BSX article on stents and competition
At Boston Scientific, Big Hurdles
to a Rebound
By Dane Hamilton
Staff Reporter
6/13/00 3:56 PM ET
Can Boston Scientific (BSX:NYSE - news - boards) claw its
way back?
Smarting from product recalls, government investigations and
earnings shortfalls, the medical-device company is
aggressively pushing new products, including a heart stent
called the Niroyal. The company envisions the gold-plated
device ushering in a golden age in the cardiology field and a
surge in its beaten-down stock, which is nearly 50% off its
52-week high.
But first the company will need to persuade cardiologists, who
perform the stent-installing procedure known as balloon
angioplasty, that Niroyal is indeed superior. Not everyone is
convinced: The Niroyal stent, some cardiologists say, won't
cause doctors to switch en masse from established rivals
such as top stent-maker Guidant's (GDT:NYSE - news -
boards) Tristar. And with the saturated stent market
expanding at a modest 7% a year, anything short of a
technological breakthrough is unlikely to reignite Boston
Scientific's flagging stock, analysts say.
Slippery Slope
Introduced in the mid-1990s, stents were hailed as
revolutionary advances in keeping arteries open and reducing
heart attacks. But the stent market has proved slippery for
medical products makers. Initially, Johnson & Johnson dominated through its Cordis
division, only to be nearly driven out by Guidant and now-No. 2 Medtronic.
The Niroyal stent is gold-plated, which makes it easier to see
during X-ray-guided installation. While this gives it an
advantage, the product makes no claim to solve other key
problems, like restenosis, a condition in which dangerous
blood clots can form around the stent, requiring intervention in
some 15% of patients. Boston Scientific is among a number
of companies testing new stents coated with drugs that may
help with restenosis, but these products still are several years
from the market.
"The Niroyal is a small step forward, but it's not a mega-step,"
says Eric Topol, chairman of the cardiology department at the
world-renowned Cleveland Clinic, who has used the Niroyal
stent. The Tristar "probably still has an edge," says Topol.
Todd Sherman, director of intervention cardiology at the UCLA
Medical Center, agrees. "It's gotten to the point of
convergence with stents," says Sherman. "All are great and
there are very few differences between them."
And gold-plating stents may seem symbolically out of step
with efforts to control health care costs. The Cleveland Clinic's
Topol says most stents run from $1,400 to $1,600, with most
operations requiring two stents, a not-insignificant cost. He
says the stent market is essentially an oligopoly with little
competition on price, although Topol said he is working with
one company, Interventional Technologies, which is
devising a low-priced stent. Boston Scientific is pricing the
Niroyal at $1,400.
Nothing Gold Can Stay
Formerly a Wall Street darling, Boston Scientific has been
rocked in recent years by a series of missteps, which
included botched acquisitions and product recalls. Among the
worst was the withdrawal of its "Nir On Ranger with Sox"
stent-delivery system, which was yanked in 1998 after 22
reports of "procedural complications" in which at least one
patient died, prompting a government investigation that has
yet to be completed. And last year, its Rotablator device for
artery plaque reduction was recalled over safety issues. It has
since been reintroduced.
In addition, the company issued at least two profit warnings in
recent years. The latest came after Jim Tobin, former CEO of
Biogen (BGEN:Nasdaq - news - boards), was named
Boston's CEO a year ago, replacing Peter Nicolas, who
remained as chairman. Nicolas' resignation as CEO came
weeks after the company announced a sweeping cost-cutting
plan that called for 2,000 job cuts.
Still, ever since its highflying days ended, Boston Scientific
stock has been attracting fans who say it's on the mend.
"There seems to be an endless amount of hope that this thing
is going to turn around," says Brandon Fradd, founder of
Apollo Medical, a New York-based hedge fund that has no
position in Boston Scientific. But, he says, "it seems to have
a lot more flaws of a serious nature than any of the other
companies in this sector."
Paul Donovan, a Boston
Scientific spokesman,
acknowledges the company
has had its share of delays and
recalls, and says a Justice
Department investigation
hasn't been concluded over the
Nir stent recall. But he
discounts rumors that the
company is suffering from a
morale problem and heavy turnover in its sales force.
"Historically, we have had a low turnover rate and high
retention rate," Donovan says, although he adds that "in this
hot economy, everyone is experiencing some turnover."
Pump It Up
To be sure, it's possible that Boston Scientific could make
major inroads in the market, where its market share has fallen
sharply, to 19%. Niroyal is just now being rolled out, and
some cardiologists are lavish in their praise. Boston Scientific
executives confidently predict the company eventually could
grab back 50% to 60% of the market, fueled by Niroyal and
other stents.
"This is clearly a superior product," says Ted Dodge, who has
used the Niroyal stent at the Yakima Heart Center in
Washington state. "Boston Scientific has gone from having
one of the worst stents in visibility to one of the best."
"We'll be back in the No. 2 position soon," Laurence Best,
Boston Scientific's chief financial officer, told investors at a
PaineWebber growth conference last week. He said the
company is now "playing offense" after 12 months of being
pummeled by rivals Guidant and Medtronic.
But as Dodge points out, Johnson & Johnson's experience
demonstrated that "the market leader this month is not
guaranteed to be the market leader in 12 months."
thestreet.com
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It takes time getting use to J7J being in the stent market.
Jack |
