Bottom Fish Stocks (between .10 and$10)

[King Stuki]

BIPH
Saw this on another Ihub site (GENR). Wonder if this will impact BIPH? Sounds to me to be positive for BIPH as the article mentions competition for the Taxus stent of BSX.

Posted by: DewDiligence
In reply to: None Date:12/6/2004 4:36:37 PM
Post #of 5476

Boston Scientific goes shopping

[Anyone interested in medical devices? From today’s Boston Globe.]

http://www.boston.com/business/articles/2004/12/06/boston_scientific_goes_shopping/

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The Natick medical devices company is using profits from its successful Taxus stent to expand into new areas.

By Ross Kerber, Globe Staff
December 6, 2004

Boston Scientific Corp. wants to get deeper under your skin.

Lawrence C. Best, its chief financial officer, says the company will make more than $2 billion worth of deals over the next two years, many of them in technologies that play a much more invasive medical role, compared to Boston Scientific's traditional products.

The moves will be part of a new, aggressive campaign by the Natick medical-devices giant to move up the industry's food chain and into more stable markets.

Already, Best said in an interview on Friday, Boston Scientific has made small investments in areas like orthopedics, eye care, and spinal products -- investments that will put it in competition with established players like Stryker Corp. and Bausch & Lomb.

So far this year, Boston Scientific has announced investments in neurological devices and implantable defibrillators. In the past two years, it has spent $2.5 billion on acquisitions, Best said, more than any competitor in the medical-devices field.

All of this is meant to address a concern of investors: that Boston Scientific faces too much competition in areas like the market for its fast-selling Taxus drug-coated cardiac stent system, Best said.

"What we're trying to do over the next decade is to bring more stability and more predictability to the company, so when Wall Street looks at us, Wall Street feels more secure and gives us a higher multiple," Best said.

The goal, Best said, is to move Boston Scientific to a market capitalization of $70 billion within five years, more than double its value today of $29.1 billion -- already the largest of any life-sciences company in Massachusetts.

"Right now we're viewed as a company with huge successes, but with a lot of downside because we are in markets where market-share shifts are rapid. We've got to fix that," he said.

Boston Scientific is flush on the proceeds from Taxus, which has turned the company's stock into one of the market's best performers in recent years. The stents will generate about 40 percent of the company's revenue of around $5.5 billion this year. But investors and analysts wonder how long it will be before more competitors arrive to challenge Boston Scientific.

Guidant Corp. and Medtronic Inc. each have a program to develop cardiac stents, which might go on sale by 2006. The time in between is essentially a head start for Boston Scientific to put its Taxus profits to work.

Traditionally, Boston Scientific's deals have involved companies that produce stents, catheters, and other products used in less-invasive medical procedures in which patients don't need general anesthesia or major surgery.

For instance, on Nov. 16 Boston Scientific said it would make an undisclosed investment in Reva Medical Inc. of San Diego [#msg-4585266], which makes experimental, biodegradable cardiac stents that play a role similar to the Taxus stents.

That is starting to change.

Best gave three examples. The first was the company's June 1 announcement it will pay $740 million for closely held Advanced Bionics Corp. of Sylmar, Calif., which makes tiny implantable electronics such as hearing aids and spinal painkillers. It might also owe $2 billion in future payments, depending on the business unit's performance in coming years. Boston Scientific said the deal is worth it for the promise of the company's new technologies, such as its cochlear implants. These aid hearing by distributing sound as electrical signals to precise points on the auditory nerve.

On Feb. 20, Boston Scientific said it made a minority investment in Cameron Health Inc. of San Clemente, Calif., a maker of implantable cardiac defibrillators.

In a third example, Best said Boston Scientific has been buying shares of Aspect Medical Systems Inc. of Newton, and now holds 25 percent of the company, which makes a disposable strip placed on a patient's forehead to monitor brain functions.

Boston Scientific has made two other recent investments: taking a stake in Precision Vascular Systems Inc. in West Valley City, Utah, a maker of interventional radiology products, and a deal with Endoscopic Technologies Inc., or Estech, of Danville, Calif., which makes cardiac-surgery tools.

Best said the company has made other investments, which he wouldn't disclose, in new areas like orthopedics, ophthalmics, and surgical instruments. The company thinks the most lucrative investment opportunities involve start-up companies that make disposable products aimed at specific medical specialties, and at older patients, whose ranks will swell.

James R. Tobin, Boston Scientific's chief executive, said the company won't be afraid of investing in start-ups even when they don't yet have products on the market. "You end up buying technology when it's still half-baked, and we have to finish the baking," he said.

The purchases, combined with Boston Scientific's internal $630 million research budget for 2005, Tobin said, will produce a powerful dynamic for Boston Scientific.

"With that kind of money to spend, we ought to see some of these things work," Tobin said.

Although Boston Scientific came through a series of recalls of its Taxus system this year without penalties from the Food and Drug Administration, the stock has not recovered to the $40.49 price at which it closed on July 15, just before the recalls began. Shares fell 84 cents on Friday to $34.72.

Investors are waiting to see if Boston Scientific's investments will pay off, said Morgan, Stanley analyst Glenn Reicin. For instance, he said, it's unclear whether the performance of Advanced Bionics will justify the high price Boston Scientific paid. "Boston Scientific has to be externally focused, because now they have to deal with the post-Taxus-success era," he said. About a year ago, he downgraded the stock to a neutral rating, citing concerns about future competition.

Jake Dollarhide, a Tulsa, Okla., money manager, said Boston Scientific's deals have been smart ones, putting it into areas with higher profit margins than its traditional catheter-based businesses. He still suggests that his clients hold shares in Johnson & Johnson and Medtronic, however, saying Boston Scientific isn't as diversified as those larger competitors.

Best disputes the notion Boston Scientific isn't diversified enough.

"We invest more aggressively than anyone else in our space, and that's how we got where we are," he said. "Most other companies have a not-invented-here syndrome, and they try to do everything internally. We exaggerate the other side."
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