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Memo to Arterial Vascular Investors: Price War Over Coronary Stents Has Arrived

The looming price war in the coronary stent market is one of those heart stoppers that, in retrospect, you would've, should've, could've seen coming a mile away. Stents are tiny scaffolding-like devices that help keep unclogged arteries open. The purest play in that market for investors has been

Arterial Vascular Engineering


, which makes nothing but stents.

It's been a favorite with investors, rising 10 times in the past year and a half, closing at 41 5/8 Wednesday. But as this column has pointed out


times over the past two years, the big risk has been the possibility of a price war with other stent makers.

Arterial Vascular itself has consistently warned of a price war in its financial filings and did so again in its most recent 10-K annual report, saying: "The increasing number of devices in the international stent market and the desire of companies to obtain market share has resulted in increased price competition, which has caused the company from time to time to reduce prices on its stent systems. The company expects that, as the stent industry develops, competition and pricing pressures will increase," which, the company adds, "could have a material adverse effect on the company's business, financial condition and results of operations."

Standard boilerplate? Sure, but boilerplates are there for a reason, and based on calls I made this week to purchasing agents at 10 hospitals and health-care organizations, the first stages of this long-expected price war are well underway. Some higher-volume medical centers have received favorable pricing for much of this year. But some organizations, including the

Cleveland Clinic

, say discounts in the 5% to 10% range, from the standard price of around $1,600, have become more frequent in the past month to two months.

The purchasing agent of one hospital system in the South reports receiving a 15% rebate from Arterial Vascular starting Aug. 1, but says the company is offering "deferred billing" on bulk purchases. It's hard to say whether hospitals will take the bait. They tend to keep little inventory of stents, in part to appease fickle doctors whose tastes could change on a whim or in response to the introduction of next-generation stents. But if hospitals do go along with the plan, a company could then book revenues of shipped products, with the deferred payments showing up in higher receivables.

Another hospital reports that stent makers are offering lower "contract pricing" if the hospitals agree to stick with a single vendor. And several mentioned an innovative bundling plan offered for quite awhile by



. Under that plan, the price of a full procedure, including all the angioplasty balloons and stents required on a single patient, would be capped at $2,100, for a savings of around 30%.

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Arterial Vascular, itself, is nearing the completion of a deal to buy

C.R. Bard's


angioplasty business, which should give it the opportunity to offer bundling. However, Bard's angioplasty business has a tiny share of the market, and it's unknown whether docs will use its angioplasty devices to get a good deal on its stents.

Arterial Vascular officials couldn't be reached.

Boxers or Briefs?

Obviously, neither. Seen

Fruit of the Loom's


stock lately? In the past month it has lost more than half its volume, and there isn't any single piece of news in particular to account for the fall -- just a bunch of little events. The CFO retired. Inventories have expanded. A class action lawsuit was filed.

Underwear is looking more and more like a commodity in an industry burdened by excess capacity. Debt is rising. Cash is falling. A junk bond deal was canceled. The acting CFO and I traded calls late yesterday. After we talk, I'll pass along his comments.

Point of Order

Beginning with today's column, we'll try to get this column posted around 6:30 a.m., so you don't hear about it first on


. If you want to read it silently, while I read it aloud, check out my daily appearances around 6:40 a.m. EDT.

Herb Greenberg writes daily for

. In keeping with the editorial policy of


, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnership. He welcomes your feedback at Greenberg also writes the monthly "Against the Grain" column for