Updated from 1:24 p.m. EDT
said Thursday that manufacturing "issues" with an experimental drug-coated coronary artery stent would have no impact on second-quarter or full-year financial guidance, but that failed to halt the recent decline in the company's share price.
The company, however, provided few details on the stent problem, which was revealed on Wednesday. Guidant added that the company would provide more information to the investment community in four to five weeks but declined to identify the problem related to one of its experimental stents, a stainless steel device called Champion.
"We have a good handle on the issue," said Dana G. Mead Jr., president of the company's vascular intervention products division, in a telephone conference call with investors and analysts.
Keith E. Brauer, the company's chief financial officer, said the stent problem wouldn't affect the second-quarter earnings guidance of 54 cents to 60 cents a share, or revenue guidance of $910 million to $950 million. He reiterated the full-year EPS guidance of $2.40 a share to $2.55 a share, and revenue guidance of $3.75 billion to $3.95 billion.
The consensus view of analysts polled by Thomson First Call is for second-quarter earnings per share of 59 cents and second-quarter sales of $942 million. For the full year, the consensus estimate was for EPS of $2.42 and revenue of $3.8 billion.
In volatile trading Thursday, Guidant's shares were recently down 49 cents, or 0.9%, to $53:12, having dropped 9.9% Wednesday, after Guidant said it had "identified issues" with its Champion stainless steel stent "that may result in manufacturing process modifications and/or stent design changes."
If the problems identified "only require a manufacturing process change," the company could still file an application for approval with European regulators in June. But if the company must change the stent's design, the delay could last up to six months.
The problems do not affect another stent, called Multi-Link, which is made of cobalt and chromium.
On Thursday, Mead reiterated Wednesday's announcement and timelines, adding only that the manufacturing issue relates to something that didn't meet the company's quality standards.
He said the company was committed to continuing with its Champion drug-coated stent. "This problem is new to us," he said. "We don't have an exact fix in place." That's one reason why the company hasn't had a detailed discussion with the Food and Drug Administration yet, he added.
Mead conceded that if the problem is sufficiently severe and if it it would require additional pre-clinical or clinical tests, then Guidant might have to re-evaluate the stainless steel stent.
Right now, he said, the manufacturing issues don't affect the safety or effectiveness of the stent and don't affect the drug used in the stent or the polymer coating on the stent that enables the medication to be released into the arteries.
Recent developments prompted two analysts to adjust their outlooks.
Morgan Stanley analyst Glenn Reicin, for one, reduced his 2005 earnings-per-share estimate to $2.67 from $2.75 and his 2006 EPS estimate to $3.12 from $4.21. "We believe it is prudent to plan for the worst," Reicin said in a research note to clients Thursday.
Reicin maintained his overweight rating on the stock. He said he still believes Guidant will have a drug-coated stent ready for the European market in 2005 and for the U.S. market in 2007. (He doesn't own shares, and his firm has had an investment banking relationship with Guidant in the past 12 months.)
Some analysts have said that Guidant could reach the U.S. market in 2006, but a worst-case scenario in solving the Champion stent problem could cause them to change their estimates. Guidant declined on Thursday to make predictions about a U.S. market launch date.
Merrill Lynch analyst Daniel T. Lemaitre cut his rating Thursday to neutral from buy, attributing it to the company's "murky outlook" for its drug-coated stents.
Lemaitre, who had raised the rating in late February to buy from neutral, told clients in a research report that he was cutting is 2005 earnings-per-share estimate by 20 cents, to $2.50, and his 2006 EPS prediction by 95 cents, to $2.85.
"A simple fix could be much ado about nothing." he wrote. But a delay of six months or longer could push back European approval to mid-2005 and U.S. approval into late 2006 or even 2007.(Lemaitre doesn't own shares but his firm is a market maker in the stock of Guidant.)
Two other companies already sell drug-coated stents --
Johnson & Johnson
J&J's drug-coated stent, Cypher, has been sold in the U.S. for 15 months; Boston Scientific's Taxus has been available since early March. Both companies sell the drug-coated stents overseas.
The other device maker trying to develop a drug-coated stent is
. Medtronic expects to seek approval in Europe later this year and in the U.S in late 2005.
In trading Thursday, Medtronic shares were up $1.44, or 3.1%, to $47.84, after falling Wednesday; Boston Scientific's stock was up 12 cents to $44.94, following an 11% surge yesterday; and J&J's stock was up 29 cents to $55.77.
Drug-coated stents are mesh-like devices inserted into arteries to keep blood flowing freely after the vessels have been cleared of fatty deposits. Drug-coated stents are more effective in preventing the reclogging of arteries than the ordinary uncoated or bare-metal stents.P/> Guidant signed a deal in late February to co-promote J&J's Cypher stent, but Brauer, Guidant's chief financial officer, noted Thursday that Cypher sales have been "lower than expected."
Brauer said that because of those lower Cypher sales, combined with the expected lower revenue for Guidant's uncoated stents in the face of competition with drug-coated ones, investors should expect actual second-quarter EPS and revenue to fall at the midpoint of the company's previously stated guidance range.
Mead said drug-coated stents continue to push uncoated ones out of the market. He predicted that the U.S. adoption rate for drug-coated stents for the second quarter would be 79%, causing "increased pressure on the U.S. metallic stent market." He figures the adoption rate would level off at 84% until the makers of drug-coated stents get FDA approval for devices that fit in very small or very large arteries.
Guidant's announcement on Wednesday overshadowed the company's release of test data that it said support its belief that its experimental drug-coated stents are safe and effective. "These results are encouraging and continue to reinforce our confidence" in drug-coated stents, said Dana G. Mead Jr., president of the company's vascular products division.
In one test, Guidant said, the MACE scores of a drug-coated stent remained the same at 4.8% -- at six months and at 12 months. MACE is the acronym for major adverse cardiac event -- a patient's death or a heart attack, or the need for doctors to perform a repeat procedure. The test covered 21 patients.
In another test, the company compared 30-day MACE results between a different drug-coated stent system and a Guidant bare-metal stent system. The test was blinded, disguising the identity of drug-coated vs. bare-metal stents.
One group had a zero MACE score among 32 patients; the other had a 7.1% MACE score among 28 patients. Both results, Mead said, "are consistent with" 30-day MACE scores in other tests of drug-coated stents.