Why Taxus Is ImportantBoston Scientific predicts its stent sales could be $1.7 billion to $2.2 billion this year. The highest end of that estimate would mean Boston Scientific would have more drug-coated stent revenue this year than the entire U.S. market recorded last year. If the company is correct, Taxus, which is already available in many foreign markets, will help propel total company sales this year to a range of $5.2 billion to $5.8 billion, up from $3.5 billion last year. In 2005, total sales could double from 2003, the company said Monday. This forecast for stent sales -- and total sales -- for the next three years convinced Standard & Poor's to raise its outlook on the company to positive from stable. Commenting earlier this week, the ratings agency said that if it makes good on its predictions, Boston Scientific "could have considerably more financial flexibility" than S&P had figured.
What Wall Street's ThinkingBoston Scientific has built a strong following on Wall Street. According to Thomson First Call, 25 analysts have strong buy or buy recommendations, while six recommend holding the stock. Three investment banking firms raised their ratings to buy in February. Another, more anecdotal, sign of respect was noticed by UBS analyst David Lothson. Boston Scientific holds an annual analyst/investor conference in New York, and for many years the session has been held in a small meeting room. In recent years, the company has had to use a large ballroom to accommodate the crowds. And last Monday's meeting was packed. The major knock on Boston Scientific appears to be that its stock threatens to outrun analysts' target prices or, more recently, that the J&J-Guidant deal could shave some EPS points and trim some of the more gaudy market-share predictions for Taxus. For example, Dhulsini deZoysa of Fulcrum Global Partners, moved to a neutral rating in early February before the J&J-Guidant deal was announced, suggesting that investors lock in some profits as Boston Scientific's stock marched toward a $45 price target. (It hasn't hit the target yet.) After the J&J-Guidant deal was struck, deZoysa kept the neutral rating, saying that there doesn't appear to be the potential for positive surprises now that Wall Street has assumed Taxus will grab a huge portion of the U.S. stent market at least through 2005. (DeZoysa doesn't own shares; Fulcrum doesn't have an investment banking relationship with Boston Scientific.) No Wall Street firm has downgraded its rating on Boston Scientific since the Guidant-J&J deal, and the consensus opinion is that Taxus will grab more than half of the U.S. drug-coated stent market by year-end. Many Wall Street estimates roam at or above the 60% market share range this year. Last Monday, Boston Scientific executives bragged they could achieve 70% of the U.S. drug-coated stent market within 70 days of launching Taxus.
Dynamics of the Stent MarketDespite the rampaging shares of Boston Scientific and Guidant, there is still enough uncertainty and potential competition that investors must be aware of the many behind-the-scenes factors in the ever-changing stent market -- a market that is only 10 years old in the U.S. Today's winner could be tomorrow's also-ran. Just ask J&J. It had 88% of the U.S. stent market in 1996 and just 8% three years later, according to Fulcrum Global Partners. That's because Guidant, Boston Scientific and Medtronic began producing more bare metal stents. In recent years, even before its Cypher stent reached the market, J&J made a comeback, regaining second place as Guidant emerged as the market leader. Guidant had 45% of the market in 2002, the year before J&J introduced Cypher. By the end of 2003, Fulcrum says, J&J grabbed 54% of the total stent market -- bare metal plus drug-coated -- even though Cypher had been available for barely eight months.
How Stents WorkInvestors trying to understand the stent market need to know what goes into the products and how they work. Stents are inserted into arteries following angioplasty, a procedure in which a catheter is inserted into an artery clogged with plaque. The catheter is inserted into the body usually through an artery in the groin or arm, then manipulated toward the obstruction in the artery. A balloon is inflated to flatten or push the plaque, opening the artery channel to allow a steadier blood flow. Afterwards, stents are inserted to serve as tube-like scaffolding to reduce the possibility of arteries reclogging.