Leading its way through the growing market of Urology, Boston Scientific Corporation (BSX - Free Report) has recently entered into an agreement to buy Minnesota-based NxThera for a deal value of up to $406 million. Privately-held NxThera is the developer and marketer of the Rezum system in the United States and Europe. The transaction is expected to complete in the second quarter of 2018, subject to customary closing conditions.
Financial Terms of the Deal
The transaction consists of an upfront payment of $306 million in cash and up to an additional $100 million in potential commercial milestone payments over the next four years. Notably, the company has an existing minority investment in NxThera, expected to result in a net upfront payment of approximately $240 million upon closing and milestone fees of nearly $85 million.
NxThera, Rezum and BPH: A Strategic Deal for BSX?
For patients with symptoms arising from benign prostatic hyperplasia (BPH), the Rezum system of NxThera comes as a minimally invasive therapy option. BPH or non-cancerous prostate gland enlargement is quite common among aged males, creating an attractive market. While the disease affects 110 million men worldwide, more than 12 million symptomatic men alone in the United States are undergoing treatment for the condition with medications or procedural approaches. Notably, BPH may cause symptoms affecting a patient's qualify of life such as pain and a frequent need to urinate.
Among the many positives about the Rezum system of NxThera, we are impressed by its hassle-free procedure, which can be performed at a physician's clinic without general anesthesia, thereby reducing the cost of a BPH therapy to the core. Moreover, the treatment applies water vapor to remove excess prostate tissue, alleviating obstructions to urine flow. This further helps mitigating BPH-related symptoms and also prevents unwanted side effects that come along with the intake of maintenance medications to control BPH.
Boston Scientific mentioned about two favorable clinical studies related to the Rezum system. Management stated that “A study published in the March issue of the Journal of Urology demonstrated that over a three-year period, patients treated with the Rezum system had clinical progression rates that were five times lower than the reported rates of patients treated with daily, long-term medications. Additional clinical data from a randomized controlled trial demonstrated that patients treated with the Rezum system had a 51% reduction in their symptoms at 24 months post-treatment and maintained a 50 percent reduction in BPH symptoms at three years’ post-treatment.”
Projected Synergies From the Deal
Post the deal’s closure, the buyout of NxThera is expected to remain immaterial to Boston Scientific’s adjusted earnings per share (EPS) through 2020 and be only accretive afterwards. The consolidation is likely to be dilutive or less beneficial on a reported basis due to amortization and transaction and integration costs.
We reckon that the Boston Scientific’s Urology Pelvic Health arm is one of its highest operating margin businesses. Per the company, acquisition of the AMS urology portfolio has burgeoned its urology business size to almost double at a value of $1 billion.
Significantly, urology represents a $4-billion attractive global market potential with large unmet patient needs and considerable international expansion opportunities. We believe, this NxThera buyout post completion, will enable the company to capitalize on this opportunity.
Share Price Performance
Boston Scientific has been gaining investor confidence on consistently positive results. Last month, shares of the company have outperformed its broader industry. The stock has rallied 1.7% compared with the industry’s 1.5% gain.
Zacks Rank & Key Picks
Boston Scientific carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader medical sector are Bio-Rad Laboratories (BIO - Free Report) , athenahealth, Inc. and Varian Medical Systems, Inc. (VAR - Free Report) .
Bio-Rad Laboratories sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.The company has a long-term expected earnings growth rate of 20%.
athenahealth is a Zacks #1 Ranked player. The company has a long-term expected earnings growth rate of 21.5%.
Varian Medical has a long-term expected earnings growth rate of 8%. The stock carries a Zacks Rank #2 (Buy).
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