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Boston Scientific (BSX) Hurt by Product Recall, Conversion

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Zacks Equity Research
·4 min read
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On Feb 8, we issued an updated research report on Boston Scientific Corporation BSX. The company’s recent acquisitions added various products (though many are under development) with immense potential to its portfolio. However, unfavorable currency movement and product recall were major dampeners. Strong competitors in the large medical device market also pose a tough challenge to Boston Scientific. The stock carries a Zacks Rank #5 (Strong Sell).

Over the past six months, Boston Scientific has underperformed the industry it belongs to. The stock rose 2.3% compared with 5.7% rise of the industry. The company ended 2020 on a dismal note with lower-than-expected fourth-quarter and full-year earnings. Not only did earnings and revenues decline year over year in the reported quarter but the company also registered strong sequential decline in overall financial performance.

Barring MedSurg, organic revenues at each of its core business segments and geographies were down in the reported quarter but the magnitude of this decline was lower than the third-quarter results. Organic sales declined 8%, which included 370 basis points of negative impact from the sales return reserve related to the conversion to a consignment inventory model for the next-generation WATCHMAN FLX device in the United States. Excluding the impact of WATCHMAN conversion, organic sales grew in low single digits in October. However, in November, it was down in low single digits and then declined in low double digits in December, as the COVID-19 pandemic intensified in Europe and the United States.

Boston Scientific Corporation Price

Boston Scientific Corporation Price
Boston Scientific Corporation Price

Boston Scientific Corporation price | Boston Scientific Corporation Quote

Further, the mid-quarter discontinuation of LOTUS Edge created a $50 million headwind in the quarter. Boston Scientific currently expects its 2021 organic revenues to include a headwind of $62 million from 2020 LOTUS Edge sales.

Despite significant reduction in operating expenses, the top-line debacle resulted in huge margin contractions in the quarter. The first-quarter and full-year 2021 guidance also look dull.

On a positive note, although a higher mix of non-deferrable procedures within MedSurg business resulted in a decline in trends through the initial months of the pandemic within both Urology and Pelvic Health and Endoscopy, Boston Scientific has already started to register faster recovery than the rest of its business segments.

Within Urology/Pelvic Health, sales from the company’s stone franchise and SpaceOAR products showed better resilience. In the fourth quarter, Urology, Pelvic Health sales grew 1%, organically normalizing for the intrauterine health divestiture. Sequential improvement was led by the company’s stone and prostate health franchises with LithoVue, Resume and SpaceOAR.

Within endoscopy, fourth-quarter sales improved 1% with a broad-based recovery across regions and notable strength in infection prevention. The quarter’s performance reflected a comparatively favorable mix of both relatively high acuity and outpatient ASC site of service.

As a major development, CMS in 2020 granted a transitional pass-through payment for single use endoscopes, including EXALT D, which went into effect on Jul 1. The company currently targets the launch of single-use bronchoscope in the second half of 2021.

Key Picks

Some better-ranked stocks from the broader medical space are Abbott Laboratories ABT, Meridian Bioscience, Inc. VIVO and Myomo, Inc. MYO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Abbott Laboratories’ long-term earnings growth rate is estimated at 14.6%.

Meridian Bioscience’s long-term earnings growth rate is estimated at 14%.

Myomo’s long-term earnings growth rate is estimated at 22.5%.

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