Boston vs Cook
Spencer. Boston Scientific Corp. won a judgment against Indiana-based Cook Inc. in a dispute over a drug used to coat stents, devices that prop open heart arteries after angioplasty.
Boston Scientific shares rose $1.74, or 6.9 percent, to $26.86. Guidant Corp., Cook's partner in the dispute and the top maker of stents in the U.S., fell $2.45, or 7.2 percent, to $31.70.
U.S. District Court Judge Charles Kocoras ruled today in Chicago that Cook's agreement with Guidant of Indianapolis to develop a stent coated with the cancer drug paclitaxel violated a contract Cook had with Boston Scientific. Guidant and Boston Scientific are trailing Johnson & Johnson in the race to bring a drug-coated stent to market, an advance that's expected to double the $2 billion annual market for the devices.
"This is a major blow to Guidant," Robertson Stephens analyst Wade King said. "It places a sense of urgency on Guidant to do a deal to access additional compounds for drug-coated stents."
Paclitaxel, the generic version of Bristol-Myers Squibb Co.'s Taxol, has shown promise in preventing a condition called restenosis, a reclogging of arteries held open by stents that's a common side effect. Closely held Cook and Boston Scientific licensed paclitaxel from Angiotech Pharmaceuticals Inc. in 1997.
In August, Cook of Bloomington, Ind. agreed to develop a paclitaxel-coated stent with Guidant, which this year has abandoned work with a second compound and licensed a third in its research into drug coatings.
"Guidant continues to believe that Cook has the right to enter into a distribution agreement with Guidant," Guidant Chief Executive Officer Ronald Dollens said in a statement. "We are disappointed with the judge's ruling, which Cook plans to appeal."
Guidant's options would be buy Cook, so they could legally gain access to the drug and bypass the ruling, or form an agreement with Boston Scientific, King said.
"For Guidant, drug-coated stents is a must business for them, and any threat to their competitive position is a serious blow," said King, who raised his Boston Scientific rating to "buy" from "market perform" and doesn't own the shares personally.
"My guess is that Boston Scientific will settle for a royalty or (Guidant) will have to buy Cook," said David Gruber, who helps manage $400 million at the WPG-Farber Hedge Fund. "Either way, it will be dilutive because its going to cost them money."
Johnson & Johnson received approval earlier this year to sell a drug-coated stent in Europe. Its shares rose 17 cents to $57.41.
Kocoras described Cook's arrangement with Guidant as "unlawful" and "a sham," King and Merrill Lynch analyst Dan Lemaitre both said in reports. The judge will issue a written opinion by mail within a "week or so," according the Northern District of Illinois Web site.
The court scheduled a hearing for June 27. Boston Scientific will request a permanent injunction to prohibit any Cook and Guidant collaboration and get any clinical data or technology that violates the 1997 agreement with Angiotech, Boston Scientific said in a statement.
Boston Scientific and Cook Group both have plants in Spencer.