting the esophagus, stomach and colon. Common disease states include esophagitis, portal hypertension, peptic ulcers and esophageal cancer. It also offers the Radial Jaw 4 Single-Use Biopsy Forceps, which are designed to enable collection of large high-quality tissue specimens without the need to use large channel therapeutic endoscopes and, in 2009, began offering this product in a variety of sizes. The Company’s line of RX Biliary System devices provides greater access and control for physicians to diagnose and treat challenging conditions of the bile ducts, such as removing gallstones, opening obstructed bile ducts and obtaining biopsies in suspected tumors.
The Company also markets the Spyglass Direct Visualization System for direct imaging of the pancreatico-biliary system. The Spyglass System is the first single-operator cholangioscopy device that offers clinicians a direct visualization of the pancreatico-biliary system and includes supporting devices for tissue acquisition, stone management and lithotripsy. It also offers the WallFlex biliary stent system and WallFlex esophageal stent, and Resolution Clip Device used to treat gastrointestinal bleeding. Its product line includes pulmonary biopsy forceps, transbronchial aspiration needles, cytology brushes and tracheobronchial stents used to dilate narrowed airway passages or for tumor management.
Urology/Women’s Health
The Company sells a variety of products designed to treat patients with urinary stone disease, benign prostatic hyperplasia (BPH), stress urinary incontinence, pelvic organ prolapse and excessive uterine bleeding. It offers the Prolieve Thermodilatation System, a transurethral microwave thermotherapy system for the treatment of BPH, and distributes and markets the DuoTome SideLite holmium laser treatment system for treatment of symptoms associated with BPH. It offers a range of mid-urethral sling products, sling materials, graft materials, pelvic floor reconstruction kits, suturing devices and injectables.
Quality control
For implantable medical devices such as coronary stents and cardiac defibrillators, quality control is extremely important to the recipient patient. Boston Scientific has been plagued by quality control issues and has issued safety advisories and recalls for 56% of its total pacemakers. This resulted in sanctions from the Food and Drug Administration (FDA), including two warning letters and a moratorium on the approval of major new products.
There are two major effects to the quality control issues and FDA actions:
- The FDA moratorium could have a major detrimental impact on Boston Scientific's product development pipeline, the continued strength of which is essential to strong performance in the future.
- Patients and physicians have lost confidence in the quality and reliability of Boston's products and--especially given the scale of Guidant's recalls and safety advisories--in pacemaker and pacemaker-like devices in general. These have played a significant part in the declining market share and market penetration experienced by Boston since the news.
Competition
Competition in the advanced medical devices industry is limited by two factors:
- Competitors have similarly high costs in development and manufacturing, and thus it is difficult for a company to gain a large advantage by cutting costs.
- Competitors all have large enough capacity that meeting demand is not an issue.
Thus, the main factor that will affect the performance of Boston Scientific and its competitors is its ability to capture market share through improving the technology and performance of its devices. In this sense, Boston Scientific compares favorably to its competitors, as it has strong pipelines in both its core DES and CRM businesses, and it continues to innovate in other fields. In the CRM business, its main competitors include Medtronic (MDT) and St. Jude Medical (STJ).
Boston's heavy dependence on coronary stents leaves it vulnerable to the prospect of two new competitors, and recent studies which suggest that stents are not as useful as they were thought to be. As such, last year was especially important for Boston Scientific, as it saw the successful acquisition of Guidant, a major provider in the area of cardiovascular medical products. With this merger, Boston Scientific now has a new venue of growth that will take it away from its traditional dependence on the coronary stent market. However, Guidant has been plagued with quality issues in the past, and the ability of Boston to deal with these and its own pre-existing problems, will play a major role in the performance of the company.
However, what matters most is how well Boston's technology performs when compared with that of its competitors, specifically in clinical trials.
Boston’s products will have to compete with those of its competitors in clinical trials. A study conducted by Abbott Labs found that Abbott’s new product Xience V was more effective than Boston Scientific’s Taxus. Medtronic has also introduced a new entry into the DES market, Endeavor.
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Revenue (in billions of USD) |
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Total Revenue |
$61.10 |
$48.42 |
$38.95 |
$25.91 |
$24.20 |
$22.40 |
$19.35 |
$18.63 |
$14.77 |
$12.69 |
$8.36 |
$3.17 |
|
Gross Profit |
$43.34 |
$37.18 |
$27.04 |
$14.49 |
$18.06 |
$16.09 |
$13.13 |
$14.38 |
$12.22 |
$8.29 |
$6.02 |
$2.84 |
|
Revenue Growth from 2006 |
14.57% |
0.10% |
10.94% |
15.30% |
6.90% |
10.07% |
12.12% |
18.75% |
3.53% |
19.78% |
6.85% |
18.21% |
|
Income |
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|
Net Income |
$10.58 |
$8.14 |
$11.95 |
$3.61 |
$3.28 |
$4.62 |
$2.17 |
$2.95 |
$3.17 |
-$1.47 |
-$0.50 |
$0.64 |
|
Net Profit Margin |
17.31% |
17.05% |
16.79% |
13.92% |
13.54% |
20.61% |
14.12% |
15.85% |
21.43% |
-11.61% |
-5.92% |
20.12% |
|
Operating Income |
$13.28 |
$9.28 |
$6.78 |
$4.58 |
$3.37 |
$6.46 |
$3.53 |
$3.88 |
$3.98 |
-$1.22 |
-$0.01 |
$0.78 |
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Return on Average Equity |
25.60% |
12.06% |
14.43% |
22.66% |
18.33% |
28.09% |
19.15% |
23.96% |
17.19% |
-22.17% |
-3.26% |
10.05% |
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Other |
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Employees |
119,200 |
86,600 |
98,200 |
68,000 |
59,800 |
50,527 |
42,000 |
40,600 |
17,500 |
55,000 |
27,500 |
4,300 |
References
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