J&J sues Boston Scientific, Abbott

Eight months after Boston Scientific Corp. won a bidding war for heart-device maker Guidant Corp. , loser Johnson & Johnson hit it with a $5.5 billion lawsuit that alleges the Natick company improperly induced Guidant to violate the terms of its acquisition deal with Johnson & Johnson.

The suit was filed yesterday in federal court in New York against Boston Scientific and Abbott Laboratories. It focuses on the role of Abbott, the Illinois drug company that helped finance the deal by buying part of Guidant.

The fight for Guidant erupted in December when Boston Scientific made a surprise offer for the Indianapolis company. It interrupted a longstanding deal under which Johnson & Johnson, the diversified healthcare giant from New Jersey, would buy Guidant.

The companies sought Guidant's lucrative line of implantable defibrillators, electronic heart devices that prevent sudden and fatal cardiac arrest. Guidant is the country's number-two maker of defibrillators, which were seen as one of the most promising growth markets in the medical-device business.

Johnson & Johnson said that as part of the earlier acquisition deal it struck, Guidant wasn't allowed to solicit higher offers from other companies. But because Boston Scientific's surprise offer was unsolicited, it did not violate the agreement, and Guidant could legally provide enough information to let Boston Scientific perform the due diligence necessary to pursue its offer.

The suit alleges that Guidant improperly allowed another company, Abbott, to look at its books. Abbott's participation would become crucial to the deal, with the company paying $4 billion to buy Guidant's vascular business, heading off potential antitrust concerns. Abbott also agreed to buy $1.4 billion in Boston Scientific stock and lend the company nearly $1 billion to finance the Guidant acquisition.

Johnson & Johnson said that by providing information to Abbott, Guidant technically broke its promise not to solicit a higher offer. The suit says the deal could not have gone forward if Abbott hadn't examined Guidant's books, but since it wasn't an official bidder Abbott should not have been allowed access to confidential information.

``While Boston Scientific ultimately succeeded in its takeover bid for Guidant, it did so only because Guidant leaked confidential information to a third party, Abbott," the suit says.

Paul Donovan, a spokesman for Boston Scientific, dismissed the suit's allegations, saying that Boston Scientific ``complied with all the terms" of the existing deal between Johnson & Johnson and Guidant.

``We find it curious that J&J has chosen to sue eight months after Boston Scientific entered into a definitive agreement with Guidant, and five months after the transaction closed," Donovan said .

``We believe the suit is meritless, and we expect to demonstrate that in court," he said.

A spokeswoman for Abbott also called the suit ``without merit."

The legal action comes at a difficult time for Boston Scientific. The company has reported slower-than-expected sales of its most important products -- the implantable defibrillators it acquired in the Guidant deal and the drug-coated stents that were supposed to provide steady cash to pay down the debt incurred by the purchase.

In the past few days the company's stock has reached a four-year low, regularly trading below $15 for the first time since 2002. The Standard & Poor's bond-rating agency said yesterday it was worried about the company's heavy debt load.

Boston Scientific's stock dropped 15 cents yesterday to close at $14.80, down 1 percent on the day.

The suit adds to the thicket of lawsuits already filed between Boston Scientific and archrival Johnson & Johnson, which compete fiercely over the $5 billion global market for drug-coated stents. The companies have been battling each other for years in courts around the world, chiefly over patent rights.

Abbott recently moved closer to joining the stent competition. Earlier this month it disclosed promising test results for its own drug-coated stent, which it plans to release in Europe next month. It hopes to begin selling the stent in the United States in 2008.

Stephen Heuser can be reached at sheuser@globe.com.