Boston Scientific is nearing a deal with Endo International to buy its medical device unit, American Medical Systems, that was put up for sale last year. The deal is estimated to be valued at around $2 billion, according to a recent Reuters’ report. AMS makes medical devices for the treatment of pelvic disorders in men and women. The potential deal could help
Under the Urology division, Boston Scientific sells products for treating diseases such as urinary stone disease and benign prostatic hyperplasia. As part of its Women's Health product offerings, the company offers products to treat diseases such as urinary incontinence and other pelvic disorders. For the nine months ending September 30 2014, AMS sales were flat y-o-y at $360 million. Within the AMS segment, sales of Women's Health Devices witnessed an 8% decline y-o-y but Men's Health and BPH Therapy sales grew by 1% and 5%, respectively. The addition of AMS is likely to help Boston Scientific increase its presence in the Urology and Women's Health market and expand its top line. It is also likely to gain from certain revenue as well as cost synergies, but the details will only be clear if a deal is reached.
We have a price estimate of $15 for Boston Scientific, which is slightly below the current market price.
See our full analysis for Boston Scientific
Background of the Deal
Endo International acquired AMS for $2.9 billion in 2011. Three years after the acquisition and five months after paying out $830 million to settle lawsuits related to defective products, it put up AMS for sale at a discount to its acquisition price in August 2014. Endo plans to divest its AMS unit so that it can focus on its core market-leading products, which primarily include pharmaceuticals. Pharmaceuticals comprises of over 80% of the total revenue generated by Endo.
If the deal goes through, it will be the first major acquisition for Boston Scientific since it acquired stent maker Guidant in 2006. Investors must be hoping that this acquisition gives better returns than Guidant, which left Boston Scientific burdened with debt, litigation and product recalls.
Litigation Charges
Boston Scientific faces litigation on faulty urology products. In September 2014, the company had to pay out $34 million to a woman who had been injured while using the vaginal mesh. Shortly after, in November 2014, the company lost a federal trial where it had to pay $26.7 million in compensatory damages to four women for a faulty vaginal mesh implant product. In this case, the company's Pinnacle pelvic floor replacement kit was defective and the doctors and patients were uninformed about the risks associated with the device. The company currently faces charges from around 20,000 women who claim to have been injured by the defective vaginal mesh products. The company’s total litigation charges for 2014 were $1.03 billion.
AMS has also been involved in lawsuits related to faulty vaginal mesh implants. Last year it paid out $830 million to settle lawsuits related to its defective products. It will be interesting to see how both companies plan to manage their excessive litigation expenses related to such products and whether their association can help improve the quality of these products going forward. We will keep a tab on these developments.
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