For Boston Scientific, a potential threat

Boston Scientific Corp. could face tougher competition in markets for cardiac products if talks between two of its largest competitors lead to a merger, analysts and investors said.

Shares of rival Guidant Corp. rose 5 percent yesterday on reports the Indianapolis company is in talks to sell itself to medical products giant Johnson & Johnson. Neither company would confirm the talks, first reported by The New York Times yesterday, citing unnamed executives. But such a deal would be the largest in medical-devices history and give the New Jersey company access to Guidant's advanced defibrillators, pacemakers, and other cardiac devices.

For Boston Scientific, that would mean facing a formidable new competitor, one that combined would have a market cap of $202 billion, with annual sales of $45.7 billion and 122,000 employees worldwide. The Natick company has a market cap of $29 billion, with annual sales of $5.5 billion and 15,500 employees.

Boston Scientific has already proven it can compete with the two rivals in the area of drug-coated cardiac stents, however. Its Taxus stent has been a hit this year even though Johnson & Johnson has had an alliance with Guidant's sales force to sell a competing product. Stents are tiny wire-mesh tubes used to prop open arteries after they have been cleared of blockages.

Boston Scientific wouldn't comment on whether it might also be interested in buying Guidant or has held talks with the company, said Boston Scientific spokesman Paul Donovan. Boston Scientific itself would be hard for an outsider to acquire, since about 40 percent of the company is still controlled by its cofounders.

Another company that is developing a drug-coated stent, Abbott Laboratories, said in a statement: "We have not had discussions with Guidant, and we are not interested in acquiring the company."

The merger talks between Guidant and Johnson & Johnson come at time when sales of medical devices are growing as technologies advance and doctors order more for an aging patient population. Just Friday, Boston Scientific chief financial officer Lawrence Best outlined plans to pursue more investments in defibrillators following the stake it took in Cameron Health Inc. of San Clemente, Calif., this year.

So far Johnson & Johnson hasn't been a major player in the area known as "cardiac rhythm management." But it could become an effective marketer of Guidant's devices, said Martin Koenig, senior portfolio manager of Integrity Mutual Funds in New York, who owns shares of Boston Scientific but not the other two companies. Johnson & Johnson might also be able to bundle Guidant's products with some of its own, he said.

"If J & J bought Guidant, it would be highly complementary to the things they're already doing," Koenig said.

At the same time, Boston Scientific stands to benefit if a deal goes through and interrupts Guidant's experimental drug-coated stent program. Soaring sales of Boston Scientific's drug-coated stent, Taxus, have made it the largest life-sciences company in Massachusetts, as measured by market capitalization. Profits from Taxus are being used to help the company diversify into other medical devices.

Currently, only Boston Scientific and Johnson & Johnson have drug-coated devices on the market, while Guidant's own version is still several years away. The lag has forced Guidant to seek a merger partner, said Jack Lasersohn, general partner of the Vertical Group, a Summit, N.J., firm that holds 293,000 shares of Guidant.

"One reason we held on to the shares is our belief they would be acquired, since they don't have a choice," he said. "They're not competitive in the stent market anymore, and on the other hand, they have a terrific" cardiac-rhythm management business, he said.

Lasersohn said he expects federal antitrust regulators would force Johnson & Johnson to sell Guidant's stent-development operations were a deal to go through, which would set back the program and be good news for Boston Scientific. That's ironic, he added, since the best way to promote competition would be to let Johnson & Johnson hold on to the area.

"If they really wanted to increase competition, they would let Johnson & Johnson keep the angioplasty business," he said.

Guidant was created in 1994 as a spinoff from drug company Eli Lilly & Co. Guidant holds 22 percent of the $1.7 billion annual market for pacemakers, trailing Medtronic Inc. and St. Jude Medical Inc., according to a recent Frost & Sullivan analysis. Guidant also holds 37 percent of the $1.5 billion market for implantable cardiac defibrillators.

Ross Kerber can be reached at kerber@globe.com.