Boston Scientific stock jumps as rival J&J stops making drug-coated heart stents

(Bloomberg) -- Johnson & Johnson plans to leave the market for the drug-coated heart stents that the company pioneered, in a restructuring that will close two factories and cut as many as 1,000 jobs.

The manufacture of Cypher and Cypher Select Plus stents and development of a new model will end this year, the New Brunswick, New Jersey-based company said in a statement today. Boston Scientific Corp., the current stent market leader, rose as much as 6.7 percent in New York trading. Boston Scientific has stent operations in Minnesota.

Meanwhile, Eden Prairie-based Surmodics, a small supplier for Johnson & Johnson's stent business is taking a pounding. The company's share price was down about 15 percent in morning trading.

J&J, once the world's leading maker of the artery-clearing devices, has lost ground to Boston Scientific and Abbott Laboratories in a $4 billion-a-year global stent market where competition has dragged down prices, said Jeff Jonas, an analyst in Rye, New York, with Gabelli & Co. Inc., which owns J&J shares. J&J suspended a clinical trial last year for its proposed next-generation model, Nevo, after difficulties with a catheter used to insert the device in patients.

"The market's just so unattractive for drug-eluting stents right now and expectations for Nevo weren't very high," Jonas said in a telephone interview. "This is just them finally throwing in the towel."

Stents are tiny mesh tubes used to prop open arteries after they've been cleared of tissue clogging the flow of blood. J&J introduced Cypher in 2003 as the first stent with a drug coating designed to prevent new blockages from forming. The company's Cordis unit sold $627 million in drug stents last year, down from $2.62 billion in 2006, according to data compiled by Bloomberg.

The move will let J&J focus on other cardiovascular devices with better prospects for growth, Jonas said.

CORDIS PRODUCTS

Not including drug stents or the impact of foreign-exchange rates, Cordis' other products generated $1.9 billion in sales in 2010, up 8 percent over the previous year, J&J said.

The restructuring will lead to a charge of $500 million to $600 million in this year's second quarter, J&J said in a second statement. Cordis said it will close plants in Cashel, Ireland, and San German, Puerto Rico, and consolidate research and development teams in Fremont, California.

J&J gained Nevo in its 2007 purchase of Conor Medsystems Inc. for $1.33 billion. The charge to earnings probably includes a writedown of goodwill and intangible assets from that deal, Gabelli's Jonas said.

Johnson & Johnson fell 47 cents to $66.63 at 11:44 a.m. in New York Stock Exchange composite trading. Boston Scientific, based in Natick, Massachusetts, rose 32 cents, or 4.8 percent, to $7.06, after reaching $7.19 for its biggest gain within a day since March 1.

STABLE PRICING

"One less drug-eluting stent player means pricing could become more stable," said Tao Levy, a Collins Stewart LLC analyst in New York, in a note to clients today. Boston Scientific may gain $175 million in sales from J&J's pullout in 2012 and 2013, he said.

J&J is the world's second-largest seller of medical products, trailing only New York-based Pfizer Inc.

Cordis will continue making cardiac mapping and navigation systems and devices that treat the irregular heartbeat known as atrial fibrillation through its Biosense Webster unit. While leaving the heart-stent business, Cordis said it will stay in the market for devices to keep open diseased arteries elsewhere in the body.

"Due to evolving market dynamics in the drug-eluting stent business, we see greater opportunities to benefit patients and grow our business in other areas of the cardiovascular device market" said Seth Fischer, Cordis' worldwide chairman, in the statement. "We will continue to bring innovative cardiovascular solutions to patients in the future."

STENT MARKET CONCERNS

The decision to stop developing Nevo was due to concerns about the stent market and had nothing to do with the device's potential, said Sandy Pound, a Cordis spokeswoman, in a telephone interview.

J&J has solved Nevo's catheter problems and is "considering all options" for the stent, including selling or licensing its rights, she said. She declined to comment further.

Cypher, once the market leader, held 12 percent of worldwide sales in this year's first quarter, down from 20 percent a year earlier, Louise Mehrotra, J&J's vice president for investor relations, said on an April 19 conference call.