Company Overview: Boston Scientific Corporation is a developer, manufacturer and marketer of medical devices that are used in a range of interventional medical specialties. The Company offers its products by seven businesses: Interventional Cardiology, Cardiac Rhythm Management, Endoscopy, Peripheral Interventions, Urology and Pelvic Health, Neuromodulation, and Electrophysiology. It operates in three segments: Cardiovascular, Rhythm Management and MedSurg. Its Cardiovascular segment consists of Interventional Cardiology and Peripheral Interventions businesses. Rhythm Management consists of Cardiac Rhythm Management and Electrophysiology businesses. MedSurg consists of Endoscopy, Urology and Pelvic Health, and Neuromodulation businesses. Its Interventional Cardiology product offerings include balloon catheters, rotational atherectomy systems, guide wires, guide catheters and embolic protection devices and diagnostic catheters used in percutaneous transluminal coronary angioplasty (PTCA) procedures.


BSX Details
 
Boston Scientific Corporation (NYSE: BSX) has reinforced its position in the Medical Device Industry with positive preliminary 4Q17 results, which along with 2018 targets demonstrate the fundamental strength in group’s ability to sustain revenue growth. The lower tax rate reform is also expected to give a kick to the long-term performance profile.

Positive fourth quarter performance: Boston had reported encouraging preliminary unaudited financial information for fourth quarter of 2017 and for fiscal year of 2017. The group delivered sales of over $2.41 billion during the fourth quarter ended December 31, 2017, which is a rise of over 9.9% on a reported basis, over 8.1% on an operational basis (excluding the impact of changes in foreign currency exchange rates) and around 6.8% on an organic basis, against the prior corresponding year period. This Organic revenue growth does not comprise foreign currency exchange rates impact and sales from EndoChoice Holdings and Symetis acquisitions with no prior year comparable sales. For the fiscal year ended of December 31, 2017, BSX generated sales of over $9.05 billion, which is a rise of over 7.9% on reported basis, over 7.8% on an operational basis and around 6.6% on an organic basis, against the prior year period.
 

FY17 Segment performance (Source: Company reports)
 
Potential opportunity: The group is diversifying the portfolio while entering new high-growth markets anticipated to total over $15 billion in 2021E. The group intends to enhance the revenue mix in high (>7%) and moderate (4-6%) growth markets to 75% by 2020. Accordingly, for the High Growth Mkt (which is >7% CAGR), the group intends to target the zone via its TAVR, LAAC, EP, SCS, DBS, PI Drug-Eluting, Venous, HF Diagnostics. For Moderate Growth Mkt (which is 4 – 6% CAGR), the group intends to target via its Endo, Complex PCI, Oncology, Urology, Women’s Health. For the Low Growth market (which is just 0 – 3% CAGR), they are targeting via Pacer, Defibrillators, DES. In 2018, for Coronary Therapies, the group is planning 5 launches in Complex PCI. For Structural Heart, they have ACURATE – OUS Expansion and ACURATE neo AS for EU. For CRM/EP, they are planning to Resonate with HeartLogic HF Alert while targeting Rhythmia HDx w/ LUMIPOINT ™ as well as DirectSense Rx Catheter in EU/U.S. For Urology/Pelvic Health segment, the group has 4 launches in Stone.  Neuromodulation segment expects WaveWriter SCS System and Vercise DBS system for U.S. For 2019, Coronary Therapies segment expects Synergy DES line extensions and multiple launches in Complex PCI. Pipeline for Structural Heart has WATCHMAN FLX in EU, WATCHMAN in Japan, ACURATE for International expansion and LOTUS for U.S. & EU. In 2020E / 2021E, Peripheral Interventions expect Ranger SFA DCB – U.S. and Drug eluting stent – Critical Limb Ischemia. The Urology/Pelvic Health has several launches in Stone, launches in Men’s Health and Next Gen Greenlight fiber for BPH NMD.
 

Pipeline opportunity (Source: Company reports)
 
Expanding business via acquisitions: The group has been expanding their business via acquisitions, as well as investing strategically in companies which would strengthen their existing portfolio to maintain their leadership position. The group recently acquired certain manufacturing assets and biological tissue capabilities of Neovasc, Inc. which offers them with new tools that would be used to manufacture the Lotus™ Valve System and future heart valve technologies. The Symetis SA acquisition would expand their structural heart portfolio, adding a distinctly different but complementary TAVR platform for treating patients with valvular heart disease. The addition of EndoChoice Holdings to their Endoscopy business expands the group’s offerings of gastrointestinal (GI) services and solutions for physicians in group practice settings, as well as hospitals and ambulatory surgery centers. The group is also nurturing an active venture capital fund, investing smaller amounts in over 30 early stage opportunities.
 

