It’s always an interesting phenomenon when a large company becomes ultra-sensitive to news, as Boston Scientific (BSX) seems to be doing these days. BSX shares are up nearly 8% this morning to $16.20 on news from the FDA that the company’s Minnesota facility (acquired from Guidant) is in compliance, lifting the restrictions that came with a review letter in late 2005.
Besides removing some overhang in the stock, the clearance today allows Boston Scientific to apply for new approvals on defibrillators and pacemakers. But unfortunately this wasn’t the only warning letter on BSX’s desk; a second (and probably more important) one that covers three U.S. facilities has locked the company out of applying for approval of its next-gen stent, Taxus Liberte.
Given all the problems at Boston Scientific these days, good news like this – which really amounts to table scraps – is enough to lift the stock substantially. This could be because the company is at a relative floor, as we postulated in our break-up value analysis of BSX back in February.
Still within a dollar of its 52-week lows, BSX stock has been stifled by data from a recent stent study, called “COURAGE”, which failed to prove that drug-coated stents could decrease the rates of heart attack and death by more than 20% compared with drug therapies.
This study and others have contributed to market share losses in excess of 25% for the drug-eluting stents as a group. Meanwhile, competitor Abbott Laboratories (ABT)’s new Xience stent is poised to take more share from BSX’s leading Taxus product in the U.S. and Europe, as new clinical data stated that Xience outperformed Taxus with fewer complications.
Adding insult to injury, the Xience product was sold to Abbott by Boston Scientific as a prerequisite to the Guidant acquisition; under an existing agreement BSX will be able to market the Xience product (which will be sold as “Promus”), but it will be a margin killer as 40% of gross profits will be handed over to Abbott.
Boston Scientific will be reporting earnings next Monday, and we will do an earnings preview later in the week after competitor St. Jude Medical (STJ) reports on Thursday.
Ryan Barnes
April 16, 2007
Ryan Barnes can be reached at [email protected]; he does not own securities in the companies he covers.
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