Reuters
Merger talk to overshadow Boston Scientific results
Monday February 6, 4:09 pm ET
By Susan Kelly
uk.us.biz.yahoo.com
CHICAGO (Reuters) - Investors will be far more interested in Boston Scientific Corp.'s plans to appease regulators and successfully swallow Guidant Corp. than in the medical device maker's quarterly results when it reports earnings Tuesday, analysts said on Monday.
Wall Street is craving more details on Boston Scientific's road map for integrating its $27 billion acquisition of Guidant, which the company wrested away from Johnson & Johnson last month after a high-stakes bidding war.
"That's going to be one of the big questions on everyone's mind," said Morningstar analyst Debbie Wang. "There is going to be a lot of pressure on them to provide some path and explanation of that path. They have a lot on their plate."
The deal must still pass scrutiny of anti-trust regulators. And Boston Scientific is under the gun to resolve quality-control issues raised by the U.S. Food and Drug Administration in a recent warning letter that has the potential to delay the release of its Taxus Liberte drug-eluting stent used to prop open clogged arteries.
On Monday, Boston Scientific notified regulators of its intent to purchase Guidant under the Hart-Scott-Rodino Antitrust Improvements Act, less than two months before the expected closure of the deal.
"Everyone will be eager to hear how much confidence management has on the potential closing of the Guidant transaction in the first quarter, or whether that's likely to extend to the second quarter, as we think it will," said Eli Kammerman, analyst with independent research firm Cathay Financial.
As part of the Guidant deal, Boston Scientific struck an agreement with Abbott Laboratories Inc. (NYSE:ABT - News) for Abbott to acquire Guidant's vascular operations, which include the lucrative stent business. Abbott and Boston Scientific will share the rights to Guidant's drug-eluting stent program.
'TOO MUCH POWER'?
Boston Scientific has said it believes the Abbott deal will enable it to secure antitrust approval more quickly.
But Morningstar's Wang questioned whether the arrangement with Abbott would be enough to soothe antitrust concerns.
"Given Abbott isn't a huge player in stents, it's not clear that the regulators might not see that there is still a little too much power at Boston," she said.
Boston Scientific, which is buying Guidant in a bid to expand into the fast-growing market for heart rhythm management devices, has already announced preliminary fourth-quarter sales, and some analysts expect the company will not issue a financial outlook for 2006 on Tuesday.
The company's Taxus stent lost ground to J&J's Cypher product over the past year amid some perceptions that Cypher is safer, but recently Boston Scientific's market share has shown signs of stabilizing, at around 54 percent.
Banc of America Securities analyst Glenn Novarro said he expected Boston Scientific to continue losing U.S. market share to Cypher until Taxus Liberte gets FDA approval, expected in the third quarter of 2006 if not delayed by the FDA.
"We hope to learn more about the status of the FDA letter on Tuesday," Novarro wrote in a note to clients.
Merrill Lynch analyst Katherine Martinelli said investors will be looking for Boston Scientific to provide detail on spending plans for correcting the quality-control issues mentioned in the FDA's warning letter.
In addition to its own troubles with the FDA, Boston Scientific will also have to deal with product liability lawsuits Guidant faces stemming from a recall last year of defibrillators and pacemakers.
But Kammerman of Cathay Financial said he did not believe any potential damage awards would be material to Boston Scientific, given the company's size and the small number of deaths involved.
|
