The Health Care Opportunity to Jolt Your Portfolio

Medical device maker Boston Scientific (NYSE: BSX  ) has rewarded shareholders this year with its stock gaining more than 8%, but it's no secret that this company faces challenges ahead. Between declining margins in both international and domestic business, to ongoing struggles in interventional cardiology and cardiac rhythm management, or CRM, division sales, Boston Scientific has a lot of work to do to sustain its stock's rise.

Don't expect this company to sit idly by while rivals pass it up, however. Quite the opposite: Whereas St. Jude Medical (NYSE: STJ  ) has faced a crisis over its Durata line of defibrillator leads, Boston Scientific has seen an opportunity to capitalize on a rival's tumble. With a new trial under way for its next-generation lead, this company has the chance to steal away sales from a competitor while shoring up some of investors' biggest question marks.

Capitalizing on St. Jude's snafu
St. Jude's problems arose over the material used to coat its Durata leads, a material called Optim. While the company has vigorously defended the new lead after the safety-concerned recall of an earlier lead called Riata, a recent FDA Form 438 report roused concerns over the manufacturing of Durata. While St. Jude has said it will address issues brought up by regulators, the entire incident has generated concern over the safety and future of St. Jude's latest lead -- and opened up a big door for Boston Scientific and fellow lead makers.

This week, Boston Scientific launched a safety- and efficacy-minded trial of its Ingevity pacemaker lead -- a trial that could in the future support FDA and CE Mark approval. Ingevity is safe to use with MRIs, and the company claims numerous advantages over leads already on the market. The leads are designed to work with Boston Scientific's Ingenio pacemakers, which received  FDA approval earlier this year.

While Boston Scientific could use all the good news it can get out of the cardiac rhythm management industry, the timing of Ingevity's trial couldn't be any better. With St. Jude busy defending Durata from growing investor and industry observer concerns, Boston Scientific has the chance to advance its products and steal market share in an industry it's struggled with lately.

Winning in a declining CRM market
Citi Investment Research analyst Matthew Dodds has already expressed concerns over the Durata potentially being pulled from the market as a big blow to St. Jude. However, Boston Scientific could win big: According to Dodds, the company is poised to pull in up to $388 million of St. Jude's lead sales should that come to pass.

That's critically important for Boston Scientific, given where the company's CRM sales have fallen to. The medical device maker's sales in the industry have fallen behind St. Jude's and larger rival Medtronic's (NYSE: MDT  ) sales, and declined 6% year-over-year  in the third quarter using common currency. The company's fourth-quarter guidance isn't much better, projecting further year-over-year sales declines. However, Medtronic  and St. Jude  have also seen CRM sales fall as the industry struggles with lower pricing and pressures  on hospital budgets.

Although Ingevity probably won't come to market any time soon, it's important that Boston Scientific makes progress in one of its two largest-selling divisions. New Boston Scientific CEO Michael Mahoney has stressed the importance of expanding non-core business segments  outside interventional cardiology and CRM, but growing those divisions will take time. Outside of its core businesses, the company's next top-selling division, endoscopy, recorded only $310 million in sales in the third quarter -- well behind cardiology and CRM.

The $388 million figure cited by Dodds could go a long way to helping Boston Scientific buy time for its other branches to catch up. The company's already working on bioabsorbable stents for its interventional cardiology unit, and it acquired Vessix Vascular to boost its fortunes. Managing even limited growth from its CRM division would be much better than continuing this year's declining revenues.

Knocking rival St. Jude down a few notches while taking those sales certainly wouldn't hurt, either.

One more key to the future
Ultimately, Boston Scientific won't be able to rely solely on CRM sales for its future given the industry's recent sluggishness. However, if the Ingevity trial does pay off for the company and manages to capture some of St. Jude's sales, Boston Scientific will be looking at a much easier road to recapturing the revenue growth that Mahoney seeks. The trial is a start, but keep an eye on Ingevity's future: Its success or failure to capitalize on this opportunity will weigh heavily on Boston Scientific's fate in the CRM market.

Boston Scientific's stock has had a decent year, but developments in leadership and sales growth will decide this company's future. Health care stocks like this can make you a lot of money quickly, but the smartest investors know to invest for the long term. In our free report "3 Stocks That Will Help You Retire Rich," we name stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.


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