The New York Times reported today that in January 2005 Guidant drafted a letter warning doctors about a short circuiting defect in its Contak Renewal and Contak Renewal 2 defibrillators, but never sent the letters to doctors over concerns the letter would cause “undue alarm” and result in procedures to remove potentially faulty devices, and that such procedures would be associated with higher risk than simply leaving the debrillators in place. The letter and other documents were unsealed by a Texas judge overseeing a product liability lawsuit.Of course hindsight is 20/20. With what Guidant (now Boston Scientific) knows now, there is no question (at least in my mind) that failing to send the letter, and instead sending the “product update” letter, was ill-conceived. The subsequent recalls and class action lawsuits caused a reveral of fortune for Guidant, knocking billions off the price tag of its sale to Boston Scientific.
If there was indeed real concern about the risk of explantation being higher than the risk from faulty defibrillators, then that is precisely what should have been communicated. It is difficult to conceive that Guidant calculated the potential fallout from the letter and deemed it to be greater than the fallout of not disclosing the defibrillator defects. In this day and age, in which every misstep by manufacturers is magnified with crystal clarity, it is an absolute obligation to understand the impact of product liability.
Here’s another reference from BusinessWeek today, “Bypass that Operation”, on the same vein about doctors who don’t know what they are doing, including performing unnecessary surgery.Â Â It suggests that many if not most of 400,000 bypass surgeries and 1 million angioplasties are unnecessary.Â
While I find fault with the general tone of this article, glorifying Dr. David Eddy, his brilliance and his blunt challenge to healthcare that it needs better proof for the efficacy of its treatments, because the tone of this article blithely understates the fact that there is a clinical basis for the decisions doctors make, some patients actually do get better by the treatments prescribed, and wholesale dismissal of physicians’ education and training may have less to do with the facts than it does with Dr. Eddy’s ego and BusinessWeek’s need to make brash statements to gain attention.Â This is not to say that I do not believe there are flaws in the process, but there is little justification for the kind of criticism that the BW article. What bothers me most about this article is that its sensationalistic approach to the subject and its flippant consideration of clinical practice on a grand scale trivializes the benefits of medicine and medical technology to patients.
By the way, in 2003, I was diagnosed with coronary artery disease, with blockage at 90% in one artery. While Dr. Eddy may thrive on the debate challenging the value of angioplasty and stenting (“mesh tubes” are not angioplasty, BusinessWeek), I know that however true it may be that some “cheaper alternative” might have done as well as angioplasty/stenting, there was no such alternative at the time. I am alive now. Replicate my experience with all others similarly diagnosed and that is precisely the reason for the high utilization of angioplasty/stenting. BusinessWeek’s cursory analysis failed to consider such an obvious driver.
I have always had a rather sanguine understanding of medicine, having been sensitized to its practical limitations for most of my life. Having been the son of a general surgeon and the nephew of a pediatrician, I saw many aspects of medicine that have tempered my thinking about treatment alternatives in the medical device industry. For this reason, when I came across the article in theMay 29, 2006, issue of BusinessWeek Online, asserting that healthcare professionals really know little about which treatments actually work, I found agreement with the idea, and in some cases strongly so, but in other cases I felt the premise misses a few big boats.
From BusinessWeek: “The problem is that we don’t know what we are doing,” says Dr. David Eddy (the“mathematician and health-care economist” who coined the term “evidence-based medicine”), arguing that, bluntly, there isn’t very much of this in healthcare today. Further, according to BusinessWeek, “even today, with a high-tech health-care system that costs the nation $2 trillion a year, there is little or no evidence that many widely used treatments and procedures actually work better than various cheaper alternatives.”
