Boston Sci partners with Brainlab, as revenue outlook goes flat and legal costs weigh

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Boston Scientific President and CEO Michael Mahoney

Boston Scientific ($BSX) is looking determinedly toward the future with a new partnership with deep brain stimulation player Brainlab and positive data for its peripheral artery disease (PAD) drug-eluting stent. But the past keeps weighing upon it as litigation costs pile up from vaginal mesh lawsuits and the recent settlement with Johnson & Johnson ($JNJ) over the long-standing Guidant dispute.

In addition, the company had to reel in revenue guidance for the year, so that it expects to have only flat or decreasing revenues in 2015. It expects to have 2015 revenues of $7.225 to $7.375 billion, down from prior guidance of $7.3 billion to $7.5 billion. It also reduced its GAAP EPS estimate to $0.32 to $0.38 from $0.42 to $0.48.

And the legal costs are piling up. In February, Boston Scientific said it would pay J&J $600 million to settle a lawsuit over the acquisition of Guidant in 2005. The first $300 million installment was paid in April, with the remainder already accounted for in the $1.45 billion legal reserve that Boston Scientific had set aside as of March 31. The second $300 million payment is due on or before Oct. 1.

In addition, Boston Scientific disclosed that it has settled about 2,790 vaginal mesh cases and claims for about $119 million. Last quarter, it paid $193 million in litigation-related charges that were mostly due to bolstering its reserves for the vaginal surgical mesh lawsuits.

Investors were displeased, sending Boston Scientific shares down 2% in early trading on the April 28 earnings news.

The company tried to lighten the burden of all this bad news by also highlighting a new partnership and fresh data. Boston Scientific will sell the deep brain stimulation (DBS) products from Brainlab. Specifically, it will distribute the Brainlab DBS surgical planning software portfolio with its Vercise DBS System in undisclosed countries.

"We have a terrific Spinal Cord Stimulation business, we're very early with what we think is a disruptive deep brain stimulation portfolio that we're enrolling the IDE trial now in the U.S. and we're approved in Europe, but we don't have as much scale in the neuro industry," explained Boston Scientific President and CEO Michael Mahoney on an earnings conference call.

He added, "Brainlab has an excellent relationship with neurosurgeons. They have excellent guidance and mapping capabilities, so they would prove to be a smart distributor for us to align with to help build our commercial capabilities and broaden the depth of that portfolio."

As for the PAD data, Boston Scientific said that its Eluvia Drug-Eluting Vascular Stent System met the primary endpoint with more than 94% of lesions remaining open 9 months after implantation with a target lesion revascularization rate of 3.6%. Eluvia is the first stent built for the superficial femoral artery that uses a polymer and paclitaxel combination for sustained drug release to reduce restenosis, according to the company.

"You saw the breakthrough results in our early results of our drug-eluting stent trial in terms of patency rates, but we feel like the Bard alliance is a great complement to that," Mahoney said on the call. In February, Boston Scientific partnered with C.R. Bard ($BCR) to sell its Lutonix drug-coated balloon to treat PAD.

It's been a very busy year for Boston Scientific, which also in March received a long-pursued approval for its Watchman Left Atrial Appendage Closure Device to reduce stroke risk in atrial fibrillation patients and agreed to acquire the urology portfolio from Endo ($ENDP) for up to $1.65 billion.

Wall Street has largely approved of the company's big moves--sending its share price up by almost one-third so far this year.

- here are the Brainlab, Eluvia and earnings releases

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