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Boston Scientific Won Guident - What A Prize

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In the second quarter of 2006, Boston Scientific may have lost 27% of its value, but in the first quarter, it did win a nearly 2 month bidding war with Johnson and Johnson over the heart device maker, Guidant, with a bid of $27.5 billion for the grand prize.

It probably seemed like a great deal when the bidding started. Guidant's heart device division, accounted for about half of the company's $3.8 billion in sales in 2004. "Defibrillators, which cost up to $35,000 each," according to the February 28, 2006, New York Times, "have a profit margin of about 75 percent."

The market for the devices certainly looked bright. According to the American Heart Association, cardiac pacemaker procedures have grown from under 50,000 in 1979 to more than 200,000 in 2003. In 2004, about 150,000 devices were implanted worldwide, and the market had been growing at a steady clip.

At the beginning of the new years, a market analysis in the January/February 2006, Medical Device Link, quoting Kalorama Information, reported that the 2005 US market for cardiovascular devices was expected to reach approximately $14 billion, and by 2014, it is expected to exceed $25 billion.

"Industry analysts estimate that drug-eluting stents and cardiac rhythm management devices account for nearly two-thirds of the total market," MX said, "which is growing at an annual pace of 16%."

"The cardiac rhythm management sector," it noted, "is growing at an annual rate of 20%."
The US constitutes about 62% of the global market, valued at around $22.3 billion, according to MX.


That said, analysts say Boston shareholders are not likely to be viewing Guident as a prize these days, considering that in January 2006, their stock value was a little over $26, and by mid-July it had dropped to about $16, and the litigation expenses the company inherited get higher by the week.

The "winner" was announced on January 25, 2006, and the next month documents filed with the SEC on February 6, 2006, noted that Boston's credit rating could be jeopardized and fall below investment grade status, due to the nearly $9 billion in debt the company would incur to finance the deal.

In addition, 3 days after the announcement, on January 28, 2006, the New York Times reported that Federal prosecutors had "opened a new front in their investigation into the Guidant Corporation by issuing a subpoena seeking records disclosed in a Texas lawsuit that indicate the company knew that some heart devices could catastrophically fail."

"The subpoena," the Times said, "specifically sought Guidant documents disclosed this month in a Texas state court."

"Among other things," it wrote, "the records indicate that company executives debated whether to warn doctors that some heart defibrillators could short-circuit."

"The records suggest," the Times said, "that Guidant might have sold potentially flawed devices."

The document request, served on lawyers representing plaintiffs in the Texas case, also indicates that federal prosecutors have merged their inquiry with an earlier investigation by the FDA's Office of Criminal Investigations, the Times reported.

The plaintiff's lawyer, Robert Hilliard, who is representing 2 patients in a claim against Guidant, provided a copy the subpoena to the Times, and said a federal investigator had asked him to retain all documents produced in the case.

The subpoena required him to turn over handwritten notes and PowerPoint slides, that he obtained from Guidant during preparations for the case in Texas.

According to the Associated Press on January 28, 2006, the 10 pages of documents include notes from Fred McCoy, then president of Guidant's cardiac rhythm management division, that show a decision was made to sell inventory the executive described as having sporadic ''life-threatening'' defects.

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Evelyn Pringle is a columnist for OpEd News and investigative journalist focused on exposing corruption in government and corporate America.
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