The point at which I agree with this is that physicians have always been given wide latitude in determining therapeutic choices, by virtue of their education, their consideration of many different variables affecting patient condition and the suitability of any given treatment. What drives the physician’s decision-making is the availability of a reimbursible therapeutic option that specifically addresses the clinical problem to address the medium term need of the patient. By “medium term” I mean the need to solve the problem now, get the patient back on their feet and keep them that way not in any permament sense, but in a medium term sense. Does any cardiothoracic surgery think CABG is a permenent solution? Perhaps long term, but not permanent. Does any interventional cardiologist believe even a drug-eluting coronary stent is a permanent solution? Perhaps more likely to be permanent than bare stents or angioplasty alone, but certainly not permanent. So, doctors are applying the available therapeutic option for the longest solution that is viable. There are many stakeholders interested in the more expensive option — medical product manufacturers, physicians, even patients (who want the high-tech quick-fix). There are not many stakeholders advocating for cheaper options — perhaps HMO’s — but who is listening to them?
However, medical devices and drugs are already aggressively evaluated for their efficacy against controls, so the premise of this article, however well-founded, overstates the case when it comes to the use of medical products. The upshot of this article otherwise is to suggest that the upward spiraling U.S. healthcare costs are attributable to expensive treatments alone, when indeed the focus should be on clinical decisions themselves. Physicians are the ones who have been given the latitude to apply them or not, and until they have a different incentive system or until the evidence is much stronger for alternative treatments, absolutely nothing will change.
In our April issue of MedMarkets, we cover the current and forecasted market for drug-eluting stents, considering the pending introductions of a number of competitors to established players J&J and Boston Scientific. We also look at the hard successes of biotech in bringing products to market and the growing success the industry is having in once again attracting invesment. Below is our outline of coverage:
Biomedtech, Combo Technologies Bolster Growth in Device Markets
Flurry of Cardiovascular Drug-Eluting Stents Nearing Market
MedMarket Outlook: Opportunities in Common Technology Threads
Early Stage Companies:
Intraoperative Determination of Tumor Margin
All -Polymer Hip Implant European Trial
Ultrasound-Assisted, Transdermal Insulin Delivery
Early Stage Company Financings: Active Implants, AngioScore, Aptus Endosystems, BlueBelt Technologies, CryoFluor Therapeutics, Ultradian Diagnostics
Recent Medtech Startups
Biotech Update: Carbon Nanotube Scaffolding Fosters Proliferation of Bone Cells
Drivers: California Judge OKs Stem Cell Research Agency
Leading Clinical Edge:
Measuring EPCs: A new Test for Heart Disease?
Artificial Nuscle Stronger Than Natural Muscle
“Neuro-chip” Leads to Improved Communication
U.K. Researchers to Produce Wound Monitor
Online (HTML) Only:
Articular Cartilage Paste Grafting Shows Promise
New Knee Repair Technique Introduced
Stent-Graft Improves Aneurysm Repair
Better Outcomes with Less-Invasive AAA Repair
CRT Devices Linked to Better Outcomes
Esophageal Stenting Found Effective
ISSYS Awarded Patent for Wireless Sensors
WorldHeart’s LVAS Enters Key Phase in Animal Testing
Sorin to Launch Cobalt Chrome Carbostent
ATS Announces First Implant of Annuloplasty Ring
Medtronic’s AAA Stent Receives FDA Approval
FDA OKs DexCom’s Glucose Monitoring System
FDA Clears Bone Graft Product
Regeneration Technologies Launches New Implant
Online (HTML) Only:
MicroCHIPS Develops Wireless Drug-Delivery System
Cordis to Develop Cardiac and Vascular Institute
Nanogen Receives Clearance for CHF Test
Crestor Reverses Heart Disease
Biomet for Sale?
