Boston Scientific Looking to Future of New Stents

Boston Scientific Corporation’s mantra has long been “Delivering What’s Next.”

But for the past two years, the medical technology company’s big division in Maple Grove, MN has been thwarted from launching potentially lucrative heart devices as a result of a crackdown by federal regulators.

Boston Scientific Chief Executive Jim Tobin told analysts at a recent Bank of America investors meeting that progress is being made on resolving the lingering issues with the FDA. He stopped short of predicting when that resolution might happen, and the FDA isn’t commenting.

In a January 2006 warning letter, FDA inspectors cited numerous problems with the company’s quality systems in Maple Grove and two plants in Indiana and Massachusetts. These in-house procedures are used to track manufacturing and record-keeping processes that ensure medical devices are safe and effective.

Until the issues cited by the FDA are resolved, the company’s cardiovascular division in Maple Grove may still launch some medical devices, but it is barred from introducing more-sophisticated products in the United States.

These devices require extensive clinical studies as part of the regulatory approval process, and are typically big moneymakers for medical-technology companies.

The Maple Grove-based division, which employs about 2,800 people, is best known for manufacturing Taxus, a drug-coated stent used to prop open clogged heart arteries. Last year, US sales of Taxus declined 36% to approximately $1 billion, largely because of perceived safety concerns, although the device has retained its market lead since being marketed domestically in 2004.

But this year, two formidable competitors in the US stent market — Medtronic Inc. of Minneapolis, MN, and Abbott Laboratories of Abbott Park, IL — have emerged.

Once the warning letter is resolved, Boston Scientific is poised to introduce its next-generation drug-coated stent, Taxus Liberté, which a spokesman says has a thin strut design that makes it easier for doctors to use. Taxus Liberté was introduced in Europe and other international markets in 2005 and is the world’s top-selling drug-coated stent.

Another product designed to treat small vessels, called Taxus Atom, is also waiting in the wings.

Research firm Frost & Sullivan estimates that small-vessel stents could ultimately wrest 10% of the market.

“There is progress,” Tobin said of the warning letter. “I’m not going to say anything more about it. The reason this is important is because, when warning letter issues are behind us, we will see a flow of new products that drive top-line growth.”

Meanwhile, Boston Scientific has launched a copycat version of Abbott’s Xience stent, called Promus, which did not require a separate FDA review.

Boston Scientific spokesman Paul Donovan said last week that the company has “undertaken a massive quality remediation effort involving approximately 2,000 employees. We have also sought to create a culture where quality is our highest priority and an enduring commitment on the part of the company and all its employees.” He declined to say how much the quality initiative has cost, or what exactly the initiative entailed.

Company officials this year told Wall Street that they expected the warning letter to be resolved by “mid-2008.” Last week, Donovan referred all questions about the warning letter to the FDA, which declined to comment, saying the case is an “open matter.”

Meanwhile, Wall Street has been watching the $4 billion worldwide drug-coated stent market carefully.

“Judging the timing of any FDA action has never been anything more than, at best, educated guesswork — and often nothing more than wishful thinking,” RBC Capital Markets analyst Phil Nalbone wrote in an August note to investors.

Nalbone predicts that, once the warning letter issue is resolved, “there will be a lot of self-congratulatory rhetoric from the company and the stock will probably take a nice short-term trading bounce.”

But it will be a “symbolic event” that won’t change Boston Scientific’s fundamentals for investors, he said. It’s unlikely that the expected launch of Taxus Liberté will improve the company’s outlook in the drug-coated stent market, Nalbone said. He noted that the introduction of Abbott’s Xience stent as well as Boston Scientific’s Promus stent are “ramping faster than anyone had imagined.”

At first glance, the success of Promus may seem to be an overwhelming positive for Boston Scientific. But the company has to share 40% of the profit with Abbott, under a licensing agreement between the two companies.

SOURCE: Star-Tribune