My negative call on Dendreon (DNDN) was based on a cost-effectiveness argument. I didn't see a $93,000/dose drug that extended the life of late-stage prostate patients by four months as having a big future.
Whether you call it cost-effectiveness, evidence-based medicine or comparative effectiveness, I believe these kinds of risk/reward calculations are coming to American medicine. It's not a question of politics. As insurers like UnitedHealth (UNH) collect and analyze data on doctors, they are bound to steer patients toward those who give it the biggest bang for its buck, eventually cutting off specialists who don't.
There is no more popular disease than heart disease, thus no bigger target for savings. I know. I have it. I've been in the heart disease waiting room for 12 years, taking a succession of hypertension drugs, and statins, in hopes of avoiding the fate of my father, who had his first heart attack at 47. (So far, so good.)
Once patients have had their first heart attack, and sometimes even before it, stents are a possible treatment. These are tiny tubular scaffolds, often coated with medicine, surgically inserted into arteries in the hope of keeping them open.
No company is as leveraged to stents as Boston Scientific (BSX). As BSX bull David Tepper, of Appaloosa Management, noted in buying into the company, as reported by our own Lalit Sharma, BSX gets almost half its revenue from stents and other heart treatments (mainly implantable defibrillators).
So a recent meta-study from the Archives of Internal Medicine has to be of concern to investors. Treatment of cardiac disease with stents turns out to be no better than drug therapy, the kind I'm taking. An accompanying editorial asks "what will it take to turn the tide of treatment?"
The article, and editorial, are aimed at doctors, both heart specialists and the generalists who recommend them. But increasingly articles of this type are going to be read by insurance companies, which now have the opportunity to run these conclusions through their own databases and make decisions based on those conclusions.
David Brown of Stony Brook University Medical Center told HealthDay a single stent procedure costs $9,500 more than a lifetime of medicine. "Everybody gets paid" with stenting, which is why it's popular, but he suggests only patients with serious cardiac pain should be seeking it.
In the same HealthDay article, it's noted that stenting under Medicare went down 18% from 2005-2010. When someone is thinking about the money, in other words, stenting goes down.
All of which should be very negative for BSX in the long-term. The only possible bullish case I can make for it is as a take-out target, with its heart therapies then placed inside a larger device company that can manage its cash flow and declining popularity. I think Mr. Tepper is going to be disappointed, and so will you if you join him in buying BSX.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.