(Adds details on heart-rhythm market outlook, stent prices, potential impact of health reform. Adds Boston Scientific share prices, price decline details for competitors.)
By Jon Kamp
Of DOW JONES NEWSWIRES
BOSTON -(Dow Jones)- Shares of Boston Scientific Corp. (BSX) dropped Tuesday after the company pointed to challenges facing markets for its top heart devices, implantable defibrillators and drug-coated stents.
The Natick, Mass., company issued weaker results than Wall Street expected late Monday while it sliced its full-year earnings guidance. On a long conference call Tuesday, the company noted pressure on device prices and the potential negative impact of recent stent studies, plus a softened growth outlook for the heart-rhythm market.
The company also said a beefed up sales force for heart-rhythm devices hasn't helped the business as much as expected thus far, and it talked about the potential negative business impact of U.S. health reform.
"The global economy issues remain a challenge," said Samuel R. Leno, the company's chief financial officer, on the call with analysts.
The company also noted pressures on businesses outside the key heart-device markets, including greater-than-forecasted pressure on prices.
Shares of Boston Scientific recently traded down 16.7% to $8.46.
Wells Fargo analyst Larry Biegelsen cut his rating on Boston Scientific to market perform from outperform on Tuesday while citing "the growing number of headwinds" facing the company's key markets and its market-share position.
On those fronts, Boston Scientific said that while it expects to continue taking market share from rivals in the market heart-rhythm devices, it now expects that market to grow at a 4% clip rather than the previously projected 5% to 6% rate. In the U.S., the company downgraded its market-growth outlook to 2% from 3%.
The company also noted some pricing pressure on the heart-rhythm business, which includes pacemakers and implantable defibrillators.
The company shares this $11 billion market with Medtronic Inc. (MDT) and St. Jude Medical Inc. (STJ). The latter recently issued a weak preliminary third-quarter report that sparked questions about pressure on the market for implantable defibrillators. While Boston Scientific has downgraded its outlook, it said it hasn't seen the slowdown in hospital product stocking that St. Jude described.
Shares of St. Jude, which officially reports Wednesday, recently traded down 6.7% to $31.99. Medtronic shares were recently down 3% to $36.85.
The $4 billion market for drug-coated stents is under pressure in general due to weakening product prices, and specifically for Boston Scientific because of studies released at a recent cardiology conference. One in particular, called "Compare," showed an Abbott Laboratories (ABT)-made stent called "Xience" outperforming Boston Scientific's "Taxus Liberte" stents.
While Boston Scientific sells a version of Xience, it has to share profits from that device with Abbott, and the study poses a threat to Boston Scientific's more profitable home-grown devices. President and Chief Executive Ray Elliott acknowledged this during the call by saying new guidance assumes a Taxus franchise decline in the near term.
But he also went right after Compare by noting it was a one-hospital study (which can be less robust than multi-center studies) with results that weren't consistent with other Taxus-related studies.
"It is simply inappropriate to draw any definitive conclusions let alone instruct the practice of medicine" based on this study, Elliott said on the call.
Coated stents prop open heart arteries and use medication to fight scar tissue. While Boston Scientific saw some positive trends in that market, these were more than offset by dropping product prices, and the company estimated that the market declined 3% from a year ago. That falls short of its expectations for a flat market.
Amid these pressures, Boston Scientific and the rest of the device industry face a proposed $4 billion per year fee in health-reform legislation recently passed by the Senate Finance Committee. Elliott spoke out strongly against this bill while saying it could raise costs, double the company's tax liability and potentially trigger 1,000 to 2,000 job cuts.
The bill "makes absolutely no sense and would be very damaging" to Boston Scientific and the devices industry, Elliott said.
-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com