Boston Scientific Bundles Stents with Defibrillators and Ultrasound

FBR's Christopher Warren was out with a research note to clients Friday morning saying that Boston Scientific (BSX) is doing deals. He writes that BSX is "reportedly bundling $1,100 (that's right, $1,100) Taxus stents with defibrillators and ultrasound devices."

Taxus is the name of Boston Scientific's drug-coated stent, a tiny wire mesh cylinder that props open clogged arteries. This isn't all that surprising given the fact that Medtronic (MDT) recently entered the drug-coated stent market, busting up the duopoly of BSX and Johnson & Johnson (JNJ).

And any day now, there could be a fourth player. Some analysts still expect Abbott (ABT) to win Food and Drug Administration approval of its drug-coated stent Xience by the end of this month. But at least a couple of them, including FBR's Warren, now believe approval could come later rather than sooner. The analyst quotes an interventional cardiologist (the docs who put in stents) who says ABT's sales reps are telling him (the doc) that Xience will be launched in the fourth quarter.

JPMorgan's medical device guy Mike Weinstein emailed me to say that Abbott is apparently telling him to continue to look for approval here in Q2. Under the odd terms of BSX's acquisition of Guidant--it had to sell pieces of it to ABT--Boston Scientific would get to sell the Xience stent, but using the brand name Promus. Most analysts think Xience will quickly become the stent of choice because tests have shown it may have a lower rate of blood clots forming down the road and doctors think it's easier to put in.

Warren says his expert who works here in the New York area indicated that drug-coated stent prices have fallen 21 percent over the past year to the $1,100 BSX is charging in its bundling deal regardless of how many stents a cath lab (the highly profitable unit of a hospital where stent procedures are done) might buy. FBR makes a market in BSX.

I've left a landline and mobile voicemail and sent an email to BSX's main spokesman to try to confirm the FBR report. Usually I get a quick reply, but it's vacation season. And in the past the company hasn't commented outside of an earnings press release or conference call on current pricing.

UPDATE:

So, I did hear back via email from BSX spokesman Paul Donovan who, as I suspected he would, wrote, "We typically don't comment on price beyond list price."

Comments

[Ernest]

Hey Mike,
I love watching you, your team and the research you do is stellar! Consultant in this industry as well, and was curious about the legality of "bundling"? If this is actually true, it show's us the huge profits in this idustry doesn't it...from $2,700 to $1,200! wow...Not sure Abbott will withstand the Cardiology history of a BSX, Cordis or MDT though.. Interested in your thoughts as always...Have an email address Mike?

[Pj568]

I find it surprising that BSX is still regarded as a viable economic force. Their two primary business lines, CRM and Stents, continue to decline in a weak economy. Their balance sheet appears grossly distorted and unrealistic following the Guidant acquisition. They report 31B in assets with 15B in equity while the economic reality may be closer to a zero equity position. The failed overpriced acquisition plus decreasing sales from existing lines leaves them highly exposed to any misstep managing their existing working capital which probably can't be replaced without incurring highly expensive and dilutive events.

A simple indicator of an overpriced balance sheet value is that prior to the acquisition each dollar of net long term assets generated 1.10 in sales, post acquisition that number has fallen to 32 cents without any signs of recovery.

It seems incomprehensible that an impairment has not been recorded at anytime in the two years subsequent to acquisition. I wonder why markdowns in other sectors have yet to be realized here.