We estimate that endoscopy constitutes around 20% of Boston Scientific‘s value. The company has made a number of acquisitions to strengthen its endoscopic product portfolio in recent years. So why is it doing so? The medical devices market has become incredibly competitive, and mergers and acquisitions have become a norm for companies looking to streamline their medical device portfolios. Additionally, Boston Scientific is facing strong pricing pressure from new entrants, especially in interventional cardiology. To put things in perspective, Johnson & Johnson has exited much of the cardiovascular medical device business, owing to erosion of growth opportunities amid severe competition. This has prompted Boston Scientific to look towards endoscopy as a growth driver.
Our price estimate of $27 for Boston Scientific is in line with the market.
Market Growth/Adoption Warrants Investment
The worldwide endoscopy devices market is expected to grow at nearly 6% annually, and exceed $40 billion by the end of our forecast period. There are multiple factors driving this growth including an aging population in the U.S., Europe and Japan, growing preference for minimally invasive surgery and a large number of use cases for endoscopic devices including surgical operations, internal diagnosis and anatomical observations. There has been a consistent increase in the incidence of cancer, gastrointestinal diseases, and other chronic diseases, which can be attributed to the aging population, growing incidence of obesity and lifestyle related factors. Additionally, the improvement in visualization and diagnosis technology, accompanied by higher awareness of advantages among medical professionals, is driving growth. The market is dominated by flexible endoscopes, and this is likely to continue because of the variety of conditions these endoscopes are used for. Boston Scientific has several products in this category.
Competitive Pressure In Other Areas
While the endoscopic devices market is quite competitive, Boston Scientific is facing even greater competitive pressure in some of its other key segments including interventional cardiology, pacemakers and defibrillators, which together account for nearly 50% of its valuation, according to our estimates. The company has seen its market share decline significantly in these areas and it makes sense for it to invest in the growing endoscopic device market.
The stent market is very competitive and has a number of competitors including Medtronic, Abbott Labs and others vying for market share. Additionally, Boston Scientific’s coronary stent sales, which are part of the interventional cardiology division, have declined due to issues surrounding the performance of some of its drug-eluting stents. Overall, many newer entrants have adopted aggressive pricing strategies and Boston Scientific has focused on cutting costs and differentiating its products in order to stay competitive.