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BSX to Expand Electrophysiology Biz

BSX MDT STJ

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Boston Scientific Corporation (BSX - Analyst Report) plans to acquire Rhythmia Medical, which would strengthen its foothold in the electrophysiology ablation business. This is significant as electrophysiology representing a $2.5 billion market opportunity is growing at a double-digit clip.

Apart from an upfront payment of $90 million, an additional $175 million could be paid depending upon certain sales based milestones through 2017. The deal, expected to be completed by the end of this week, is not likely to have any material impact on its adjusted earnings for 2013 and 2014, but could be accretive thereafter.

Rhythmia Medical develops next-generation mapping and navigation solutions for use in cardiac catheter ablations and other electrophysiology procedures, including atrial fibrillation and atrial flutter. Atrial fibrillation, disrupting the ability of the heart to beat regularly and pump blood efficiently, affects approximately 15 million people worldwide. 

Rhythmia Medical has developed a mapping technology which should improve treatment options thereby benefiting the patients.  Subject to approval of the mapping system in the US and Europe, Boston Scientific plans a limited launch in 2013, followed by a full market launch in 2014.

Last month Boston Scientific decided to acquire Minnesota-based BridgePoint Medical in order to strengthen its interventional cardiology portfolio. The transaction is expected to close in the fourth quarter of 2012. On successful completion of the deal, Boston Scientific’s portfolio would include a catheter-based system developed by BridgePoint Medical to treat coronary chronic total occlusions.

We are impressed with Boston Scientific’s recent acquisitions, which reflect its focus on new therapies to drive the top line. This strategy is significant given the poor performance of its core segments of stents and defibrillators.

Moreover, against the backdrop of flattening or declining sales in the developed markets like the US and Europe, Boston Scientific is gradually strengthening its presence in the emerging markets of India and China that recorded over 40% growth on a combined basis during the reported quarter. This strategy has been adopted by its peers, namely Medtronic (MDT - Analyst Report) and St Jude Medical (STJ - Analyst Report). The company plans to invest approximately $150 million in China, one of the world’s fastest growing and largest medical devices markets, over the next 5 years to build a local manufacturing operation. This would cater to the Chinese market and help develop a training center for healthcare providers.

We have a ‘Neutral’ recommendation on Boston Scientific. The stock retains a Zacks #3 Rank (“Hold”) in the short term.

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