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Viewing the huge potential of the renal denervation market, Boston Scientific plans to acquire Vessix Vascular, which has developed the percutaneous radiofrequency balloon catheter technology for treatment of hypertension. In addition to an upfront payment of $125 million, Boston Scientific might have to pay $300 million based on certain clinical and sales-based milestones. The deal is expected to close by the end of November 2012 and would become a part of the Peripheral Interventions business of the company.  

The renal denervation franchise, a therapy for the treatment of uncontrolled hypertension, holds immense potential as more than one billion people globally suffer from hyepertension.  This segment is expected to be a multi-billion dollar market by 2020. Vessix Vascular’s V2 renal denervation system has received the CE Mark in Europe and Therapeutic Goods Administration (‘TGA’) approval in Australia. The company expects to initiate a full launch of the product in CE Mark countries in 2013.

The renal denervation market has attracted many MedTech players so far. Medtronic’s Symplicity system has received both CE Mark and Australia’s TGA listing, but is yet to receive approval in the US. The Symplicity system was inducted in the company’s portfolio with the acquisition of privately-held Ardian, in January 2011. During fiscal 2013, revenue from this business is expected to almost double to $60–$70 million.

Moreover, St Jude Medical’s EnligHTN renal denervation system received CE Mark approval as well and was launched this year in several markets. Earlier this month, the data presented at a conference demonstrated that the EnligHTN renal denervation system provided a safe, effective and sustained reduction in office and ambulatory blood pressure measurements at six months.

Recommendation

Given the several headwinds currently at play, Boston Scientific continues to focus on strategic initiatives to drive growth and profitability. These include strengthening its portfolio, targeting suitable acquisitions in areas of unmet medical needs and focus on emerging markets. The company also 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. We are impressed with Boston Scientific’s recent acquisition which reflects its focus on new therapies to drive top line.

We expect these factors to benefit the company over the long term and as such we have a ‘Neutral’ recommendation on Boston Scientific. The stock retains a Zacks #3 Rank (“Hold”) in the short term.

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