On September 28, 2012, the US Food and Drug Administration granted the Boston Scientific Corporation (BSX) regulatory approval for its first-in-class subcutaneous implantable defibrillator (S-ICD) system. This S-ICD system establishes the first new category of cardiac rhythm management devices since the introduction of cardiac resynchronization therapy. The device is manufactured by Cameron Health, Inc. (San Clemente, CA), which was acquired by BSX (Natick, MA) this June for $150m upfront, with additional payments of $150m for device approval and $1.05 billion for sales targets as they’re reached.
BSX believes it will have market exclusivity for the next several years as competitors work to get other S-ICD devices approved. While this announcement is promising, BSX’s gross margins have been consistently lower than that of its peers in recent years (including a $3.04 billion loss in Q2) and it could be some time before S-ICD use is widespread. It is not easy to turn around a struggling medical technology business, and while others such as Covidien and Johnson & Johnson have had some difficulties, nothing compares to the challenges at BSX. The company’s two most significant businesses have led the decline, with revenue in cardiac rhythm management down almost 10% and drug-eluting stent sales down about 20%. BSX will have to battle and win back accounts from competitors Medtronic and St. Jude in order to shift the ICD treatment paradigm towards widespread use of S-ICD. Additionally, BSX expects the company’s innovation will expand the market by attracting new customers who were scared away from ICDs because of worries about lead-related problems. This first-in-class approval is a step in the right direction for BSX, and the S-ICD device has potential for significant sales in coming years if BSX is able to expand to under-penetrated markets.
As with S-ICD systems, conventional ICD systems are also implanted subcutaneously, but they have an electrode lead that runs transvenously to the heart. With the S-ICD system, both the pulse generator and the electrode are implanted subcutaneously on the chest, eliminating part of the complexity and many of the complications associated with traditional implant procedures. S-ICDs are designed to provide the same protection from sudden cardiac arrest as traditional, transvenous ICDs; however, unlike transvenous ICDs, the heart and blood vessels remain untouched. The S-ICD implantation procedure is straightforward, using anatomical landmarks without the need for fluoroscopy.
Although ICDs are designed for permanent implantation, occasionally they become infected and must be extracted. This can be difficult due to strong scar tissue attachments that form between the device and the patient’s blood vessel wall. A number of techniques and technologies have been developed to aid in lead extraction, but none have proven 100% effective and they all still have many associated risks. As the recently approved S-ICD device does not require the same invasive implantation, issues concerning scar tissue attachment within the vasculature are eliminated.
This recent S-ICD approval follows clinical trials evaluating safety and efficacy of the system in 321 patients at risk for sudden cardiac arrest. The S-ICD system received CE Mark approval in 2009 and has already been implanted in more than 1,400 patients since then. Now that it is approved in the US, BSX expects to begin a phased launch of the S-ICD system that will expand over time. The main concern with the S-ICD device is that the system has only been approved for patients who do not require a pacemaker or pacing therapy, and the FDA has asked Cameron to conduct a five-year post-marketing study to further evaluate safety and efficacy. This limited indication means the product launch will be a phased one that will gain momentum once medical professionals become adept at using the device. According to the filings, BSX expects material cash flows to commence in 2016.
Each year, about 100,000 ICD devices are implanted in the US alone. The global cardiac defibrillator market is expected to reach $12.5 billion by 2017, and implantable cardiac defibrillators represent the largest portion of that market. ICDs are widely used in Europe and their use is expected to expand to the largely under-penetrated markets in India, China, and other developing economies. In response to this huge market potential in the East, BSX plans to spend $150m over the next five years to further develop its commercial presence in China. BSX estimates the market opportunity for its S-ICD device to be $1 billion, or roughly 15% of the global ICD market.