Stent Wars

Medical device manufacturer Boston Scientific (NYSE: BSX  ) has announced favorable results for its drug-coated stent, called Taxus, used to open clogged arteries. The stent, approved in Europe and Canada, is in trials for U.S. approval.

Johnson & Johnson (NYSE: JNJ  ) has the only drug-coated stent on the U.S. market, called Cypher, and since its approval in April, the company has struggled to meet high demand for the product. Approval of Boston Scientific's Taxus could help remedy the situation, although not in J&J's favor.

In a 1,300-patient trial, the rate of reclogging with the Taxus stent was an industry-leading 7.9%, compared to Cypher's 8.9%. (J&J recently saw an even lower 5.1% reclogging in European studies, but comparisons are still drawn to its U.S. study.) Boston's need to retreat targeted lesions fell to 3%, compared to 11.3% with bare (or non-coated) stents.

The upshot: The Taxus trial appears more than healthy enough to win it U.S. regulatory approval -- and that sent Boston's stock soaring. Approval is anticipated in early 2004 and Taxus could quickly become a majority of Boston's annual revenue.

Canadian firm Angiotech (Nasdaq: ANPI  ) , which licenses a stent drug delivery system to Boston Scientific, also leapt on today's announcement.

In related news, Boston Scientific raised third-quarter sales and earnings expectations this morning due largely to strong sales of Taxus overseas. Sales guidance increased by about 5%, from roughly $825 million to the new range of $855 million to $865 million. Third-quarter earnings per share should ring in at $0.28 to $0.30 (excluding one-time items), up from an earlier estimate of $0.24 to $0.28.

For 2003, analysts expect earnings per share of $1.15, before rocketing to $2.84 per share in 2004. The $66 stock trades at 57 times this year's estimate and 23 times next year's still-speculative estimate.

Competitors Medtronic (NYSE: MDT  ) and Guidant (NYSE: GDT  ) are on course to offer drug-coated stents in 2005, but until then this lucrative market belongs to Johnson & Johnson and, to a lesser extent (right now), Boston Scientific. The market is large enough that both stents should excel.

Jeff Fischer owns shares of J&J.