STJ ST. Jude Medical, Inc.

Boston Scientific Corporation (BSX) received a major breakthrough for its Alair Bronchial Thermoplasty (“BT”) system with the Centers for Medicare and Medicaid Services ("CMS") acknowledging the benefit of the treatment.

As a result, effective January 1, 2012, Medicare will be reimbursing the Alair catheter through a "pass-through" payment when the procedure is performed in an outpatient hospital setting, in addition to reimbursing the bronchial thermoplasty procedure. This should therefore encourage private insurers to provide reimbursement for bronchial thermoplasty.

The reimbursement decision from Medicare does not surprise us since the company had previously presented positive results of the treatment procedure. Data from the Research in Severe Asthma (“RISA”) trial found that patients with severe refractory asthma, when treated with Alair BT system, experienced stability in lung function without clinical complications over a five-year period.

Long-term safety data from the RISA trial also concurred with another five-year data from the Asthma Intervention Research (“AIR”) study. The AIR trial comparing BT with the standard of care, for patients with moderate-to-severe asthma, also condoned the long-term safety profile of the BT system.

Moreover, findings from the Asthma Intervention Research 2 (“AIR2”) trial showed persistence of safety and effectiveness of BT after two years. Besides, results from AIR2 trial after one year also demonstrated positive outcome with respect to reduction in asthma attacks (by 32%), emergency room visits for respiratory symptoms (84%) and days lost from work (66%).

Alair was inducted in Boston Scientific’s portfolio with its acquisition of Asthmatx in October 2010. The Alair BT system provides long lasting and improved asthma control for adult patients suffering from severe asthma who have not benefited from current inhaled medications.

Alair has been approved in both Europe and the US and is the first device-based asthma treatment approved by the US Food and Drug Administration (FDA). Alair has been available in the UK since June 2011 and in other European countries since September 2011.

Asthma is one of the most common ailments in the world that involves a costly treatment process and afflicts more than 20 million Americans. Besides, the prevalence of asthma has grown in recent decades without any cure.  Approximately 5% of Americans suffering from asthma are diagnosed with severe persistent asthma.

Our Take

We believe that favorable decision from CMS should lead to better acceptance of Alair going ahead. The company is banking on the product to strengthen its offering of pulmonary devices and should contribute to growth and diversification of the Endoscopy business in future. The stock carries a Zacks #2 Rank (“Buy”) in the short term.

However, the current scenario is challenging for MedTech companies when the core segments of stents and defibrillators are struggling for growth due to pricing pressure and a loss of market share. Boston Scientific is not alone and its peers Medtronic (MDT) and St Jude Medical (STJ) are also witnessing similar challenges. In this scenario, the company is working on reviving its top line by expanding its product portfolio, either through pipeline development or strategic acquisitions.

Over a long-term perspective, we have a Neutral recommendation on Boston Scientific.

 
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