What's in a name? For Boston Scientific (NYSE:BSX) and its recently acquired Guidant subsidiary, a lot of bad publicity.
Last week, the medical device maker announced that it would no longer use the Guidant name on the line of implantable cardiac defibrillators (ICDs) and pacemakers it acquired through its purchase of Guidant, completed last month. References to Guidant will begin to be removed this year, while complete elimination of the name from product packaging and the devices themselves will likely take two to three years.
Guidant has been plagued by safety warnings or recalls for thousands of its devices since last summer. Just last week, another warning was issued regarding early battery depletion for 996 more defibrillators.
The purchase price of most acquisitions usually includes a component of goodwill for a company's established brand and reputation. Boston Scientific extended its bid for Guidant in January, well after the troubles arose. By eliminating the Guidant name altogether, the company is seemingly eschewing any goodwill component of its $27 billion outlay.
Boston Scientific markets its products to doctors, rather than patients. Most device manufacturers have experienced product malfunction, and most mechanical troubles can usually be corrected in the manufacturing process. The medical community would presumably know this and be savvy enough to recognize Guidant's leadership in electrophysiology. Then again, maybe not. Even though the Guidant name would not likely relinquish all its brand equity with doctors, the company's reputation was sullied further following news that it did not disclose relevant information relating to the faulty devices. In addition, most docs these days are worried about their own liability; they don't embrace the additional task of calming down jittery patients who have just shown up in the office ranting about the latest recall headline they may have heard.
The industry itself is examining methods to improve product safety. One medical group, the Heart Rhythm Society, issued a set of draft guidelines last month emphasizing the need for independent oversight committees to monitor the manufacturing and regulation of ICDs and pacemakers. Among other recommendations, the organization seeks to have the FDA eliminate the word "recall" in its public communications, because that often leads patients to erroneously believe that their particular device requires removal. Boston Scientific has said that it would follow the organization's recommendations; the company also advocates the creation of an industrywide safety monitoring panel. While Medtronic (NYSE:MDT) and St. Jude Medical (NYSE:STJ) have stopped short of that idea, they do endorse some of the group's suggestions, and last week each separately announced plans to augment its safety and reliability analyses.
In the meantime, Boston Scientific wants to capitalize on its entry into the ICD market, an area experiencing double-digit sales growth. If you visit the company's website today, you'll see the banner proclaiming "Boston Scientific and Guidant. We can and we will." Eliminating the Guidant name may be an unfortunate result of bad press, but it's a wise move toward accomplishing this goal.
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Fool contributor S.J. Caplan does not own shares in any of the companies mentioned in this article. Neither does her husband, a cardiologist, who implants defibrillators and pacemakers in his practice -- when he's not leaving them lying on the kitchen counter. The Fool takes its disclosure policy to heart.
