Stealth medical technologies

The need to keep innovation under wraps until it has been allowed to develop enough to maximize the value is driving more and more companies to eschew any kind of promotion until they are actively seeking investment to formally bring the technologies out into the open as part of market introduction.

At least by our anecdotal evidence -- in the number of companies who we identify (by corporate filing or otherwise) but who have successfully avoided disclosing the nature of their technology anywhere.

There is a change in the dynamics at work here. It is doubtful that it is a diminution of hubris among entrepreneurs that is undercutting self-promotion, since pride is the trait that sets them out on their own in the first place. It is instead the result of at least two forces: (1) tacit recognition that with funding comes insidious influence to be studiously avoided until absolutely unavoidable and (2) tacit recognition that the hunger is great enough for new technologies that the innovator can take greater risk in funding from the 3F's before seeking formal investment at market introduction.

Of course, we have ways of piercing the stealth veil, and we're getting better at doing so.

St. Jude must be next

St. Jude Medical is number 3 in the rhythm management market, behind Guidant (#2) and Medtronic (#1), so when either J&J or Boston Scientific lose out in the grab for Guidant as their new rhythm management acquisition, where are they going to look next? It’s not likely to be Medtronic, with a $70 billion market valuation.

What is St. Jude’s stock price likely to do?

The door is still open for BSCI on Guidant

Following the surprising (but not shocking) offer yesterday by Boston Scientific to buy Guidant for $25B, upping the deal by $3.4B over J&J’s renegotiated deal, Guidant is agreeing to cooperate with Boston Scientific’s review of Guidant as a precursor to finalizing the $25B offer. This could be viewed as Guidant simply going through the motions, but since J&J has indicated that it still sees $21.5B as “full and fair value” for the deal (see NYT today) and J&J Chairman William J. Weldon’s statement as such did not mention Guidant shareholders, it’s a fair bet that in short order there will be a sweetener added to the deal, lest Guidant shareholders demand more.

Even though the burden on Boston Scientific would be extreme, quadrupling its debt burden, the opportunity to jump into the $10 billion pacing/defib market would give it a boost it needs. Although Taxus has doubled the company’s earnings in each the last four quarters, the company’s stock price has slipped by 42% as investors have been itching for the company to come up with the next big thing after Taxus.

Even without Guidant in the picture, I have every reason to believe Boston Scientific and J&J are both developing and looking for just such a thing.

Boston Scientific Rebuffed? on Guidant

Boston Scientific’s offer of a $3.4B premium to buy Guidant over J&J’s offer was initially rebuffed today by Guidant, who signalled that it was opting to stick with the newly reworked $21B+ deal with J&J. Boston Scientific clearly recognized the market value of picking up Guidant (at J&J’s expense), even with the stent divestitures that would have been mandated. Guidant shareholders will vote on the deal in 1Q 2006.

(It appears likely, however, that Guidant may well consider the Boston Scientific offer. An additional $3.4 billion should more than cover the legal costs of getting out of the J&J deal (!).)

Boston Scientific and J&J remain in a pitched battle over share in the drug eluting stents sector, which will be joined in the next 1-2 years by not only Guidant, but Medtronic, Abbott and a healthy list of others.