Expanding target market (Source: Company reports)
 
Positive results from WHISPER Spinal Cord Stimulation Study: The group reported positive results from the WHISPER randomized controlled trial (RCT). Patients who were given the choice to use both sub-perception and paresthesia-based spinal cord stimulation (SCS) therapy were delivering better outcomes in comparison to patients who have only one SCS therapeutic option. SCS works by sending low electrical pulses, which vary in frequency, pulse width and amplitude, to the spinal cord to interrupt pain signals and provide pain relief. Participants were implanted with an SCS system for an average of four years at the start of the study and were treated with both paresthesia and sub-perception therapy. The WHISPER RCT evaluated both patients who had successfully controlled their pain using SCS and those who would benefit from further options and optimization of their therapy. This study offers data on people who have suffered from chronic pain for years and pose some of the major challenges in the long-term use of SCS. The results show that giving patients the choice to use sub-perception or paresthesia-based therapy offers better patient outcomes and affirms that SCS is a clinically valuable treatment option.
 
USFDA approval for Spectra WaveWriter™ Spinal Cord Stimulator System: U.S. Food and Drug Administration (FDA) has approved the Spectra WaveWriter™ Spinal Cord Stimulator (SCS) System, and this is indicative of the first and only system approved by the FDA to offer paresthesia-based and sub-perception therapy. The system would enable physicians and patients to combine therapeutic options, customize therapy and capture real-time feedback designed to treat chronic and debilitating pain successfully. This is a huge target opportunity for the group as >100 million Americans suffer from chronic pain and it is the number one cause of disability in adults in the U.S. SCS is a non-opioid alternative for treating chronic pain which could have solid potential while prescriptions for opioids have quadrupled since 1999.
 
Targeting Diverse Portfolios: The group has more than 15 ongoing clinical research studies and randomised controlled trials (RCTs) to help prove personalized therapy is the future of pain relief. For PROCO4, Double-blind crossover RCT would evaluate the role of frequency on SCS patient outcomes.  WHISPER5 products Crossover RCT would evaluate the safety and effectiveness at sub-perception amplitudes. ACCELERATE6 Crossover RCT would evaluate the safety and effectiveness at high-rate SCS. VERITAS7 is a Prospective, multicenter study to evaluate the effectiveness of multiple modalities with Spectra WaveWriter. The group also expects more than 18 clinical research studies in the Brain Modulation segment to drive this to be a meaningful contributor. INTREPID is the First & only prospective, double-blind, sham-controlled, multi-center RCT; evaluating Vercise™ DBS system for U.S. entry. DBS Directional is evaluating therapeutic advantages of Cartesia™ Directional Lead with Vercise™ PC DBS System. DBS Registry made comprehensive registry of real world outcomes to establish improvement in quality of life.
 

Boosting free cash flow (Source: Company reports)
 
Aiming for a solid Cash Flow: The group is aiming for a solid Free Cash Flow in the coming years. They expect a Cumulative Free Cash Flow to improve to over $6.3 billion (cumulative) by 2018E-2020E as compared to over $4.8 billion in 2015-2017 forecasts. They expect their Free Cash Flow to reach over $2.3 billion by 2020 as compared to $1.6 billion in 2016.
 

Sustainable Outlook (Source: Company reports)
 
Investment Opportunity: The group is targeting high-growth markets (including SCS and DBS). They made a positive start to 2018 with major new FDA product approvals – Spectra WaveWriter™ SCS System, WHISPER RCT sub-perception labeling and Vercise™ DBS System. For their Pain segment, they are Defining the future of SCS through personalized therapy. Their pain portfolio comprises neural targeting algorithms & waveforms, MRI, primary cell, 32 contacts and RF. They continue to make a rigorous clinical and pre-clinical research for LUMINA, PROCO, WHISPER, ACCELERATE. The group intends to expand their Pain portfolio in international markets as well. Their Brain segment is well positioned for share gains with the most innovative platforms and U.S. market entry. The portfolio includes INTREPID, VANTAGE, and CUSTOM data. The convergence of technology and clinical insights unlocked the new treatments for neurological disorders (stroke rehabilitation, Alzheimer’s disease, depression and others. All this has boosted the shares of BSX in this year to date with a 14% rise in last one year as at January 17, 2018, and we believe the bullish momentum will continue given the efforts towards product pipeline, target of free cash flow generation, target of over 30% adjusted operating margin expansion beyond 2020 and improving return on equity over the years. We put a “Buy” on the stock at the current price of $27.25


BSX Daily Chart (Source: Thomson Reuters)

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