MOVERS AND SHAKERS 2006
Industry analysts are mostly positive about Boston Scientific CEO James Tobin's ability to fix Guidant's problems.
The sheer size of the deal, and the battle Boston Scientific had with its rival Johnson & Johnson (J&J) for the right to buy Guidant, was more than enough to pique interest. But then add that Guidant was reeling from some of the most publicized problems in industry history, and the scrutiny became more intense.
Boston Scientific made the deal to enter the cardiac rhythm management (CRM) market, a field that is extremely lucrative and that is controlled almost entirely by only three companies: Guidant, Medtronic, and St. Jude Medical. It was so desirous of Guidant's CRM products that it agreed to give up Guidant's stent business to satisfy antitrust concerns. That sector was sold to Abbott (Abbott Park, IL) for more than $6 billion.
It's too early to conclude whether the deal was a good idea, but assessments so far are not enthusiastic. Making matters more complicated is that FDA, already displeased about malfunctions of Guidant products, issued a corporate warning letter to Boston Scientific for quality issues at its own plants.
“The Boston Scientific–Guidant deal has been disappointing for Wall Street,” says Thomas Gunderson, senior healthcare analyst for Piper Jaffray & Co. (Minneapolis). “There was an expectation that the implantable cardioverter-defibrillator market would do better than it has. The growth engine was less than originally thought by Boston Scientific and Wall Street. Boston Scientific took on a lot of debt. As it turns out, Abbott, which got the [so-called] leftovers from the deal, has done better.”
But, he adds, if any management team can turn the situation around, it's Boston Scientific's. “For the most part, integration has gone as expected,” he says. “Things are well on course after eight months or so, even though so much needed to be fixed at Guidant on the manufacturing and quality control side.”
Patrick Driscoll, president of MedMarket Diligence (Foothill Ranch, CA), agrees. “It's not a case of biting off more than they can chew; Boston Scientific is a big company,” he says. “But I doubt that anyone would say that the value it expected to get from Guidant is anywhere near the value it has received so far. It has turned out to be a bigger, uglier beast than the company would have liked.”
Although not yet available in the United States, Conor Medsystems' CoStar stent has drawn early praise.
J&J responded to the deal by making a number of deals of its own, most of which were not in the device arena. But a significant one was the pending acquisition of Conor Medsystems (Menlo Park, CA) for $1.4 billion. Conor has developed a bioabsorbable drug-eluting stent technology that could form the foundation of J&J's future efforts in that lucrative market. Industry experts seem to like the deal, especially because of enthusiasm over Conor's technology.
“I've been intrigued by the Conor technology from the very first stages of development. I think it's tremendous,” says Gunderson. “Over the long term, it should turn out to be a good marriage.”
Conor's technology is currently used on the CoStar system, which is approved in Europe but not in the United States. The CoStar is a paclitaxel-eluting cobalt chromium stent with a bioabsorbable polymer. It employs a unique reservoir technology that allows for accurate delivery of multiple drugs. (For more on Conor's technology, see “New Drug-Eluting Stent Technology Shows Encouraging Results,” MD&DI, July 2004.)
Michael Drues, PhD, president of Vascular Sciences (Grafton, MA), likes the acquisition because he believes Conor's technology is well positioned for future developments in combination products. Among device companies, he says, Conor is one that really understands the effect of implantable devices on human biology.
“I have been a fan of Conor's approach for a long time,” Drues says. “They think of the stent as a syringe.”