The battle for drug-coated stent market share between Johnson & Johnson (NYSE: JNJ) and Boston Scientific (NYSE: BSX) may not be as exciting as watching Obi-Wan Kenobi and Anakin Skywalker fight, but the haircuts are much better, and the outcome actually matters.
Early Wednesday morning, Boston Scientific sent a tremor through the market with its updated earnings guidance. In contrast to an earlier forecast of $6.4 to $6.7 billion in revenue and $2.00 to $2.20 in EPS, Boston Scientific now predicts revenue of $6.35 to $6.57 billion and earnings of $1.85 to $2.00 per share.
Not surprisingly, the company's Taxus drug-eluting stent is the focal point. The company now expects worldwide Taxus sales of $2.62 billion to $2.76 billion -- down from February guidance that ranged from $2.7 billion to $3 billion.
And there's the rub for Boston Scientific, its partner AngiotechPharmaceuticals (Nasdaq: ANPI), and the partnership of Johnson & Johnson and SurModics (Nasdaq: SRDX). Although Boston Scientific's chief operating officer characterized U.S. business as "extremely strong and extremely stable," he acknowledged that prices could slide as much as 2% per quarter in the ongoing battle for market share.
I'm not sure I can agree with Boston Scientific's claim to a stable market. They're expecting a U.S. market share of Taxus between 57% and 61%, according to their conference call. The company ended the prior quarter with a claim of 61% domestic share, suggesting they lost sales to Johnson & Johnson. (My earlier prediction that this might happen drew howls of protest from loyal Boston Scientific employees.)
But how is J&J getting that business? Is it winning on product quality and features, or is it cutting prices to move product?
Expect this war to continue for some time. Medtronic (NYSE: MDT) is still a fair distance from entering the market, assuring a most unfriendly duopoly in America for now. For well-diversified J&J, a couple points of market share won't move the needle much. This business is much more important, though, for Boston Scientific and the two companies' respective drug partners.
Although I'm no great fan of Boston Scientific (going all the way back to my analyst days), I can't help noticing that its stock is hovering near a 52-week low and offers a P/E that's quite low on a historical basis. Each player in this story has an appealing angle: J&J is a great long-term pick, SurModics is excelling in the bio-med tech space, and Angiotech looks relatively undervalued. However, Boston Scientific could have the most to gain, provided its research pipeline matures and competition for drug-coated stent market share doesn't get totally out of hand.
Keep your blood flowing with more Foolish health care insight:
Fool contributor Stephen Simpson owns shares of Johnson & Johnson. The Fool has a disclosure policy.
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