BSX to Acquire Cameron Health - Analyst Blog
March 09 2012 - 10:00AM
Zacks
In an attempt to strengthen its
Cardiac Rhythm Management (“CRM”) business, Boston
Scientific Corporation (BSX) is on its way to acquire
privately held, California based Cameron Health for an upfront
payment of $150 million. This deal will provide the company with a
novel defibrillator, the S-ICD system, the world’s first and only
commercially available subcutaneous implantable cardioverter
defibrillator (“ICD”).
The S-ICD system scores over
traditional ICDs with respect to placement as the former can be
placed beneath the skin and leaves the heart and blood vessels
untouched. The traditional ICDs, on the other hand, require thin,
insulated wires (leads) to pass through the venous system and into
the heart. According to Kenneth A. Ellenbogen, Professor of
Medicine and Director of the Electrophysiology Laboratory at the
Medical College of Virginia, the S-ICD system should become
first-line therapy for patients who may benefit from not having a
lead in the heart.
The S-ICD system received CE Mark
approval in 2009 although the device has yet to be approved in the
US. With an expedited review status, Cameron Health submitted its
PMA application to the US Food and Drug Administration (FDA) in
December 2011. Boston Scientific anticipates FDA approval for the
S-ICD System in the first half of 2013.
Besides upfront payment, another
potential $150 million would be paid to Cameron Health upon FDA
approval of the S-ICD System. Over the 6-year period, following FDA
approval of the device, an additional $1.050 billion of potential
payments would be made contingent upon achievement of certain
revenue-based milestones.
Boston Scientific will fund these
payments through the cash flow of its business. The company’s
cash flow balance has been quite buoyant and adjusted free cash
flow for the latest fiscal came in at $1.27 billion. The
transaction, likely to be completed in the second or third quarter
of the current fiscal, would dilute 2012 bottom line (on an
adjusted basis) by a penny and almost break-even in 2013.
Recommendation
The challenges at Boston
Scientific’s core segments consisting of stents and defibrillators
do not show any sign of near-term abatement. The company continues
to experience pricing pressure in the US and Europe. Additional
challenges are softness in procedural volume due to economic
uncertainties and competitive product launches. This scenario has
affected other players in the MedTech sector as well, such as
Medtronic (MDT) and St Jude
Medical (STJ).
Despite the various headwinds
currently at play, product launches made in the recent past should
provide some cushion to its top line. Several other products are
slated for launch over the year, which should benefit the top
line.
We have a Neutral recommendation
for Boston Scientific. The stock retains a Zacks #3 Rank (“Hold”)
in the short term.
BOSTON SCIENTIF (BSX): Free Stock Analysis Report
MEDTRONIC (MDT): Free Stock Analysis Report
ST JUDE MEDICAL (STJ): Free Stock Analysis Report
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