Friday, September 22, 2006

Calls of Note Part 5

Merrill Lynch notes that Boston Scientific (NYSE:BSX), Angiotech's (NASDAQ:ANPI) partner, pre-announced TAXUS sales for Q3/06 (affects ANPI's Q4/06), projecting a range of $550 mm to $580 mm, below their estimate of $610 mm. Firm estimates a negative impact of $0.02 to their EPS estimate of $0.16. TAXUS royalties represent 39% of their revenue est. for Q4.

The preliminary results of BSX's Q3/06 suggest sequential declines in revenues in both the US and in Europe/RoW. BSX indicates a slowdown in growth of DES penetration in Europe, and declines in the US market. Other potential causes for the shortfall could be a) typical summer slowdown, especially in Europe; b) increased publicity regarding concerns of late thrombosis (firm would prefer to see Johnson & Johnson's sales of Cypher to verify); and c) an increase in market shares for Medtronic and/or Conor Medsystems in Europe.

Firm says the shares are trading at a large discount to our price objective, discounting a significant decline in the TAXUS franchise. The shares are likely to remain weak given the lower TAXUS sales, but firm retains their Buy rating due to upcoming milestones including: (a) evidence of successful integration of AMIH and realization of synergies; (b) details on product launches including the Contour threads and coated biopsy needles; (c) rulings in the litigation with CONR and Biosensors; (d) BSX's response to the FDA Corporate Warning Letter, and the launch of the TAXUS Libert stent expected in Q2/07; (e) clinical data and early European launch information for competing stents; and (f) additional acquisitions/in-licensing deals.

Notablecalls: TAXUS weakness doesn't come as a surprise, but the magnitude of shortfall is bigger than expected. Expect ANPI to see some weakness today.

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