Guidant Holds Firm on Guidance - TheStreet

Updated from 9:19 a.m. EDT

Guidant

(GDT)

shares rose Thursday after it reaffirmed guidance for third-quarter and full-year earnings.

The company projected earnings per share of 58 cents to 62 cents and revenue of $890 million to $930 million for the quarter.

The guidance excludes a previously announced pretax, third-quarter charge of $50 million to $70 million relating to a restructuring of the company's coronary stent business. The charge will cover the costs of severance, benefits and other expenses.

The consensus of analysts polled by Thomson First Call is for net income of $193 million, or 60 cents a share, on revenue of $918 million.

Guidant also reaffirmed a recently revised full-year EPS projection of $2.40 to $2.45 and a full-year estimate of revenue of $3.65 billion to $3.75 billion.

For the full year, the consensus estimate of analysts is $766 million, or $2.38 a share, on revenue of $3.7 billion.

Shares rose 98 cents, or 1.7%, to $57.13.

Guidant also reaffirmed that it is on track in its development of drug-coated stents, which have been beset with manufacturing problems and caused a selloff in the company's shares in May.

Dana G. Mead Jr., Guidant's executive in charge of the stent program, said Thursday that the company still expects to launch its Champion drug-coated stent in Europe in mid-2005. It expects to file an application with the Food and Drug Administration during the first quarter.

Detecting and correcting the problems with the experimental stent "is complex and time-consuming," Mead said.

On May 27, Guidant said it had discovered "manufacturing issues" with the stainless steel Champion stent. The problems do not affect another experimental drug-coated stent, which is made of cobalt and chromium.

On July 1, Guidant reported that it had conferred with U.S. and European health regulators, concluding that the changes in Champion's manufacturing wouldn't require additional expensive and time-consuming clinical tests. But Guidant said correcting the problem would take six to eight months, pushing the planned application to the FDA to the first quarter of 2005 and the proposed European launch to mid-2005.

Guidant and

Medtronic

(MDT) - Get Report

are working on drug-coated stents, trying to capture a piece of an expanding market from the only two players,

Johnson & Johnson

(JNJ) - Get Report

, maker of the Cypher stent, and

Boston Scientific

(BSX) - Get Report

, creator of the Taxus stent. Guidant is helping J&J market the Cypher stent.

The drug-coated stent is a metal mesh tube that is inserted into arteries to keep them open and improve blood flow. The stent is inserted after a procedure known as angioplasty, which clears out dangerous artery-clogging plaque. This type of stent, also called a drug-eluting stent, is coated with medicine that is released periodically to reduce arterial scarring and reduce the incidence of reclogging.

Drug-coated stents are more successful at preventing reclogging than are the uncoated, or bare metal, stents. That's the main reason why Guidant is taking the third-quarter charge.

Guidant is the U.S. market leader in bare metal stents, but the U.S. and overseas markets for this type of stent is shrinking fast. As a consequence, Guidant's stent business is fading; worldwide stent revenue for the second quarter dropped 46% to $120 million.

Mead pointed out that drug-coated stents had taken over 81% of the U.S. coronary stent market share in July. He added that Guidant had 58% of the bare metal stent market share in the U.S. in July.

Although two investment banking firms cut their ratings right after Guidant revealed its stent problems, Guidant has enjoyed a sell-side renaissance since then. Four analysts have upgraded the stock -- three from hold to buy, one from sell to hold -- and two investment banking firms have initiated coverage of the company with buy recommendations, according to Thomson Financial. That gives Guidant an overwhelmingly positive view on Wall Street: 23 buy recommendations, 11 hold ratings and one sell recommendation.