The Guidant-related woes continue at medical-device maker Boston Scientific
As followers of Boston Scientific know, the company acquired Guidant following a fierce bidding war with Johnson & Johnson
Boston Scientific announced last month that it will phase out the Guidant name over the next two to three years. Given the above problems, this is a good move, but the planned phase-out time might be too long. Referring physicians and cardiac patients have begun to show more interest in the brand of device being used, possibly indicating concerns about reliability. If I were a heart patient, I certainly wouldn't want to risk dying from a failed device. The link between device recalls and a particular brand name could lead to lower sales going forward.
Therefore, it might be in Boston Scientific's best interests to remove Guidant's name more rapidly. However, doing so could have further negative impacts on the company. Despite its problems, Guidant is still regarded as a good brand name. Eliminating that name will require Boston Scientific to build up a replacement brand, a tricky task. In addition, the goodwill acquired when Boston Scientific bought Guidant will have to be evaluated, possibly facing an impairment charge. Boston Scientific faces a delicate balancing act here.
The news isn't all bad, though. Boston Scientific has won two drug-coated-stent patent fights with Johnson & Johnson and Medtronic
The Guidant situation isn't entirely dire, either. By being up-front with additional recalls as they happen, and acknowledging the possibility of more, Boston Scientific is presenting itself in a favorable light. If it continues to be forthcoming and, more importantly, fixes Guidant's manufacturing problems, it should be able to survive any short-term sales drop. It might even be able to polish and retain Guidant's good brand name.
One analyst sees annual growth for Guidant's devices in the 10% to 15% range. No one knows how accurate that will prove to be, but it certainly provides hope for the troubled acquisition.
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Fool contributor Jim Mueller doesn't need any of these companies' products ... yet. He owns shares in Johnson & Johnson, but has no financial position in any others mentioned. The Fool is patients writing for patients.