Boston TAVI Party — BSX’s Shot in the Dark Heard Around the World

There is nothing like the spectre of an unforeseen event suddenly looming over your highly concentrated investment to chill the blood. I confess for a few moments this news stopped me cold and had me asking myself “What have I missed here?” like I was some miscalculating British general at Concord in 1775. In that second it was my own ticker skipping a beat.

Boston Scientific it seems — which by all rights should still be licking its wounds from its multi-hundred million dollar failed Acurate gamble — is back on the punt. This time it has staked some $1.5 billion USD on MiRus LLC. Thankfully, I reckon they have backed the wrong pony again.

[Link to news article]

I should just give up guessing whether the market will agree with me in the short-term. The market might in fact put itself though a prolonged bout of the Anteris cold sweats the likes of which I had briefly this morning. Fair enough too, because if my understanding is correct it’s a little bit counterintuitive.

Assuming I’m not just a highly incentivised Pollyanna Anteris optimist here (a big ‘if’ perhaps), then this is my take. Boston Scientific and Anteris might have taken to the same field on this occasion — but they are running completely different races. The one thing they have in common but is they are both chasing some of the $10 billion USD TAM of TAVR. BSX doesn’t really care how it gets it. It just needs its own product that it can get FDA approved — it will happily be an also-ran, it doesn’t care if it’s not the best.

Anteris is trying to prove it’s superiority with a next generation heart valve (think what the electric toothbrush is to the normal toothbrush).

BSX will be more than happy with the most minor of differentiated of products (think what the first rubber tongue scrapers in the back of the toothbrush is to the normal toothbrush). They need anything they can lawfully sell in the US, and then marketing can worry about the rest.

Long-term I think the upshot of this news is that Boston Scientific has just massively upped the ante on TAVR M&A for the next couple of years. On this deal they have paid $1.5 billion USD for 34%. On that valuation it takes a full $4.4 billion USD to get the whole thing — or about $6.5 billion AUD.

Anteris — arguably further ahead of the development curve than MiRus (which btw is running its own, but less ambitious than Anteris, Pivotal trial atm) — has a market cap of about $1 billion AUD. You might notice a sixfold increase in that would be in the Fenway ballpark of my Strawman valuation for Anteris.

For all we know Boston Scientific’s might have been one of Wayne Paterson’s low-ball offers that left the door open for Medtronic’s later 20% stake in Anteris. If that is the case then they have certainly paid for their mistake, and will pay further yet. But even better, I think they’ve inadvertently made sure that Medtronic — or whoever else is interested — is going to have to pay also. Couple of billion USD is now table stakes.

It may not be all rainbows ahead. I’ll concede that too much competition will eventually start to eat into the fat TAVR margins that reside in the $30,000 price tag of a spanking new aortic valve. However, that’s a problem for a distant future and this industry is far from being commoditised. Even if that does happen, I don’t think it will be DurAVR adopting the Jetstar business model — we’ll leave that to the others. We’ll be more like the Qantas Lounge, but like it was say 10 years ago, when it was still special.