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Author: tennjed33 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 448  
Subject: Taxus Recall Date: 7/19/2004 8:32 AM
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Boston Scientific Needs to Win Doctors' Hearts
http://www.thestreet.com/_yahoo/comment/adamfeuerstein/10171912.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA


If you're a practicing cardiologist, expect a call -- probably several -- from sell-side analysts or money managers in the next few days, inquiring about your confidence in Boston Scientific's (BSX:NYSE - commentary - research) Taxus drug-coated stent.

The opinions of these heart doctors and whether they'll stick with Taxus or favor the rival Cypher stent from Johnson & Johnson (JNJ:NYSE - commentary - research) remain the important unanswered questions after Friday's announcement from Boston Scientific that it's recalling 85,000 Taxus stent units and another 11,000 Express (uncoated) stents because of a manufacturing defect.

...

Deutsche Bank analyst Tao Levy said in a research note that he queried 17 cardiologists over the weekend, finding that use of Taxus would drop to 62% from its current 69% rate, at least for the next several quarters.

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Boston Scientific said it was still tallying the financial impact of the recall, but on a preliminary basis, it expected a reversal of sales of about $45 million, pre-tax, and a write-down of inventory of about $50 million, also pre-tax.

On an earnings-per-share basis, the company estimated the hit to be 6 to 8 cents in the second quarter. The company's second-quarter earnings announcement, set for this morning, was postponed one week to July 26.

...

There have been no problems associated with Boston Scientific's Taxus stent itself, only with the tiny balloon attached to the delivery catheter. In some cases, this balloon has failed to deflate fully, requiring surgery to remove it. The company said it has received reports of one death and 18 serious injuries related to the Taxus stent, and two deaths and 25 serious injuries related to the Express stent.

...

Boston Scientific is blessed with a hefty manufacturing capacity that can handle the recall and replacement with relative ease and minimal financial impact. Winning back the confidence of doctors is a more difficult task.

"In our opinion, the key concern following the recall of the Taxus stent is gauging the reaction from the physician community. Specifically, physicians are likely to need reassurances that the manufacturing change and the added inspection have corrected the balloon non-deflation issue," said Goldman Sachs analyst Lawrence Keusch in a research note. "Although there will clearly be some physicians that will use the recall as a reason to switch back to J&J's [Johnson & Johnson's] Cypher stent, we suspect that the majority of physicians will look upon the recall as the appropriate action and be supportive of the company's efforts."

Keusch said the recall will have limited negative impact on Boston Scientific because doctors will not stop using drug-coated stents, and Johnson & Johnson continues to have problems with limited manufacturing capacity for its Cypher stent, which limits the company's ability to take advantage of the situation. Keusch maintained his outperform rating on Boston Scientific; his firm has a banking relationship with the company.
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