A battle over dollars and stents
Medinol owners say Boston Scientific deal in doubt
By Ronald Rosenberg, Globe Staff, 3/7/2001
Israeli surgical stent suppliers Kobi and Judith Richter mince few words about their only customer, Boston Scientific Corp., which has been negotiating for the past year to buy their company, Medinol Ltd.
With the bargaining stalemated, the Richters were stung by Boston Scientific's announced plans last month to snap up a trio of small US stent companies to augment its internal stent development. The deals made the Richters question their Natick-based partner's sincerity in trying to buy Medinol.
In the Richters' view, last month's deals were an attempt to put pressure on Medinol to come to terms.
''Those acquisitions show how weak and desperate Boston Scientific is,'' Judith Richter, Medinol's president, said in the company's first public comments in the US press on a matter that is being closely watched in the medical industry. ''Those companies are like the buttons and lapel pin on a fine suit. And we are the finely tailored suit you need to keep warm.''
Since 1998, Boston Scientific has sold nearly $870 million worth of Medinol stents in the United States as part of its balloon catheter delivery systems, including $409 million in 1999. That year, Boston Scientific's stent sales accounted for more than 14 percent of its $2.84 billion in sales and it had 35 percent of the world stent market.
Boston Scientific has held a 22 percent stake in Medinol for the past five years, with the Richters controlling 64 percent and an Israeli partner holding the rest. Last summer, Boston Scientific moved to acquire the entire company, saying it was at a disadvantage because its competitors made their stents in-house. It has reportedly offered $1.5 billion to $2 billion for the Richters' interest.
Top officers of Boston Scientific dismissed the Richters' comments on their recent purchases of US stent manufacturers. Those stents will complement the Medinol product line and Boston Scientific had planned to acquire them anyway, they said.
''These acquisitions really don't bear on Medinol,'' said Peter Nicholas, the Boston Scientific chairman. ''Sure, we have some honest differences of opinion. ... But we would like to complete an acquisition of Medinol.''
The Richters, who frequently come to the United States on business and to visit a son in Cambridge, now say they are doubtful Boston Scientific wants to complete a deal. They put the chances at less than 50-50.
They suggest there is an internal split within Boston Scientific over how to proceed in the stent market. One faction, led by president Jim Tobin, favors a Medinol acquisition, they say, while the other wants to limit Medinol's role by cobbling together a US stent development and manufacturing group from the new acquisitions and Boston Scientific's in-house efforts. Tobin declined to comment on the matter this week.
Nicholas calls this analysis ''simplistic,'' but says he supports the group that has worked internally to develop a stent design and manufacturing capability. He said the recent acquisitions were planned a while ago, noting the company is looking to acquire technology and products in all of its medical device lines.
The Richters were in New York this week talking to their US lawyer. They would not say why, but there was clearly a sense of urgency. They arranged for a limousine to take them to Manhattan when Boston's Logan Airport was closed because of the heavy snowfall.
Medinol is Boston Scientific's sole supplier of advanced cardiovascular stents - tiny metal mesh devices used to prop open coronary arteries that have been cleared of plaque to improve blood flow to the heart. Introduced seven years ago in the treatment of heart ailments, they are now used in about 80 percent of the cardiovascular procedures.
Stents are put into clogged arteries as part of a less-invasive surgical procedure called angioplasty where a balloon-tipped tube is inserted in an artery in the upper leg and threaded to the affected area, where the balloon is inflated to remove the blockage. Once the artery is repaired, the stent provides a permanent scaffolding. Without it, the weakened blood vessel could collapse. Vice President Dick Cheney got a stent last November and may get a second one this week. (George Washington University Hospital would not identify the stent's brand.)
For people with clogged arteries, stents are a life saver. They are also one of the fastest-growing medical devices, accounting for $2.2 billion in worldwide sales last year. Annual sales are projected to climb to $3.5 billion in coming years if drug-coated stents are approved by the US Food and Drug Administration. Several companies are developing stents containing an immune-suppressing drug that can prevent formation of scar tissue - the reason Cheney may need a second stent.
For Boston Scientific, Medinol stents have been a critical part of the company's growth strategy and, until recently, its fastest-growing product segment. But buying stents from Medinol, when rivals Johnson & Johnson, Guidant Corp., and Medtronic Inc. own their stent design and manufacturing, has limited Boston Scientific's profit and growth potential, said Nicholas.
Fueling the need to buy Medinol are a series of disagreements between the Richters and Boston Scientific over the timely introduction of new stents, design features, and stent delivery system problems at Boston Scientific's Scimed division. ''We need to control our future in stents and that means owning them,'' Nicholas said.
Kobi Richter is chairman of the 150-employee company that has its headquarters in Tel Aviv and manufacturing plants in Jerusalem. He said Medinol has consistently delivered well-made innovative stents to Boston Scientific. But he said the Natick company has been late completing the delivery systems - the balloon and catheter that transports the stent to the damaged artery.
For example, he said Medinol delivered two stents, known as the NIROYAL Elite and NIR Elite, to Boston Scientific in commercial quantities in 1997, three years before they were introduced to the market. Similarly, he said, Boston Scientific was slow in launching other stents, including the advanced NIRFLEX. Richter said that stent was sent to Boston Scientific a year ago and the company has yet to complete a delivery system for it. Nicholas defended Boston Scientific's record, saying the company has produced delivery systems in a timely manner.
The delays and bitterness between Boston Scientific and Medinol has proved costly to both sides. Boston Scientific reported US stent sales have slowed dramatically in 2000 to $247 million. And several analysts say stent revenues will decline even further this year - possibly to $162 million, said Thomas J. Gunderson, senior health care research analyst at U.S. Bancorp Piper Jaffray.
''Boston Scientific has not had a really new stent in two years and they have been losing market share, so a divorce from Medinol is a real possibility,'' said Gunderson. ''And if that happens, the three stent-related acquisitions will put Boston Scientific in a better position, sort of giving them a safety net in the stent field.''
Complicating any final resolution are separate lawsuits against both companies filed by Johnson & Johnson. Last summer, a federal jury ordered Boston Scientific to pay Johnson & Johnson $324.4 million in damages for infringing on one of its stent patents. The award included $70.8 million in royalties based on past sales. Boston Scientific has yet to appeal this decision but asked the judge to set aside the jury's finding.
Ronald Rosenberg can be reached at rosenberg@globe.com.
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MDT and JNJ are leading the stent market.
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