Medical Device Daily

While the shareholder approval of the Boston Scientific /Guidant merger late last month was reportedly “overwhelming“ in its favor, those voting most readily for the deal must certainly be aware that the best prospects for this newly formed cardio conglomerate will come in the long haul, not the short term.

With deal close we couldn't help but think of the new company as much like Gulliver, tied down by a bunch of Lilliputians. But the combined Boston Sci/Guidant concerns that the now much larger company will face are hardly Lilliputian.

Let's note some of them.

An FDA warning letter issued to Boston Sci in January.

The letter has put the kibosh on the company's normally hefty schedule of regulatory approvals and rollouts, putting them on hold until a variety of quality problems have been cleaned up.

Interestingly, Boston Sci – which will be the parent and driving part of the expanded entity – makes the resolution of these issues its No. 1 priority, not the integration of the organizations.

That was made clear by Boston Sci executives during their most recent analyst conference call. But as the parent company, Boston Sci would seem to be rather weak as a guide for its new Guidant subsidiary (or whatever name it gives the new unit) in negotiating the dark corridors of FDA regulation.

Integration of the two companies.

This is the second in the list of priorities detailed by Boston Sci during its analyst call. In reality, achieving this may not be too difficult since both companies are focused on the same technology sector, with a host of well-established products and strong sales groups in place.

But a variety of large adjustments in staffing and facilities will have to be made, and we have never seen a large company move very swiftly or gracefully. Overall, the integration of these two big entities calls to mind a picture of an elephant couple making love. Awkward, but doable.

A legal quagmire.

This one will be rough. Without suggesting that we are offering a professional legal perspective, we would expect that Guidant/(Boston Sci) will be paying out hundreds of millions of dollars in lost liability suits, individual settlements outside of court and class action settlements.

But the main problem here probably won't be monetary, since these big companies have learned to simply squirrel away the cash to cover these “costs-of-doing-business“ legal expenses for later payout.

No, the bigger issue will be that of public relations. Court reports from the liability trials, or of settlements, will dog the company for dozens of months to come and cast a shadow over Guidant's products.

The proposed name change for the rhythm management unit won't be much of a shield either. Rather, it will force physicians to tell patients, “Oh, you're getting a defibrillator made by ______ – you know, the company that used to be Guidant.“

Patient response: “Doc, maybe one of those St. Jude [or Medtronic ] models might be better.“ (And given the current legal environment, smart doctors are likely to agree.)

All of this won't be helped by the fact that neither Boston Scientific nor Guidant is great at the PR game. Boston Sci basically ignores the trade press, and Guidant has been shown to lack a skill set for clear, consistent and necessary communication.

Sector share woes.

The combined company is going to have lots of difficulty here if it can't provide a running start to show it can move ahead and run smoothly in its merged operations.

Boston Sci may suffer from being linked to a tainted subsidiary, and Guidant may have difficulty maintaining its R&D strength in implantable technologies if it must play second fiddle to a company focused on the interventional side of cardiovascular products.

Analysts and shareholders will especially be watching with a microscope the effect of the merger, both in terms of quarterly sales reports, R&D success and new product offerings over the next two to three years.

We are not economists, but we assume the big debt Boston Sci must take on will be a drag on financial flexibility for months and months to come. And it is likely to see growing pressure on the all-important sales of stents as new players enter the drug-eluting stent space this year and the next.

Then there's Indiana.

Indianapolis clearly fears the loss of its major participant in the med-tech space. If Guidant pulls up stakes and moves on, that region, not particularly a big player in med-tech, will fall even further behind this particular curve.

But finally, and more importantly, the question is whether patients in Indiana – or anywhere else in the world – will see real benefits from this marriage

Probably, hopefully, they will.

We assume that there is sufficient humane leadership in the organization to tie these two big cruise ships together and head them upstream – scientifically, technologically and clinically.