Virtually nothing has gone right at Boston Scientific (BSX) since it bought rival Guidant in a bidding war with Johnson & Johnson (JNJ) in 2006. With a year of the transaction closing Guidant had to withdraw 50,000 medical devices from the market. Problems with the company’s stents plagued Boston Scientific for more than a year. Drug coated stents had been on of the most important sources of revenue for BSX. That was until research showed that bare metal stents were just as effective.
Five years ago, Boston Scientific was a $30 stock. It dropped to a 52-week low today or $6.33 on news that it had to withdraw its table cardioverter defibrillators and cardiac resynchronization therapy defibrillators. The company had not submitted the proper paperwork to the FDA to make sure that the manufacturing process comformed to government regulations. In other words, the problem was one over which the company had control.
Just last month, Boston Scientific settled a patent dispute with Johnson & Johnson which cost BSX $1.7 billion. Boston Scientific had about $1.4 billion at the end of last year, but that is on top of the $6 billion in debt which is choking the company to death. Late last year, BSX settle another set of claims over stent patents, this with J&J again. The cost to resolve that was $700 million. So, Boston Scientific is very low on cash.
Boston Scientific’s problems are not over. New medical studies indicate that drugs are as effective at preventing heart attacks or death as stents are. There is also emerging evidence that drug-coated stents can produce clots when they are in patients for several years. Abbott (ABT) and Medtronic (MDT) have picked up market share in the stent business over the last two years.
Boston Scientific is in such bad shape now in terms of its products, finances, and legal problems that it may never recover.
Douglas A. McIntrye
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