BSX Sees Prospects in Endoscopy

Earlier this week Boston Scientific Corporation ( BSX - Analyst Report ) reviewed future prospects of its endoscopy business. This business wing contributed 16% to total revenues in the most recent quarter.

This division develops and manufactures devices to treat diverse digestive diseases, including those affecting the esophagus, stomach, liver, pancreas, duodenum, and colon. With global sales exceeding $1 billion, and equal contributions from domestic and international markets, management seems optimistic about endoscopy.

According to company estimates, the targeted market for its endoscopy business is valued at approximately $2.7 billion, which is set to grow at almost double digits over the next five years to reach $4 billion. With core market recording 4% growth, Bronchial Thermoplasty (“BT”), considered to be one of the key niches of this segment, is growing at over 30%. Besides BT, the company discussed other areas/technology as well, namely cholangioscopy, endoscopic ultrasound, the WallFlex franchise of stents, among others.

Boston Scientific’s Alair BT system provides long lasting and improved asthma control for adult patients suffering from severe asthma who have not benefited from currently approved inhaled medications. Alair was inducted in the company’s portfolio with its acquisition of Asthmatx in October 2010. Asthma is one of the most common ailments in the world requiring an expensive course of treatment. The product has received approval in both US and Europe.

The targeted market in US and Europe for BT technology is estimated at $1 billion. In order to tap this potential, the company has set a few objectives that include aiming higher penetration in hospitals, a favorable reimbursement scenario and creating awareness among patients and physicians. Revenues from this technology in 2011 were albeit modest, but are touted to grow in 2012 with a target to triple year on year in 2013 to a band of $40−$50 million. If Boston Scientific is successful in converting its goals into reality, it anticipates revenues from BT technology in excess of $400 million in 2017.

We believe that Boston Scientific’s focus on portfolio expansion is imperative in the face of severe headwinds in its core segments of stents and defibrillators. In this respect, the company has also resorted to the acquisition route to revive growth. The company recently completed the acquisition of Cameron Health, which has brought in the S-ICD system, a subcutaneous implantable cardioverter defibrillator. The market for the S-ICD system is valued at approximately $750 million. Other players in the medical devices space such as Medtronic ( MDT - Analyst Report ) and St Jude Medical ( STJ - Analyst Report ) are also exploring various alternatives to revive their flagging top line.

We have a Neutral recommendation on Boston Scientific. The stock retains a Zacks #3 Rank (hold) in the short term.