The Race In Medical Device Industry: Who Is The Winner?
usman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
LeMaitre Vascular (NASDAQ: LMAT), a global provider of disposable and implantable vascular devices, recently made an acquisition of privately-owned Clinical Instruments. The company also made three product launches from March 2013 to June 2013. Likewise, Boston Scientific Group (NYSE: BSX) acquired the assets of C.R. Bard and launched a whole new series of devices. This article analyzes these acquisitions, product launches and the future impact of these events on the companies’ financial positions.
The global medical device industry has been highly profitable and proved to be recession-resilient. Despite the downturn in the last few years, this industry continued to earn positive profits and has experienced considerable growth over the last five years. The industry’s demand is backed by population demographics and innovative medical technology. Other factors that contribute towards high industry demand include increasing purchasing power and the government’s investment in the healthcare sector. Moreover, the increased emphasis on the employee medical allowance by the Patients Protection Coverage Act (PPCA) and the rising average age of the American population has increased the sales of the medical industry. More than 43% of US companies reported their sales to have increased by 10% in 2012. This growth is expected to continue until 2017, with a CAGR of 6.1%.
LeMaitre Vascular vs Boston Scientific Group
The players in this industry can achieve competitive advantages by focusing on a specific niche market or by means of technical innovation. LeMaitre’s mission is to be ranked as the best provider of devices to cardiovascular surgeons. The company plans to achieve its goal by sales force expansions, acquisitions, and research & development. To achieve its goal, LeMaitre Vascular is strengthening its portfolio by making relevant acquisitions and innovating new products. For instance, the company acquired the assets of Clinical Instruments International for $1.1 million, or 1.7 times its revenue, in 2012.
Clinical Instruments manufactures carotid shunts and embolectomy catheters. The acquisition will help LeMaitre Vascular grow its 2nd and 3rd ranked product lines of catheters and shunts respectively. It will also add new devices, latex-free carotid shunts and latex-free dual lumen embolectomy catheters, to the company’s portfolio. The revenues generated by Clinical Instruments range between $2.5 to 5 million.
LeMaitre’s previous record of acquisitions has also been very successful. It made 13 acquisitions in last 15 years and the acquisition growth has been higher than its organic growth. Therefore, it is expected that this acquisition will further fortify the company’s position in the industry. LeMaitre also launched three new products that strengthen its position as a one-stop-shop for peripheral vascular devices.
Boston acquired the assets of Electrophysiology division of C.R. Bard for $275 million. This acquisition fortifies Boston’s portfolio of solutions for cardiac catheter and other Electrophysiology tools. Currently, Electrophysiology has a $2.5 billion global market, growing at an annual rate of 10%. The addition of a strong commercial team and new device technologies through this acquisition will enable the company to expand this division and better serve the rapidly growing market. The annual net sales of the Electrophysiology division were approximately $111 million in 2012, before the divesture.
Boston Scientific is now able to offer a full portfolio of bradycardia and heart failure devices after it recently launched a family of pacemakers. These pacemakers monitor respiration, adjust its pace accordingly and provide insight into the patient’s overall heart failure status. These devices contain radio frequency technology which improves the efficiency of the device. This new technology automatically sends the patient’s health information to the physician.
Boston also made its first Votalio pacemaker implant in June 2013. The pacemaker features a technology which helps the physicians identify patients suffering from severe sleep apnea, a disease which if left untreated may lead to fatal diseases. Through this acquisition and the recent initiative launches, Boston now has a competitive edge over its competitors. These activities will also help the company expand its customer base and earn huge profits in the coming years.
Both companies have a lot of growth potential and will be able to grab a larger market share. The strategies adopted by LeMaitre and Boston will help them increase their foothold in the industry. LeMaitre currently has a stable financial position as its profits and per share earnings have been increasing over the years. Therefore, I am declaring LeMaitre a winner and making a buy recommendation for this stock.
Despite being the industry leader and the first mover in many of its segments, Boston Scientific has a weak financial position. The company has been incurring huge losses. Its new launches and acquisition will help the company in recovering from this dark phase but it will take some time. Hence, I would not recommend this stock for short term investors.
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