Medical device maker Boston Scientific's
The golden product is the drug-eluting stent Taxus. A stent is a wire mesh that keeps surgically clearer arteries open. Taxus is a stent covered with an Angiotech
Mining drug-eluting stent gold before Taxus' arrival in the U.S. was Johnson & Johnson
Since Taxus' introduction on March 8, revenue from it has grown rapidly. Boston Scientific is averaging daily sales of $7.9 million -- a gigantic 75% market share. Who says being first is all that important?
The company is predicting that 2004 Taxus sales will be $2.5 billion. Given that the entire company's U.S. sales were $1.9 billion in 2003, it is clear that Taxus is big news. How big? Net income is expected to increase from $.56 in 2003 to $1.75 a share this year -- an almost $1 billion increase.
The stent market is expected to grow from $3.4 billion in 2004 to $5 billion in 2006. If Boston Scientific can maintain market share, the riches truly would be golden.
What Boston Scientific lacks is the cash-rich balance sheets of peers Johnson & Johnson and Guidant
Product pricing, according to the company, has been strong. So are sales in the 40 other countries where Taxus is sold. Plus, the core business is doing well. All of this adds up to a gold mine of profits.
Boston Scientific should have at least two years of Taxus sales before Medtronic and Guidant enter the drug-eluting stent market. Every month before their entry is another cash bonanza for Boston Scientific.
Analysts expect Boston Scientific to earn $2.40 in 2005 (19 times earnings). That is extremely cheap for a company growing so rapidly. The question is, though, how Boston Scientific will perform once there is more competition in 2006. The answer needs to be weighed against the stockpile of cash the company will generate and use to improve its operations while competitors try to catch up.
Fool contributor W.D. Crotty had a cardiac catheterization last year. The doctor and attending nurse were J&J shareholders. They laughed at the thought of implanting a J&J product knowing W.D. was (and still is) a Boston Scientific shareholder.