Orthopedic Companies Promote Knee Implants for Women
Pioneer Surgical, Encelle to Work on Spinal Fusions
The April 2006 issue of MedMarkets updates the market for drug-eluting stents. We also review the status of the biotech industry, considering a report from Ernst & Young (Beyond Borders: The Global Biotechnology Report) and other data on this ever-optimistic industry. (BTW, I found it particularly curious that the E&Y report referred to this year as the 30th anniversary of the biotech industry — having once worked for one of the first biotechnology companies, Collaborative Research, which was founded in 1961, later named Genome Therapeutics and now known as Oscient Pharmaceutials, I guess biotech just measures time differently.)Coverage in the April MedMarkets is outlined (and will be updated) on our archives page.
Lastly, thank you for those comments received on our all-too-brief, but apparently well received, “High Growth Medical Technologies” white paper. We are considering updating and expanding it in the near future.
In a final move that seemed (at least in the eyes of some industry analysts) as likely to be designed to increase J&J‘s price tag for the acquisition of Guidant as it was an actual competitive bid, Boston Scientific had this month upped its bid to $27 billion ($80 per share), and when the midnight (January 24) deadline passed without J&J responding with another offer, it now appears likely that the winner in this bidding war will be Boston Scientific. Guidant has accepted Boston Scientific’s offer and terminated the agreement to be acquired by J&J. For its part, J&J issued a statement saying, “it had determed not to increase its last offer for Guidant Corp., because to do so would not have been in the best interest of its shareholders.”Confidence is high in the likelihood of BSX making a success of this, given the related deal with Abbott (to acquire Guidant’s vascular business), the fit with Boston Scientific and, at least in general, the relative value of the acquisition price tag and the Guidant revenue streams and balance sheets. But one has to give pause to this and consider several points:
J&J is as experienced in acquisitions as any monolith out there and it viewed the $27B price tag as too high. Do they know something that BSX doesn’t?
BSX and J&J have been bitter rivals in the DES market and one can’t help but wonder if the rivalry hasn’t clouded BSX’s judgment, making this little more than a pyrrhic victory for BSX. A loss for J&J does not equate with a win for BSX.
The combined BSX/GDT business now has $12 billion in debt, a hefty burden that can only be lightened by market performance (oh yes, see “Guidant Defibrillator Recalls”).
It’s very hard not to think back to the Time/Warner acquistion of AOL, and in that case Time/Warner did not have a competitor who balked at the value of the deal, and we all know how well the AOL acquisition worked for T/W.
In the latest turn in the burgeoning bidding war over Guidant between J&J and Boston Scientific, Guidant on Wednesday accepted J&J’s $23.2 billion acquisition offer, but Boston Scientific has indicated it is not yet walking away from the deal. Moreover, Guidant has expressed to Boston Scientific that it is willing to consider additional talks and a better offer, and it is entirely likely that Boston Scientific will, given the $14 billion in funding available to them from banks who have agreed to help finance the deal.Both sides appear prepared to really go to the mat on the deal, which further supports the likely significance of “winner’s curse”, in which the ultimate acquirer ends up paying more for the deal than they should. Already, J&J has offered to pay $1.9 billion more than it offered in November, when it had then dropped the price to $21.9 billion as a result of the recalls that, in J&J’s views, had effectively reduced the value of Guidant. Of course, the $1.9 billion premium does not reflect any added Guidant value, but instead represents the price J&J is attempting to pay to take Boston Scientific out of the game.
One has to wonder, in this high stakes poker game, if one or both players recognizes that the goal is not to acquire Guidant but to make the other pay more than necessary while improving the likely terms to acquire the alternative ICD player, St. Jude.
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? Itâ€™s not likely to be Medtronic, with a $70 billion market valuation.
Following the surprising (but not shocking) offer yesterday by Boston Scientific to buy Guidant for $25B, upping the deal by $3.4B over J&Jâ€™s renegotiated deal, Guidant is agreeing to cooperate with Boston Scientificâ€™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 â€œfull and fair valueâ€ for the deal (see NYT today) and J&J Chairman William J. Weldonâ€™s statement as such did not mention Guidant shareholders, itâ€™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 companyâ€™s earnings in each the last four quarters, the companyâ€™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.