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January 15, 2006 "You've got to know when to hold 'em, know
when to fold 'em" The most recent bid was announced Friday evening. Johnson & Johnson upped their bet and Guidant accepted it, rejecting Boston Scientific's $2 a share higher offer. One reason proffered by some Wall Street analysts was the potential of antitrust problems that the Guidant-Boston Scientific deal might face during an FTC review. (I wrote about this last Monday.) The announcement capped a week of frantic bidding and counter-bidding and a day of bizarre events with one press release issued to kill a previous press release -- and on Friday the 13th to boot. You can access the blow-by-blow in the Timeline I have constructed. Johnson & Johnson and Boston Scientific have been arch-rivals since the mid-90s, when Johnson & Johnson successfully obtained FDA approval for a new coronary device called "the stent", which Drs. Palmaz and Schatz had licensed to them. According to a 2004 Fortune Magazine article, titled "Blood Feud", Palmaz and Schatz first brought their stent to Boston Scientific, but the company didn't offer enough for it. J&J did. Then J&J, wanting to get into the cardiology device business in a bigger way, tried to buy Boston Scientific and was rebuffed, and so bought Cordis instead. For the past two years the competition has taken the form of the "Stent Wars". J&J had the first drug-eluting stent (the Cypher, approved in March 2003) and a year later, Boston's Taxus was approved and rapidly took two-thirds of the market away. Ding! Round Two. Three months later, Boston Scientific recalled its Taxus stents to fix a non-stent-related problem in the catheter shaft. The recall was done voluntarily and smoothly and the new product was back on shelves instantly with Boston retaining its lead, although a bit lower. Then, at the 2005 ACC, J&J successfully spun a safety issue from the REALITY trial. Although the issue (as I reported) was not really supported by the data, Taxus' market share dropped to around 55%. For the past couple months, the competition has taken the form of the "Guidant Wars". As with the Cypher stent, J&J had a whole year to itself, having announced the Guidant acquisition agreement in December 2004. Then Boston Scientific swooped in on the action with a surprise move last month. But Boston Scientific's bid, and its side-deal with Abbott regarding Guidant's endovascular businesses, is not just about "getting Guidant". It's also a shared Boston-Abbott defensive move to prevent the giant Johnson & Johnson from getting it and totally dominating the field (if you've played RISK, you've probably done something like this). The main sticking points seem to be (1) Guidant and Johnson & Johnson have been working on this acquisition for over a year and seem comfortable with each other; and, (2) there are some unresolved antitrust issues that seem to cause concern. Boston Scientific's COO Paul LaViolette stated in a webcast last Monday that the company had already talked to the FTC at high levels and is assured that the way is clear for a quick completion. Compare that to Friday's Reuters interview with the FTC's person in charge of medical device mergers, Michael Moiseyev, who agreed that the Boston-Guidant review could be quick (he means two-to-three-month-quick) because the FTC recently did the J&J-Guidant review so it'll be working in familiar territory. But he also stated that there was no guarantee about the outcome of such an investigation and that he has not reached any conclusions about whether Boston Scientific's proposed deal raises antitrust problems, or what kind of divestitures could be required. Boston Scientific may well raise their bid a few dollars more. Or maybe they'll stay content with the knowledge that they cost Johnson & Johnson almost $3 billion. Or maybe the folks at Boston Scientific will pick up the phone and call Paul Buckman, ex-President of their SciMed Division, who currently serves as Divisional President at St. Jude Medical, a company which has slightly under a quarter of the heart rhythm market, and which has continued to pick up share since Guidant's defibrillator troubles last summer. The only major product overlap between St. Jude and Boston Scientific is in the neuromodulation market (each company has acquired a capability in the past year) thus few antitrust worries (divest one of the neuromodulation companies to...say...Abbott). Such an acquisition would give Boston Scientific not only the heart rhythm business, but heart valves (St. Jude's are reportedly the quietest) as well as the top-selling vascular closure device, Angio-Seal. (Boston Scientific's foray into this area, an ultrasound sealing device from their partner Therus, has had difficulties and is being reworked for another round of clinical trials.) St. Jude is just down the road from the Taxus plant in Minnesota. Maybe they can do lunch? |
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