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Who's Really Winning The Heart-Stent Race?

Posted: May 14, 2008 15:59 PM by James Brumley

Tickers in this Article: MDT, BSX, ABT, XTNT

On Tuesday we saw the corporate equivalent of a water balloon fight within the tiny little world of coated heart stent makers. All the companies that make these specialized medical devices came out with news trying to "one up" the competition.

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The back-to-back announcements weren't a coincidence. The major names in the industry were all presenting at the EuroPCR Conference in Barcelona, Spain. With the conference and ensuing contest now over, and the dust settling, it's safe to come out of hiding to see which piece of news actually meant something. A stent is a tube inserted into an artery to prop it open either during or after surgery. There is a surprisingly lucrative market for the little devils. (For information on valuation of drug companies, check out Measuring Medicine Makers.)

Three-Way Tie?
According to a recent study, Abbott Laboratories' (NYSE:ABT) Xience V stent is superior to its competing Taxus stent, in that its use is associated with diminished heart attack risk at the one-year, and now two-year milestones. Of course, the study was sponsored by Abbott, so there may have been room for "interpretation".

The Xience stent is not yet on the market in the United States, but is being sold in Europe. Some analysts expect to see Xience stents approved by the Food and Drug Administration (FDA) in the middle of this year.

In a separate press release on Tuesday, Boston Scientific (NYSE:BSX) touted solid two-year efficacy and safety results from the same Taxus stent that Abbott said it outdid. The difference between this study and Abbott’s is this research was done independently. The same two-year study also confirmed good results from Boston Scientific's Promus stent - which is also known as a Xience V stent. Déjà vu? No, you read that right.

Boston Scientific's Promus is the same stent as Abbott's Xience. The company is licensed to sell Abbott's stent under a different name. In the meantime, the Taxus-Liberte stent is approved in Canada, Europe, and other countries, and is (right now anyway) the best-selling heart stent in the U.S.

Not to be outdone, Medtronic (NYSE:MDT) on Tuesday released four-year efficacy data on its Endeavor II drug-eluting stent. The first-generation Endeavor stent was approved for use in Europe in October and for use in the U.S. in January. However, the Endeavor II looks ready to compete with the other next-generation stents if it's approved. To support its case, Medtronic is sponsoring a comparative study of its Endeavor and Abbott's Xience V. (To analyze the future prospects of biotechnology companies try using the discounted cash flow approach, read Using DCF In Biotech Valuation.)

For these three medical device giants, jockeying for market share is nothing new. Is there a freshman in the group that could reshape the industry? Yes, but no. Keep reading.

Raising the Bar on the Up-&-Comers
The bitter irony of this horse race is the company that may actually be the best got a late start out of the gate. Stent manufacturer XTENT (Nasdaq:XTNT), the youngster in the arena, announced strong six-month test results with its Custom NX stent on Tuesday. Though the company is fairly new to the stent world, its Custom NX stent may have one edge on the other coated stents mentioned above because they can be custom-sized for each patient.

So XTENT is being ushered to the front of the line? Not so fast. A couple of years ago XTENT may have been able to sail through the FDA's medical device approval process. The bar has been raised since then.

Though an adjustable stent is a clear benefit, the FDA is on the verge of requiring at least two years of safety data on new coated stents. This standard would create barriers to entry, and apply to new stents developed by the companies we've already discussed, but at least they've got something on the market already, not to mention plenty of research history on their new devices. XTENT has nothing except time on its hands.

Bottom Line
Unfortunately, being first may be more important than being the best. Being both would be ideal. In that light, Abbott seems like the winner of this game. Abbott's got what many believe is a better product already selling in Europe, and what will be the preferred stent in the U.S. if it's approved by the FDA. The fact that Boston Scientific's future stent of choice (Promus) just happened to be a licensed version of the competition's product speaks volumes. The salt in the wound is that Abbott acquired the Xience technology when it acquired part of Boston Scientific a couple of years ago.

This is a $4 billion market annually, with half of that figure coming from the U.S. There's likely room for all the players when-and-if they can commercialize their latest R&D. Even XTENT is likely to have a day in the sun, but I think Abbott is going to have its day first, and Boston Scientific is along for the ride.

To learn more about tricky biotech valuations, read The Ups and Downs Of Biotechnology.

By James Brumley

James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.

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