ALAN, another inside sale on ALAN. Weird timing, although Anderson may be selling all 75,000 shares from warrant exersise:
secform4.com
This would explain why the stock has been under pressure.
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On another topic:
Guidant's problems are good for competitors, as you pointed out.
Wednesday, June 29, 2005
Rivals Celebrate Guidant's Heartache
By JOHANNA BENNETT
GUIDANT'S RECENT MISFORTUNES may be just what the doctor ordered for St. Jude Medical and Medtronic.
Guidant's share price suffered a jolt this month when the medical device maker (which Johnson & Johnson is buying) recalled 50,000 implantable cardioverter defibrillators (ICDs)–pager-sized devices that shock irregular heartbeats–and warned doctors against using some others.
Now down 10% from its 52-week high two weeks ago, the shares also are $8.50 below the $76 per share J&J has agreed to pay for the company.
Many analysts worry that J&J may try to renegotiate the terms of that planned $24.5-billion acquisition. They also believe Guidant could suffer until it's able to repair a rare malfunction and return its devices to the U.S. market. And rivals St. Jude and Medtronic are poised to pounce.
"Guidant has essentially walked away from a huge market and can't get back until they figure out how to fix the problem," says Matt Dodds, an analyst at Smith Barney. "And until then, someone is going to get those ICD sales."
Indeed, Jefferies & Co. upgraded St. Jude and Medtronic to Buy last Friday. Several Wall Street firms also boosted their 2005 revenue and earnings estimates for those companies.
"Obviously this is a positive for Medtronic and St. Jude, at least while Guidant's leading products are not on the market," says David Heupel, a portfolio manager with the Thrivent Large-Cap Growth Fund, which has bought shares of Medtronic and St. Jude in the last three months.
ICDs treat a life-threatening arrhythmia caused when the heart beats too quickly. Untreated, patients are at risk of stroke or sudden cardiac arrest, of which the latter strikes 400,000 Americans a year.
Last year, the devices generated $4.7 billion in global sales, according to Smith Barney. Revenues should jump another 20% this year as a more complex breed of ICDs that treat heart failure gain popularity.
Guidant's biggest product, ICDs accounted for nearly half of its $3.8 billion in 2004 revenues. That was enough to capture about 38% of the global market.
Unfortunately, the five ICD models Guidant pulled from the U.S. market last week represented virtually its entire arsenal of heart failure devices.
That's why some analysts estimate that Guidant could lose between $120 million and $300 million in sales and up to 30 cents a share in earnings this year.
In a statement, Guidant said it would continue to investigate the problem. A spokesperson declined further comment.
J&J disclosed last week that it had discussed the matter with Guidant, but a spokesperson wouldn't elaborate.
"It is imperative that Guidant addresses this issue as quickly and efficiently as possible," says Thrivent's Heupel. "The longer they are out of the market, the more share they will lose and the harder it will be to re-enter the market."
For St. Jude, that's especially good news. Because it's so much smaller and less diverse than Medtronic, any gains it makes in ICD market share should have a bigger impact on its bottom line.
Until 2004, St. Jude was the only ICD maker that didn't have a heart failure device for sale. But it has picked up a chunk of market share (largely at Guidant's expense) since launching the Epic HF and the Atlas HF last year, says Alexander Arrow, an analyst with Lazard Capital Markets.
Arrow thinks it could grab about $191 million in ICD sales from Guidant in the second half of 2005 and $256 million in sales next year.
That could help St. Jude tack on ten cents a share in earnings this year and 12 cents in 2006, he estimates.
"2005 is certainly shaping up to be a good year for St. Jude. The potential for the additional [market] share gains can only make the stock go higher," says Heupel.
Since Friday, shares of St. Jude have risen 10%, while Medtronic's stock has gained 2.6%, according to Thomson Financial Baseline.
Spokespeople confirm that both companies already have fielded calls from worried Guidant customers.
Still, Angela Craig, a spokeswoman for St. Jude, says it's too early to assess "the long-term impact or to change guidance."
At 44.05, shares of St. Jude fetch 29.2x projected profits over the next four quarters, just above its five-year median of 28.3x forward earnings, Baseline says (see At a Glance).
Medtronic, however, trades at 24.8x forward earnings, a nice discount to its five-year median of nearly 30x forward earnings, according to Baseline.
Because it is more diversified than St. Jude, Medtronic will probably show fewer direct benefits.
Still, in the fiscal year ending next June, ICD sales that Medtronic takes from Guidant should add about two cents a share in earnings, Smith Barney estimates.
Of course, Guidant may not lose as much market share as expected, or could regain it quickly, if it gets its ICDs back on the market.
And if St. Jude or Medtronic experience a repeat of product problems they encountered earlier this year, all bets are off.
But for now, while Guidant continues to break investors' hearts, its two rivals are making them flutter.
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FULL DISCLOSURE:
• Smith Barney, a subsidiary of Citigroup, rates Medtronic at "Buy," and Guidant and St. Jude Medical at "Hold," according to a spokesperson. Analyst Matt Dodds does not own stock in any of the companies. The firm does not have investment-banking relationships with them.
• Ryan Rauch, an analyst with Jefferies & Co. Inc., upgraded St. Jude Medical and Medtronic to "Buy." He does not own either stock. The firm does not have an investment-banking relationship with either company.
• According to David Heupel, portfolio manager, The Thrivent Large-Cap Growth Fund has added to its position in Medtronic and St. Jude Medical in the last three months. The fund does not own shares of Guidant, he says.
• Lazard Capital Markets rates Guidant at "Hold," Medtronic at "Buy," and St. Jude Medical at "Buy." From time to time, the firm has provided investment-banking advice to all three companies. Analyst Alexander Arrow does not own the stocks.
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