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Morningstar | Boston Scientific Moves Toward Interventional Oncology with BTG Purchase; No Change to our FVE

At first blush, we think Boston’s impending acquisition of U.K.-based BTG makes strategic sense, though the purchase price isn’t a bargain, from our perspective. We’re leaving our fair value unchanged, after raising some of our estimates for key growth drivers, which were largely offset by the purchase of BTG. Boston’s offer price reflects a 37% premium to where BTG shares had been trading before the announcement. We’ve incorporated more optimistic projections for Watchman, as well as greater adoption of the S-ICD by practitioners, and the impending return of the Lotus transcatheter aortic valve to the European market. While we currently give Boston a narrow economic moat rating, we think it is time to revisit the firm’s merits for a potential moat upgrade, based on the strength of its portfolio and new product pipeline.

We think one of the biggest opportunities that BTG offers is a path for Boston to establish a footprint in interventional oncology. While it’s a fairly new subspecialty that offers fast growth, we think this technology dovetails well with Boston’s expertise in interventional procedures and image-guided vascular interventions, as well as its existing relationships with liver, kidney, and pulmonary specialists, for example.

While Boston has picked up a number of smaller acquisitions at attractive prices, in our opinion, BTG is both larger and more expensive than we’ve seen during CEO Mike Mahoney’s tenure, so far. However, considering how well the smaller integrations have gone and Boston’s return to consistently producing innovative products, we anticipate the firm will be able to take BTG’s key device-based platforms and reach a wider base of global customers. BTG also has a pharmaceuticals business which doesn’t fit as neatly with Boston’s core competencies. Despite what we suspect are very attractive margins, we would be in favor of Boston selling that business and reinvesting the proceeds toward its minimally-invasive product lines.