Competitive Intelligence

FDA Approval for Boston Scientific’s Taxus Stent Means War with J&J Cordis’s Cypher

Despite its second-to-market delayed start, some analysts are projecting Boston Scientific could realistically end 2004 with a 60 percent share of the $3.8 billion U.S. market, now that it's competing with Cypher. Taxus will roll out “immediately” according to the company and is sure to be the reasoning behind J&J’s Cordis defensive hatchet-burying business alliance with Guidant just a few days ago.

Drug-eluding stents are a big improvement over bare-metal stents, the little tubes designed to keep clogged arteries open, since the drug coating prevents the arteries from clogging again, reducing the need for repeat procedures. For those new to this area, if you’re curious how stents work read the following article from USAToday.com.

John Putnam, an analyst at Belmont Harbor Capital, an independent research firm, says many doctors believe the stent is easier to implant during surgery, compared with J&J's Cypher. "It was expected, but it's good news. I think it's the better stent of the two that are on the market," he said.

Boston Scientific said on February 23rd it hoped to win 70 percent of the U.S. market within 70 days after launching its device, following up its experience in Europe, where it has already grabbed 70 percent or more from J&J's Cypher. One day later, in a largely defensive competitive manuever, Guidant and J&J/Cordis said they formed a co-marketing pact over Cypher, which would provide J&J with Guidant's convenient delivery device and could protect or even increase sales.

CBS MarketWatch had a nice overview of the battle:

The arrival of Boston Scientific's stent, called Taxus, marks the beginning of intense competition with archrival Johnson & Johnson for dominance of the estimated $3 billion U.S. market for drug-coated stents. The new devices are expected to significantly improve the outcomes of artery-clearing angioplasty procedures.

The U.S. Food and Drug Administration late Thursday, as expected, granted approval to Boston Scientific's Taxus. The medical-device maker said it's fully prepared to introduce the stent in the United States and said it has "ample inventory in all sizes." The Taxus was approved early last year for use in Europe, where it's been competing with J&J's Cypher drug-coated stent.

J&J last year became the first company to win U.S. approval for a drug-coated stent, and the health-care-products giant has had the market to itself, until now.

Following the FDA's OK for the Taxus stent, Boston Scientific affirmed financial projections it made early last week at a meeting with analysts.

Boston Scientific said at the analysts' meeting it sees 2004 Taxus sales of between $1.7 billion and $2.2 billion, climbing to $2.4 billion to $3.2 billion next year. The company estimated 2006 sales of the device at between $2.2 billion and $3.4 billion.

Cardiologists have for years used stents, tiny mesh devices, to prop open clogged arteries. But the arteries frequently close up again after the angioplasty procedures. Medical-device makers have found they can greatly reduce the chance that arteries will close up again by coating the stents with anti-scarring drugs.

"This approval is a breakthrough event for the treatment of cardiovascular disease in the United States," Boston Scientific Chief Executive Jim Tobin said in a statement.

Some analysts have predicted that Boston Scientific's Taxus could ultimately emerge as the leader in the market for drug-coated stents. But the company faces fierce competition from J&J.

Just last week, J&J and leading medical-device maker Guidant said they would team up to market J&J's drug-coated stent in the United States, a move aimed at intensifying competitive pressure on Boston Scientific.

Meanwhile, former competitors in the stent selling business Guidant and Johnson & Johnson's Cordis agreed to co-promote Cordis' Cypher Sirolimus-eluting coronary stent. Guidant said the agreement gives it immediate entry into the U.S. drug eluting stent market, but what it does for J&J is much more important in light of the Taxus’ approval for Boston Scientific. In addition, Guidant will assist Cordis in the development of a Cypher stent that uses Guidant's Multi-Link Vision stent delivery system.

Both companies agreed to license certain patents and to settle all outstanding patent disputes between the companies. Guidant reiterated its full-year 2004 earnings guidance as a result of this partnership. Likewise, Johnson & Johnson still expects full-year earnings in line with its prior view. Guidant grants Cordis the option to co-promote a fully bioabsorbable stent currently under development by Guidant. Cordis retains clinical, manufacturing and order fulfillment responsibilities for the Cypher stent in the U.S. The companies will both market and sell the Cypher stent, with each company bearing its own marketing and sales costs.

Guidant Chief Executive and President Ronald W. Dollens said, "We believe this strategic agreement will provide significant benefits to both organizations by building upon the strengths of both companies' sales, marketing and product development resources." Cordis President Rick Anderson echoed Dollens' comments, saying the transaction doubles its presence in the "hospital and cath lab."

Guidant's drug eluting stent program, which uses the drug everolimus, will not be affected by the agreement with Cordis. The company expects to launch its Champion Everolimus eluting stent system in Europe in the first quarter of 2005 and in the U.S. in the first quarter of 2006, pending regulatory approvals.

But, whether Taxus, as many think likely, might eventually break away to dominate here in the U.S. as it has in Europe is ultimately a question of how intensely J&J decides to compete to preserve its current stranglehold on the market.

- Arik