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Boston Scientific's Taxus Looms Over Stent Market

Boston Scientific predicts its stent sales could be $1.7 billion to $2.2 billion this year. The highest end of that estimate would mean Boston Scientific would have more drug-coated stent revenue this year than the entire U.S. market recorded last year.

If the company is correct, Taxus, which is already available in many foreign markets, will help propel total company sales this year to a range of $5.2 billion to $5.8 billion, up from $3.5 billion last year. In 2005, total sales could double from 2003, the company said Monday.

This forecast for stent sales -- and total sales -- for the next three years convinced Standard & Poor's to raise its outlook on the company to positive from stable. Commenting earlier this week, the ratings agency said that if it makes good on its predictions, Boston Scientific "could have considerably more financial flexibility" than S&P had figured.


Taxus represents such an advance that J&J just signed an agreement with Guidant that, among other things, allows Guidant's sales force to market Cypher. Analysts say the deal will help slow -- albeit slightly -- J&J's declining share of the drug-coated stent market once Taxus arrives.

Guidant has been the market leader in bare metal stents -- devices without the drug coating that do a better job of keeping arteries unclogged. Guidant has struck out twice in developing a drug-coated stent. It is doing a better job on its third try, and analysts say a Guidant product could be on the U.S. market by early 2006. (Medtronic is also about two years away, analysts say.) The deal gives Guidant sales representatives practice in marketing for when its own drug-coated stent hits the market, and it gives J&J access to Guidant's superior stent delivery technology.


The major knock on Boston Scientific appears to be that its stock threatens to outrun analysts' target prices or, more recently, that the J&J-Guidant deal could shave some EPS points and trim some of the more gaudy market-share predictions for Taxus.


No Wall Street firm has downgraded its rating on Boston Scientific since the Guidant-J&J deal, and the consensus opinion is that Taxus will grab more than half of the U.S. drug-coated stent market by year-end. Many Wall Street estimates roam at or above the 60% market share range this year. On Monday, Boston Scientific executives bragged they could achieve 70% of the U.S. drug-coated stent market within 70 days of launching Taxus.


Despite the rampaging shares of Boston Scientific and Guidant, there is still enough uncertainty and potential competition that investors must be aware of the many behind-the-scenes factors in the ever-changing stent market -- a market that is only 10 years old in the U.S.

Today's winner could be tomorrow's also-ran. Just ask J&J. It had 88% of the U.S. stent market in 1996 and just 8% three years later, according to Fulcrum Global Partners. That's because Guidant, Boston Scientific and Medtronic began producing more bare metal stents. In recent years, even before its Cypher stent reached the market, J&J made a comeback, regaining second place as Guidant emerged as the market leader.

Guidant had 45% of the market in 2002, the year before J&J introduced Cypher. By the end of 2003, Fulcrum says, J&J grabbed 54% of the total stent market -- bare metal plus drug-coated -- even though Cypher had been available for barely eight months.


The financial impact of drug-coated stents is equally riveting. In 2002, the year before Cypher was introduced, the total U.S. stent market was worth $1.42 billion, and Guidant grabbed $629 million, according to Fulcrum Global Partners. Last year, the total market grew to an estimated $2.06 billion. J&J's share alone -- $1.25 billion -- nearly matched the total market in 2002. More than 90% of J&J's stent revenue came from Cypher. Guidant's sales fell to $471 million.

Assuming Taxus reaches the market soon, Fulcrum looks for a total U.S. stent market of $3.34 billion this year, with Boston Scientific grabbing $1.85 billion. (Last year it had $214 million in stent sales.) J&J would be in second place with $1.28 billion.


For example, the crucial clinical trial that led to the FDA approving J&J's Cypher showed that 8.9% of Cypher patients suffered a reclogging of arteries compared to a 36.3% rate for patients receiving a J&J bare metal stent. The key Taxus test submitted to the FDA showed that the drug-coated stent had a reclogging rate of 7.9% vs. a 26.6% rate for patients using Boston Scientific's bare metal stent.

These results cannot provide direct comparisons between Taxus and Cypher. But J&J hopes to settle that issue. Last week it announced it was conducting a test of Taxus vs. Cypher involving 1,386 patients at 90 hospitals in Europe, Asia and Latin America. Results are expected by year-end.


Boston Scientific's market research shows that doctors rank price below safety, efficacy, ease of use and deliverability. Company executives told investors Monday that Taxus should grab a large chunk of the U.S. market because their research shows many doctors experience less resistance in inserting Taxus and use less force in bending Taxus around the hair-pin turns in arteries. Physicians want their stent delivery devices to bend to accommodate the curves in arteries rather than make the arteries fit the design of the stent delivery system.

This research is borne out by many analysts in discussions with interventional cardiologists -- the physicians who insert the stents. For example, a Feb. 25 research report by J.P. Morgan relaying comments from 75 to 100 of these specialists indicated a preference for Taxus over Cypher, enough to suggest that Taxus could grab 60% of their drug-coated stent purchases.
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