John Lynch: Technology focus pays off for Boston Scientific
Sharewatch with John Lynch
Writing a column about leading-edge international businesses is a constant reminder to me about how lucky we are to have the talent-spotters of the IDA working in our interest.
Just as soon as an ambitiously successful company begins to make its mark, the IDA is in like a bullet with its persuasive missionaries. That certainly was the case with today's company, Boston Scientific, which has been operating out of Ireland for well over two decades and currently employs some 4,500 here.
Then out of the blue came President-elect Donald J Trump. If he does what he says he will do, how well entrenched in this country are companies to resist whatever blandishments? It is still a guessing game, but the stakes are very high.
Boston Scientific is a company that someone simply had to invent. It is a global medical device outfit, whose purpose in life is to produce minimally invasive medical devices. Although a relatively young company amid the leading lights of the devices fraternity, it currently employs 25,000 people, trades in more than 100 countries, with its HQ in Boston and regional HQs in France and Singapore.
From the start, the company focused on providing accessible, low-invasive and low-cost medicine and took the acquisitions route to do so. It made itself a global leader in heart medicines and, more recently, in implantable defibrillators.
Today, the company has a huge portfolio of products for many branches of medicine, but reports under three separate business units; cardiovascular, rhythm management and Med Surg.
Cardiovascular is the group's largest business, with sales of $3bn (€2.8bn) and 9pc growth last year. The business provides devices for heart disorders, artery diseases and stroke risks, and much more. It has many products, but is best known for stents. Its rhythm management business is its smallest, with sales of $2bn, the US accounting for over half. Its products include implantable defibrillators and pacemakers.
The Med Surg business develops and makes devices for digestive and pulmonary disorders. Sales last year were $2.5bn. The US is the company's most important market, accounting for half of total sales. Europe accounts for almost half of international sales.
The company has 12,000 employees outside the US, with 7,000 in manufacturing, in its six facilities, three in Ireland, two in Costa Rica and one in Puerto Rico. It has R&D facilities in Ireland, India and China and physician training centres in South Africa and China.
Sales last year were $8bn, but it is planning to grow its emerging market sales (now 10pc), by increasing its global presence in 20 identified markets. Net income has been showing red ink every year except five years ago, when it declared a modest profit.
However, in recent times, investors are warming to the company and early this year, its share reached a 10-year high at $24 per share. They currently trade at $21 - a long distance from $5 a share four years ago. The company has a heightened price/earnings multiple of 28, with a market value of $29bn.
However, the political, economic and regulatory influences continue to impact the healthcare industry, Boston Scientific included. Governments and large purchase groups are demanding competitive prices and better payment terms. In addition, the US government and certain US states have enacted laws aimed at 'transparency' between pharma and medical device companies and healthcare professionals (HCPs). This requires the companies to report payments or other benefits given to HCPs.
It is likely other countries will enact similar laws as the US. In addition, the company is encountering stiff competition from concerns like Medtronic, St Jude Medical and Johnson & Johnson. At the moment, the Boston Scientific growth prospects are good and the share is on the move, but who knows what The Donald may have in store?
Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned.