Leading medical devices player, Boston Scientific (BSX) has completed the acquisition of Sadra Medical, a development stage company. Earlier, in November 2010, the company had announced its intention to acquire remaining stake at Sadra Medical. Based on the company’s current 14% stake in Sadra, Boston Scientific has paid $193 million to acquire the remaining 86% in addition to $193 million on achievement of certain milestones through 2016. The deal will dilute earnings by 1-2 cents for the following three years beginning 2011 and become accretive thereafter.
Sadra is developing percutaneous aortic valves replacement to treat patients with severe aortic stenosis. A series of feasibility studies of Sadra’s Lotus valve system has been carried in Europe. With the acquisition of Sadra, Boston Scientific will be able to target the highly competitive market of percutaneous aortic valve replacement. This market, currently valued at $400 million globally, is expected to grow to $2 billion by 2016.
The market for percutaneous treatment for heart valves is very competitive with the presence of players like Edwards Lifesciences (EW) and Medtronic (MDT). In November, Edwards had presented encouraging data for its Sapien transcatheter heart valve (THV) at the American Heart Association in Chicago from the trial targeted at patients for whom conventional open-heart valve surgery was considered risky. Although the Sapien portfolio of valves is approved in Europe, it is yet to receive approval in the US. Moreover, Medtronic is studying its CoreValve system for transcatheter aortic valve implantation.
Recommendation
Boston Scientific has been witnessing declining revenues from two of its largest segments – Cardiovascular and Cardiac Rhythm management (CRM). However, the company has laid down several strategies such as expanding its product portfolio, selectively reinvesting in the business and concentrating more on non-DES and non-CRM areas to reposition itself in the market. In this respect, we believe the decision to acquire Sadra Medical is a smart strategic move. The company believes that percutaneous aortic valve replacement is a fast-growing market within structural heart therapies.
For the long term, we have a ‘Neutral’ rating on Boston Scientific. The stock retains a Zacks #3 Rank (Hold) for the short term.
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