Boston Scientific Falls Behind
Its lagging innovation has implications for the future.
Boston Scientific (BSX) appears to be in a fast-follower position, now that it has fallen behind competitors in developing pipeline technologies, and we believe its formerly wide economic moat has narrowed. We think Boston's new role as the potential third or ancillary market entrant for technologies such as transcatheter heart valves, MRI-safe cardiac rhythm management products, and neuromodulation gives it a weaker competitive position. While we expect the firm can exist comfortably as a fast follower, this is qualitatively different from its previous role as a pioneer. We think this will translate into less power to command premiums for new technology.
Our moat ratings for the remaining cardiac device companies-- Medtronic (MDT), St. Jude (STJ), and Edwards Lifesciences (EW)--are unchanged, as the field is already highly consolidated, which should result in less supplier switching. Most cardiac markets, including pacemakers, implantable cardioverter defibrillators, and heart valves, are divvied up among just three major players. Considering that product recalls are a hazard for any cardiac device maker, providers are reluctant to put all of their eggs in one basket with a single supplier. We think this will leave the door open for all three firms.
Debbie Wang does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.