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This column was originally published on RealMoney on Sept. 29 at 10:09 a.m. EDT. It's being republished as a bonus for readers.

The rival stent manufacturers

Boston Scientific

(BSX) - Get Boston Scientific Corporation Report


Conor Medsystems


issued downbeat third-quarter assessments last week.

The big concern in the drug-eluting-stent (DES) market these days is that sales will be hurt by safety concerns due to increased observations of late-stent thrombosis, i.e. blood clots.

Boston Scientific and Conor have retreated to the low end of their 52-week ranges on this negative news. Despite this risk throughout the segment, the outlook is very different for the two.

Drug-eluting stents are metal structures that prop open clogged coronary arteries. They are coated with drugs to prevent the growth of tissue around the stent that could lead to a new blockage.

Although heightened safety concerns are likely to retard growth in the overall DES market, the impact on these two stocks should be highly disparate. While the external coating on Boston Scientific's older-generation Taxus stent has been shown to increase incidences of late-stent thrombosis, Conor's newer CoStar stent has a different delivery mechanism -- drugs are loaded in small holes in the stent -- so it should not have the same complications.

Conor's stent appears to have a safety advantage, and this should allow the company to continue to capture overseas market share. Conor's stent has been approved in Europe, and it is expected to debut in the U.S. in 2008.

Does Weakness Provide Opportunity?

It's hard to find a company with more headaches than Boston Scientific, and that is reflected in the stock price.

The road is likely to continue to be treacherous for the company in the near term given the disturbing trends in its implantable cardioverter defibrillator business, as well as drug-eluting stents. In addition, integration and legal challenges related to the acquisition of Guidant further limit my confidence in the stock.

Based on the company's history, I would not go out on a limb.

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Boston Scientific shares are very likely to tread water for a while, as a fundamental business recovery and the full digestion of Guidant still appear far off.

On the other hand, Conor's third-quarter shortfall is based on a marketing mishap more than a product setback. The company's failure to successfully execute its marketing strategy in southern Europe is fixable in the near term. I view this setback as a good entry point in the stock.

Many Problems in Boston

Late last week, Boston Scientific management guided third-quarter sales and earnings numbers much lower than expected.

It has been hurt by a defibrillator market downturn which is largely a result of the effects of ongoing product recalls, due to malfunctions in Guidant defibrillators and pacemakers. This continues to fuel negative physician reaction.



(MDT) - Get Medtronic Plc (MDT) Report


St. Jude


have also suffered from this market slowdown, but they are expected to continue taking market share from Boston Scientific/Guidant.

The company's comments on the third quarter indicate that physicians, particularly in Europe, have begun to limit usage of its Taxus stent. We'll have to await further evidence from third-quarter reports to gauge how physicians are responding in the U.S. market.

There is no easy fix for either of these challenges, especially with increasing competition in the DES market.

Johnson & Johnson

(JNJ) - Get Johnson & Johnson (JNJ) Report

has recently ramped up production of its Cypher DES, while Medtronic and


(ABT) - Get Abbott Laboratories Report

also have a lot vested in the success of their upcoming DES product lines.

Medtronic is likely to launch its Endeavor DES in the U.S. by the first half of next year.

Conor's Marketing Mishap

Conor's cautious third-quarter comments stemmed from a lack of progress in Spain and Italy. Conor's stent is distributed overseas by Biotronik, which has done well in Northern Europe, but has failed to make strides in the south. The stock may struggle in the near term as the company tinkers with its marketing approach. Management will need to provide a new strategy for investors that does not create too much of a financial burden for this still unprofitable company.

I believe the strength of Conor's stent lineup will allow it to eventually overcome these marketing challenges. The company also has some important research results coming out in early 2007 that should support the U.S. filing of CoStar.

I'm bullish on the stock -- it looks like a leader in the next wave of drug-eluting stents.

At the time of publication, Michael Latwis held none of the stocks mentioned, although positions may change at any time.

Latwis has directed health care content at Professional Products. He also has worked at Barclays Wealth management division and was previously associated with Lazard Freres and Fiduciary Trust. Latwis covered companies in the pharmaceutical and specialty pharmaceutical sectors as well as biotech, medical technology, healthcare services, retail and media stocks. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Latwis appreciates your feedback;

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