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What’s Driving Boston Scientific’s Rhythm Management Segment?

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Aug. 19 2016, Updated 9:05 a.m. ET

Overview

Boston Scientific’s (BSX) Rhythm Management segment comprises its CRM (cardiac rhythm management) and electrophysiology businesses. More than 85% of the segment’s revenue is generated from its CRM business, whereas electrophysiology is the company’s high-growth business area.

BSX expects the electrophysiology market’s growth potential to be in the range of 10%–15% over the five years from 2015 to 2020. The CRM business’s growth potential, however, is expected to be around the same rates as today, but a large market size and one of the highest market shares in the CRM market is expected to continue driving BSX’s growth.

Medtronic (MDT) is Boston Scientific’s major competitor in the CRM market, whereas St. Jude Medical (STJ) and Stryker (SYK) are its major competitors in electrophysiology market. 

The iShares U.S. Healthcare ETF (IYH) is an ETF that comprises a number of US medical device companies and has ~1.1% of its total holdings in Boston Scientific.

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Operating margin improvements

The CRM segment is being driven by its wide portfolio of products. Moreover, the company’s redesign and vertical integration efforts for its key products, including its EMBLEM S-ICD and Accolade pacemakers, have led to improved gross margins, which has helped to improve the segment’s operating margins.

The electrophysiology business, however, is currently a drag on margins due to its heavy investments toward manufacturing relocations and reorganization, though the company is also focused on SG&A (selling, general, and administrative) and cost control measures.

As more products are launched and the company starts leveraging its strength and opportunities in this market, it should witness substantial segment growth.

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