Medical device maker Boston Scientific Corp. is poised for a sizeable revenue gain if competitor St. Jude Medical withdraws its Durata heart wire from the market, according to Citi analyst Matthew Dodds.
In a Monday research note, Dodds raised his rating on shares of Natick, Mass.-based Boston Scientific to "Buy" from "Neutral." He said that there is a very high risk that Durata wires will be removed from the market by the middle of next year.
Earlier this month, the Food and Drug Administration released a report criticizing St. Jude's testing of its Durata wires, which are used to connect heart-pacing implantable defibrillators to the heart.
Defibrillators are lifesaving devices implanted in the chest to correct dangerous heart rhythms. They monitor the heart for irregular beats and occasionally trigger electrical shocks that correct the problem.
In the past year, St. Jude Medical Inc., which is based in St. Paul, Minn., has been dealing with concerns about the reliability of its defibrillator wires. St. Jude has stopped selling Riata and Riata ST wires and took the products off the market last November. The company said that if the insulation on the wire is eroded, there is a greater chance the device could malfunction and either deliver a shock when none is needed, or fail to shock the patient's heart when it is not beating properly.
Durata is a newer wire with a different type of insulation that St. Jude says is more resistant to abrasion. The FDA has ordered St. Jude to collect more data on Riata as well as Durata.
If St. Jude pulls Durata from the market, Boston Scientific should benefit more than competitor Medtronic Inc., Dodds said. He noted that Medtronic already holds a 42.5 percent share of the global market for implantable cardioverter defibrillators, and customers will likely shift more to Boston Scientific to avoid relying too much on one medical device maker.
Dodds estimates that Boston Scientific could grab as much as 41 percent, or $338 million, of St. Jude's lost sales if it pulls Durata from the market, and he thinks the price of Boston Scientific shares does not reflect this potential benefit.
Boston Scientific posted total revenue of $7.62 billion in 2011.
The stock closed at $5.59 on Friday, up 4.7 percent this year. Shares added 11 cents, or 2 percent, to $5.70 in premarket trading Monday.