Boston Scientific Addresses Quality Issues at JPMorgan's HealthCare Conference

The JPMorgan meeting has good attendance with lots of activity, and some presentations are jammed with standing room only. The excitement level is back up after the post-2000 decline. There are many solid companies making good money the old fashioned way. It is fine of course, even though the buzz is (understandably) still lower than the frenzy of the late 90s, when Hambrecht & Quist ran the show and the genomics boom carried the promise of a totally new future.

I went to Boston Scientific (BSX) and the room was totally packed. Boston Scientific clearly has a very strong position in many device markets, but they also have ongoing quality issues and that was part of this presentation. The quality issues have led them to lose market share in some areas. They were also hit by bad news in stents and by a slowdown in the cardiac rhythm market. I suspect they overpaid for Guidant, and their CFO was unhappy with the amount of leverage. Clearly, they need to fix the balance sheet and said they would do so. But that will take some time.

It appears that they have a plan for the quality issues. They also think the cardiac market will recover, and they feel stents are backed by good solid data so the current scare will blow over. They have a good position in the growing neuromodulation market and are strong in the new and growing carotid stents. Their core endoscopic surgery business is steady with solid growth in the double digits. I think the long term outlook is very good. Competition is from Johnson & Johnson (JNJ) and Abbott Labs (ABT), both strong competitors, but BSX has shown in the past that they know how to compete.

I also saw Lundbeck A/S and was impressed with its drug development record. However, it lacks a US or Japanese sales force, so this company cannot really leverage its assets. It makes Lexapro (marketed by King (KG)) and it is a very strong franchise. Its other drugs are also market leaders. Overall, it is a very solid company with a long history, though they would benefit from some marketing expertise, I think.

I did not see Biogen-Idec (BIIB), but I heard good reports from people who attended. Also going strongly is Applera (ABI). They have made the move into pharma with great success.

Comments

[Neils808:]

I disagree. BSX competes with Abbott and Cordis (J&J) for stenting and is a far 3rd from those two. However, in EP procedures especially CRM, Medtronic is a major competitor and is aligned with a much deeper product offering for the next three years. St Jude is the biggest competitor for Lead placement. BSX is drowning from debt and has significant payments to make on the acquisition of Guidant.

The stock will not be moving anywhere in the next two years. More people have left than have stayed and BSX is in a rebuilding and recovery mode.

Jan 22 10:38 AM