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Boston Scientific looking at deals with 'pretty active M&A appetite'

Boston Scientific Corp. plans to be active on the M&A front while ramping up its product portfolio including heart valves and catheters.

The company sees three or four potential acquisitions in the next 18 months within its venture portfolio and expects to have about $500 million from its cash flow to spend in 2018, Chairman, CEO and President Michael Mahoney said during the company's fourth-quarter earnings call.

Boston Scientific has a "pretty active M&A appetite," Mahoney said. "We have a venture portfolio that's pretty healthy, we have some preferred rights to buy a number of those companies. So, I think you'll see us be active with tuck-in acquisitions to strengthen our category leadership strategy," he added.

In the absence of strategic deals that meet its financial criteria, the Marlborough, Mass.-based company will look at share repurchases, but that is more likely in 2019 than in 2018, the CEO stated.

Boston Scientific recently acquired a minority stake in California-based medical device maker Millipede Inc., which manufactures a transcatheter mitral valve and angioplasty repair device to treat patients with severe mitral regurgitation, a disorder in which the blood leaks backward through the mitral valve into the heart.

Mahoney said the severe mitral regurgitation patient population is a large and underserved patient population that the company estimates could represent $1 billion in market opportunity by 2021.

Boston Scientific also has an investment and acquisition option agreement with Millipede. Daniel Brennan, executive vice president and CFO, said the company is likely to buy the privately held medical device maker by the end of 2018.

The company took a tax charge of $861 million due to the new U.S. tax law, in the reporting quarter, said Brennan. The estimate includes about $1 billion charge associated with the deemed repatriation of unpermitted earnings of its foreign subsidiaries, offset by a $100 million benefit related to the remeasurement of the company's deferred taxes as a result of the lower U.S. corporate tax rate.

Ramping up the product pipeline

Mahoney said the medical-device company is targeting continued momentum in 2018 with new launches such as the Wolverine cutting balloon, a device meant to dilate narrowed coronary arteries to improve imaging when a high-pressure, balloon-resistant lesion is encountered and its rotational atherectomy platform. Rotational atherectomy is a technique to remove plaque without damaging the normal arterial wall.

Boston Scientific plans to relaunch Lotus Edge heart valves in the U.S. and European markets in 2019, according to the CEO. The company recalled the Lotus range in 2017 due to reports of a faulty mechanism.

Guidance

For 2018, the company expects its adjusted research and development expenses to be in the range of 10% to 11%, while the adjusted tax rate for the year is expected to be between 13% and 14%, the CFO stated.

Mahoney noted that the Watchman and Acurate heart devices franchise are expected to deliver about $400 million in revenue in 2018.

Boston Scientific expects full-year 2018 adjusted operating margin in a range of 25.5% to 25.75%, which is consistent with its improvement goals and sets it up well to deliver on its long-term goal of a 28% adjusted operating margin in 2020, according to Brennan.

The company expects foreign exchange to result in a benefit of about $150 million to $175 million for the full year 2018, Brennan noted.