Boston Scientific Corp. outbid Johnson & Johnson last week in a takeover battle for devicemaker Guidant Corp. that raised the prospect of higher prices for related medical devices. With one less vendor in the market, hospitals are likely to hold less negotiating leverage (Jan. 16, p. 15).
Indianapolis-based Guidant's announcement that it had accepted a $27 billion offer from Boston Scientific jolted the Natick, Mass.-based medical-device maker into the rapidly growing electrophysiology market. It also abruptly ended Guidant's more than yearlong understanding with Johnson & Johnson, during which the original $25 billion price tag for Guidant had been lowered in the wake of recalls of Guidant devices and then raised again in response to Boston Scientific's sudden interest.
The protracted bidding war cast a spotlight on the hotly contested cardiac-care market and its growing prominence among hospital services. All three companies have existing stakes in cardiovascular care, the plumbing side of equation, but only Guidant has made significant inroads in electrophysiology, a fast-growing sector that was jump-started last year when the CMS expanded Medicare coverage for pricey implantable cardiac defibrillators (May 5, 2005, p. 34).
"One would hope that bidding for a company at a high market value does not result in higher costs for such devices by hospitals and ultimately patients," said Stephen Winters, director of the cardiac rhythm-management program at Morristown (N.J.) Memorial Hospital.
It remains to be seen what the ultimate effect will be for hospitals. With baby boomers aging, the need for cutting-edge cardiology care will grow, but the cost/benefit of the procedures is still unclear, said Michael Klein, general counsel for Deborah Heart and Lung Center in Browns Mills, N.J. The companies "are vying to position themselves in a relatively limited market with relatively limited vendors and an expanding market for the product," he said. "I believe the consolidation and reduction in the number of vendors may have adverse effects on the competitiveness in the marketplace," he said.
J&J said last week that it had decided not to increase its last offer for Guidant "because to do so would not have been in the best interest of its shareholders." J&J also reminded Guidant in the same statement that under the terms of the agreement it was required to pay J&J a $705 million breakup fee by Jan. 26.
The deal also helps accelerate Abbott Laboratories' bid for a presence in the drug-eluting stent market. Boston Scientific agreed to sell Guidant's vascular intervention and endovascular businesses to Abbott, while sharing the rights to Guidant's highly regarded drug-eluting stent technologies.
Abbott has agreed to pay Boston Scientific $6.4 billion in cash-$4.1 billion of that for the Guidant assets, a loan of $900 million and the purchase of $1.4 billion in Boston Scientific stock. Officials said that the agreement with Abbott should ensure that the companies rapidly secure antitrust approvals. The deal is expected to close by the end of the quarter.