Fifteen months ago, Cordis Corp. shocked the medical device world by pulling out of the coronary stent game, a business it helped pioneer. I wonder if its possible Boston Scientific (NYSE:BSX) could someday follow their lead.
At the time of Cordis’ exit, several industry experts and senior brass at BSX predicted that the Natick, Mass.-based medical device maker would see a boon from the Johnson & Johnson (NYSE:JNJ) subsidiary’s decision.
Millenium Research Group said Boston Scientific could gobble up some ⅔ of the nearly $400 million in annual U.S. stent sales left on the table by Cordis Corp. Former BSX CEO Ray Elliott called the rival company’s exit a "rare gift."
"If you look at the size of the markets, the Cordis portion is probably about $400 million or so," Elliott told investors in June 2011. "However, the part people are missing is that there’s another $400 million market in guides, bare metal, diagnostics and so on. It’s tougher to get at but it’s there. It’s a rare gift. You don’t get opportunities like that very often, so we’re doing what we need to do to get that business."
But the gift doesn’t appear to have materialized in the company’s financials.
Boston Scientific said Thursday that sales of its domestic coronary stent systems (both drug-eluting and bare metal) were off 35% in the 3rd quarter, with international sales off 14% and total global sales off 24%.
Company officials tempered the news of the dropoff, saying it was primarily due to a strong comparison to the prior year’s quarter, when the Ion stent was launched during Q2 2011.
However, for the first 9 months of 2012, domestic sales for stents were down some 25%; international sales were down 10%. Global sales of BSX stents systems were down 17% over the first 9 months, to $1.03 billion.
By way of comparison, BSX’s global CRM business, facing strong headwinds from a global slowdown, was down 10% over the same period.
When Cordis exited the market in 2011, MRG analyst Karene Dumoulin cited erosion of its market share over several years as primary reasons for the decision to abandon coronary stents and its flagship Cypher device.
“Between 2009 and 2010, Cypher’s contribution to Cordis’ worldwide revenues dropped from 34% to 24%, and would likely have fallen below 20% in 2012. New stents are expected in all geographies in the next year," Dumoulin said.
BSX hasn’t seen its share erode to the same degree that Cordis did, but officials acknowledge that BSX has lost market share to Medtronic (NYSE:MDT) and its Resolute drug-eluting stent in recent quarters. BSX CFO Jeffrey Capello said the company closed Q2 2011 with a DES market share of 51%; a year later that share had shrunk to 39%. In Q3 2012 that share eroded even further to the "mid-30’s," according to company officials.
The coronary stent unit’s share of Boston Scientific’s own revenues has also been shrinking. In 2009, stents made up 23% of BSX’s total sales; in both 2010 and 2011, 21%. This year the company is on track to derive about 19% of sales from stents.
But a downward trend doesn’t necessarily correlate to the divestiture of a nearly $1.7 billion product line.
First of all, Boston Scientific remains confident that its stent business will rebound. Officials say they’ve converted all of their Promus share to the new Element platform and are touting its next-generation Synergy DES (expected to win CE Mark approval in the European Union by the end of the year) as a potential game-changer. Outgoing CEO Hank Kucheman also remains confident that the competition has taken it’s best shot already, telling investors he expects "to be in a position to drive our share position higher going forward."
But selling the stents business could make sense if Boston Scientific wants to make a big splash heading into the Mike Mahoney era, due to start next month, especially since a clean break from the business is more feasible now that the company’s private-label deal with Abbott (NYSE:ABT) for its Abbott’s Xience V device has expired in the U.S.
The sale would enable BSX to further reduce costs and boost its cash position for more acquisitions. That cash would also bolster the business units that are growing – endoscopy, peripheral interventions and neuromodulation. And it would help fund a bigger splash for BSX’s Lotus transcatheter aortic valve implant, acquired with the $450 million buyout of Sadra Medical in 2010.
A bold move would also shake up the perception of Boston Scientific on Wall Street, where shares have been mired below $6 apiece for months. Boston Scientific’s market cap is $7.8 billion, a startlingly low figure for a company that posted $7.6 billion in sales last year.
And even after calving its coronary stents business, Boston Scientific would still be 1 of the largest medical device companies, with more than $5 billion in annual sales.
We’ll explore who might buy the division (and for how much) in another column.