Here's Why Boston Scientific Bought C.R. Bard's Electrophysiology Business

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Boston Scientific (NYSE: BSX  ) is doubling down on its bet that the electrophysiology, or EP, market will expand worldwide. The company spent $275 million acquiring C.R. Bard's (NYSE: BCR  ) electrophysiology business to boost market share.

Why did they do it?
The EP market, which consists of devices that diagnose and treat a broad range of cardiac rhythm disorders, is currently worth about $2.5 billion and may grow a compounded 12% annually to $5.5 billion by 2019 as boomers become seniors, according to analysts.

Boston Scientific captured just $147 million of that market in 2012 and  while that's a solid piece of revenue, at 2% of sales it's just not a large enough to move the profit needle . So, the company has been on a buying spree to bolster its EP offering 

Last fall, the company bought privately held Rhythmia to nab its next generation 3-D mapping technology for treating arrhythmias. The technology won EU approval for the technology in May and FDA approval in July.

The C.R. Bard deal further strengthens Boston's position, adding $111 million in annual sales and nearly doubling the company's market share to roughly 10%. If the company can maintain that share and analysts prove correct, the business could be worth more than $550 million a year by the end of the decade.

That heft also puts it in a better position to compete against other industry players including Medtronic (NYSE: MDT  ) , which is the largest EP company by market share. In the second quarter, Medtronic's Cardiac & Vascular Group, which includes the EP business, grew 4% to $2.16 billion. Medtronic is also expanding its cardiac care business, buying Cardiocom this past summer to offer telehealth care to heart patients.

Why did C.R. Bard punt?
Bard's corporate line is that the sale of its EP business to a competitor is part of a strategic plan to free up resources, allowing Bard to concentrate on more lucrative end markets. In reality, Bard was unlikely to become the top player in the market, with sales falling 2% year-over-year in 2012.

As a result, the EP business was distracting Bard's efforts to grow its more attractive vascular line up, including peripheral PTA products, which grew 11% year-over-year in the third quarter.

So, while losing $111 million in annual revenue tied to the sale is a headwind, Bard expects it will still see sales increase 1%-3% in the fourth quarter.

This Fool's final word
The C.R. Bard deal doubles the size of Boston Scientific's current offering, eliminates a competitor and brings over intellectual property for future products. That should help the company return to sales growth, which it can leverage against cost cuts.  The company is eliminating 6% of its work force in the fourth quarter in a move that it estimates will save $150 million to $200 million a year by 2015. If the recent EP acquisitions translate into future growth and expense cuts play out as hoped,  then the company could find itself better positioned to return to consistent profitability.

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9/26/2016 4:02 PM
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