Boston Sci To Enhance Mkt Position With Buy Of Pfizer Unit
By LOUIS HAU
Dow Jones Newswires
NEW YORK -- Boston Scientific Corp.'s (BSX) planned purchase of
Pfizer Inc.'s (PFE) Schneider Worldwide unit will bolster the former's
already formidable presence in interventional medicine and will give the
company a key piece of intellectual property that could change the sector's
competitive dynamics.
Interventional devices, such as angioplasty balloons, guidewires and stents,
are threaded into the body on catheters. They are used to treat coronary
blockages, aneurysms and other problems in the body's vasculature
without the use of open surgery.
Boston Scientific is a leading competitor in the interventional market, along
with Guidant Corp. (GDT) and Johnson & Johnson's (JNJ) Cordis
subsidiary. Lesser players include C.R. Bard Inc. (BCR) and Medtronic
Inc. (MDT).
The Schneider acquisition gives Boston Scientific access to Schneider's
highly coveted patents for "rapid-exchange" catheters, which make it
easier to change angioplasty balloons during an interventional procedure
than traditional over-the-wire catheters.
Schneider shares the patents on rapid-exchange technology with Guidant.
In an important development that could prove problematic for other
interventional players, Boston Scientific's acquisition of Schneider will
likely hasten a shift in the U.S. market to rapid-exchange catheters, now
that they will be available with both Guidant's respected coronary stents
and Boston Scientific's popular angioplasty balloons, market observers
said. Rapid-exchange catheters already dominate the
interventional-cardiology market in Europe, where Guidant and
Schneider's patents don't enjoy the same protection they do in the U.S.
The deal also offers significant synergies. Schneider's Wallstent, which is
used mostly in non-coronary, peripheral applications, should get a big
boost from Boston Scientific's Meditech division, a leader in interventional
radiology, said Cowen & Co.'s Daniel Lemaitre.
As reported earlier, Boston Scientific signed a definitive agreement to
acquire Schneider for about $2.1 billion in cash. The deal is expected to
close in the fourth quarter.
Investors shrugged off projections of short-term earnings dilution by
sending Boston Scientific's NYSE-listed shares up 2 1/16, or 3.4%, to 63
1/16 on volume of 758,600. Average volume is nearly 771,000.
Pfizer's NYSE-listed shares inched up 5/16, or 0.3%, to 108 3/4 on
volume of 1.2 million. Average volume is 5.5 million.
Estimates on how many cents a share the Schneider purchase will dilute
Boston Scientific's 1999 earnings vary from the mid-single digits to the
mid-teens. The First Call Corp. consensus projects 1999 net income of
$2.53 a diluted share, compared with projected 1998 net income of $1.91
a share and reported operating earnings of $1.66 a share in 1997. Boston
Scientific expects the transaction to start being accretive to earnings in
2000.
Cowen's Lemaitre said the company should be able to offset much of the
expected dilution through synergies from the Wallstent, which accounted
for about 35% to 40% of Schneider's sales last year.
Another result of the transaction is that it puts pressure on Arterial
Vascular Engineering Inc. (AVEI), which had also been vying for
Schneider but was forced to drop out of the bidding because the price
rose to a level that would have caused an unacceptable amount of earnings
dilution for the company, market sources said.
Arterial Vascular has enjoyed tremendous success with its new-generation
coronary stents, which are now competing neck-and-neck in the U.S. with
Guidant's products. But the fact remains that Arterial Vascular will have to
make some acquisitions to broaden its very narrow product portfolio,
analysts said.
But even if the company buys, say, an angioplasty-balloon maker, it will
still face the challenge, along with other interventional-device companies,
of not having a rapid-exchange catheter.
One possible option for Arterial Vascular and other companies will be to
sell stents "naked," rather than mounted on a balloon catheter as they
usually are, said NationsBanc Montgomery Securities analyst Kurt
Kruger. Physicians could then manually mount the stent on a
rapid-exchange catheter, he said. But he noted, however, that naked
stents account for only a tiny portion of total U.S. sales because manual
mounting is inconvenient.
Some observers were somewhat skeptical about the potential benefits that
Boston Scientific claims it will reap from the Schneider purchase.
Hambrecht & Quist Inc. analyst Robert Faulkner agreed that the deal
would give Boston Scientific important additions to its patent portfolio. But
he said he didn't see how Schneider could be a significant growth
contributor, considering its operating results have been relatively flat in
recent years.
Furthermore, Faulkner said Schneider's base business in angioplasty
balloons and catheters has largely been based on its sales force's
relationships with customers rather than on offering superior products.
Thus, the loss of any Schneider sales representatives during the integration
of the two companies' overlapping distribution channels could hurt sales,
he said.
Still, Faulkner described the transaction as an aggressive and astutely
strategic move by Boston Scientific, which may give rapid-exchange
catheters the critical mass they need in the U.S. market to become a
dominant technology in interventional cardiology.
Pfizer said it would use the proceeds from the Schneider sale for "general
corporate purposes," said a company spokesman, who declined to
comment further.
HKS & Co. analyst Hemant Shah said the drug giant may use part of the
money to buy back stock and pay off debts. He added, however, that
while $2 billion isn't a trivial amount of money, "to make a meaningful
acquisition (in pharmaceuticals), this is not a lot of cash."
-Louis Hau; 201-938-5240; louis.hau@cor.dowjones.com |
