Boston Scientific Corp. -- Pumped For Growth -- Heart, Scimed Acquisitions Propel Medical-Tehnology Firm Into A More Visible Vein

NATICK, Mass. - It's a billion-dollar company that won't foot the bill for a $1,000 sign.

As you drive up to Boston Scientific's worldwide headquarters in the suburb of Natick, the one thing you won't see is the Boston Scientific name.

Not on the building. Not on a billboard. Not even on the uniforms that security guards wear as they greet you near the parking lot.

Step into the main reception area, which is about as long and spacious as a football field, and all you'll see are eight couches, four wispy trees, three small paintings and a miniature rock garden.

It's part of the company's "stealth" strategy, to lie low and sneak up on competitors, but it belies just how visible and large Boston Scientific has gotten in recent months.

Much of that is due to its entry into the $3 billion cardiovascular market with its acquisition of SciMed Life Systems and Redmond-based Heart Technology in August.

After the merger, Heart has been recast as Boston Scientific Corp. Northwest, serving as a research lab for the Natick company while developing the next generation of its chief product - the Rotablator, a diamond-tipped drill-like device that scrapes plaque out of clogged arteries.

Heart, with 425 employees in Redmond, continues to manufacture the Rotablator on the Eastside, but its scientists are branching out into other projects to develop a wide variety of mechanical devices that can be fed through catheters.

It's a task that will be critical to Boston Scientific's success as the company continues to add to its product lines.

"Boston Scientific has done a tremendous job of diversifying its business over the last 18 to 24 months," Arch Smith, a managing partner and analyst with Piper Jaffray in Minneapolis, recently told Bloomberg Business News.

Consolidation has been a major reason for the recent growth in medical-technology stocks, he said.

In the past year, Boston Scientific has tripled its sales to more than $1 billion and quadrupled its market valuation to more than $8 billion as it takes on Johnson & Johnson for supremacy in the market for medical devices such as catheters and cardiovascular tools.

The company's stock, which was trading at $24.75 last April, exploded to $51.62 at the end of January. It's fallen back to about $43 but is still up 72 percent for the year.

Based on its current price, Heart investors, who received $27 worth of Boston Scientific stock for each of their shares, still saw their stock rise between 10 percent and 25 percent, based on the price at which they sold.

Analysts look for Boston Scientific shares to climb fairly soon because of the value of two more acquisitions - Meadox, a maker of vascular-repair products, and EP Technologies, a catheter manufacturer.

Boston Scientific, which made seven acquisitions in 1995 worth $2.5 billion, has spearheaded a wave of mergers within the industry, taking a cue from health-care providers such as health-maintenance organizations, which began merging years ago.

"The provider side consolidated in '93 to '94," said Larry Best, Boston Scientific's chief financial officer. "The supplier side needs to follow suit."

It makes some sense. Large, full-service suppliers can provide one-stop shopping to managed-care companies, which want the convenience.

"It's now one sales rep carrying all of (Boston Scientific's) collective products to the interventional cardiologists," said Bill Scott, former chief financial officer at Heart and now vice president of BSC Northwest.

Boston Scientific's products also emphasize less-invasive treatments, or those that don't require full surgery. The treatments require less hospital time and are thus more attractive to managed-care companies.

Though Boston Scientific has been a player in the medical-technology business for years, it wasn't until it entered the cardiovascular market that it began to get attention.

"We've been successful in every part of the body except cardiovascular," Best said. "We were latecomers to that because we went after areas where others didn't."

But the company has caught up quickly, in particular with the acquisition of Heart, SciMed Life Systems and CVIS, a Sunnyvale, Calif., company with an ultrasound device that can be fed through a catheter to the site of a clogged artery.

The CVIS device, designed to help surgeons see what they're doing, could one day be used with the Rotablator, company officials said.

Or it could be used to assist in balloon angioplasty, a competing and more widely prescribed procedure in which a balloon is placed near a blocked portion of an artery and is inflated to unclog the blockage.

SciMed is one of the leading manufacturers of balloon-angioplasty equipment.

Boston Scientific said it will remain "technology neutral," meaning that it won't push one of its products over another.

"It's an issue of credibility," Best said. "If you only have one technology, how credible would you be marketing it? Of course you're going to be pushing that product; it's the only thing you have to offer.

"What we can do now is offer whatever best suits the patient's needs," he said.

To a certain extent, it's risky for Heart because any time SciMed sells angioplasty balloons or stents - wafer-thin, metallic, scaffold-like structures used to prop open cleared arteries - it might mean one less Rotablator on the market.

"That's always a possibility," said Jay Silverman, an analyst with Schroder Wertheim & Co. in New York. "But the Rotablator is a very nice niche product that isn't appropriate to all situations but seems to work well in some."

Silverman noted that surgeons are beginning to combine treatments. For instance, they may burr the artery open using the Rotablator, then use a stent to prop the artery open.

The concept isn't new.

Stenting following balloon angioplasty is quite common. That's one of the reasons why Johnson & Johnson went after Cordis Corp., acquiring it for $1.8 billion in stock.

"That deal confirms (the validity of) Boston Scientific's strategy," Silverman said.

Johnson & Johnson's 1995 stent sales were about $425 million. Earlier this month, the company sued Boston Scientific, claiming a patent violation on stent technology.

Rotablator sales, on the other hand, were expected to be much lower just before the acquisition, at about $80 million to $100 million.

Analysts said it is too soon to tell if Rotablator sales have increased as a result of the merger, though the cost of producing the devices has dropped with the consolidation.

The international sales expertise of Boston Scientific and SciMed is expected to give Rotablator sales a boost in Asia and Europe.

"They seem to be managing the (consolidation) very well," said Silverman, who rates the stock attractive. "We like it a lot. It's one of our favorites in the biomedical field."