By Rachel Barron

Med-tech maker Boston Scientific had a tough 2006. Despite winning a high stakes-biding war for troubled heart device maker Guidant, glory was short lived.

Investors sent Boston Scientific’s shares down about 30 percent, saying the company paid too much when it agreed to fork out $27 billion for Guidant.

And as if that weren’t enough, Fortune magazine called the buyout “the second worst deal ever” (the first honor went to the AOL/Time Warner deal).

Fortune

But Boston Scientific isn’t making any apologies. This week at the JPMorgan Healthcare Conference in San Francisco, Boston Scientific CFO Lawrence Best took to the stage to defend the company’s decision.

San Francisco

“Best thing we ever did,” Mr. Best said about the deal. And to be clear, “it’s not about how much we paid. Thank God we paid.” he added. In fact, “We sleep much easier today than we would have otherwise,” he said.

Without Guidant, Boston Scientific is basically a one-product company, Mr. Best said. Sure that one product is a doozie. To date, Boston Scientific is the market share leader in the more than $5-billion drug-coated stent market.

Taking on J&J

In the United States, which accounts for about $3 billion of the pot, Boston Scientific and competitor Johnson & Johnson are the only companies to have won the coveted Food and Drug Administration approval for the devices that prop open heart arteries after they have been de-clogged.

United States

But competition in the drug-coated stent space is brewing. And with Boston and J&J penetration in the market already being quite deep, new entrants will have no choice but to try to take market share.

Boston and

As a result, Boston Scientific looked to bulk up, and bulk up big. So it went after Guidant.

Guidant was one of a few working in the cardiac heart rhythm management market. The sector, which makes heart devices like defibrillators and pacemakers, shined like a gold coin for its ability to pull in about $6 billion in the U.S. And despite a slew of recalls that plagued Guidant, Boston went for it anyway (see Boston Sci’s $381M Indigestion).

U.S.Boston Sci’s $381M Indigestion

Mr. Best stood in front of 200 investor-type attendees at the conference and tried to bolster confidence in the move. To do that, he had to admit the hurdles that still lie ahead and how the company plans to overcome them.

First, the balance sheet. “Clearly we have more debt than we would like,” Mr. Best said.

In an attempt to reduce the financial risk now strapped to the company, Mr. Best said the company was looking for areas to spend down.

“We are literarily tearing the place apart, if you will, to do an analysis,” he said.

Job Cuts

Helping on savings will no doubt be the 500 to 600 jobs the company said Monday it plans to cut from its cardiac rhythm division.

As to the greater plan, Mr. Best said he’s “developing thoughts” as to what’s best for shareholders, rating agencies, and the company. At this point, “anything is on the table,” he said.

When pressed for any type of detail, Mr. Best would only comment, “I’m not done thinking about it.”

“It sounds like George Bush thinking about Iraq,” quipped JPMorgan medical device analyst and conference moderator Michael Weinstein.

Iraq

On the Upswing

But what Mr. Best did say with more certainty is that the cardiac heart rhythm management space on the whole looks to be on the upswing.

The space took a heavy hit last year after a number of devices were recalled. Guidant was particularly hard hit due to an unwanted spotlight on damaging disclosures (Guidant: Now It’s Batteries, Guidant Late on Repair Alert, J&J May Leave Guidant at Altar, Guidant Gets FDA Warning, 3 Deaths Linked to Devices, Guidant Linked to a New Death).

Guidant Late on Repair AlertGuidant Gets FDA WarningGuidant Linked to a New Death

Ever since, analysts have been wondering when the industry decline would finally reach its end. For Boston Scientific specifically, “we really felt in the third quarter we were bottoming out,” Mr. Best said. “Fourth quarter felt a lot better.”

Boston Scientific’s fourth quarter cardiac rhythm device sales gained 10 percent from the third quarter to $489 million.

But Boston Scientific is looking for more than just an industry rebound. It’s putting its focus on a company rebound as well.

To address Guidant’s tarnished image à la recalls, Mr. Best said the company is working with doctors and patients to address quality concerns.

“We are making progress account by account. Businesses are coming back to us. The loyalty is starting to be renewed,” he said.

Recapturing the Market

And once Boston Scientific regains that confidence, Mr. Best anticipates taking back any share his company has lost.

Although the Guidant deal hasn’t been the only issue pulling down Boston Scientific stock, it’s defiantly been the biggest deflater

Nonetheless, “people are hopeful that the stock will be able to come back this year,” Mr. Weinstein said. But there are a lot of challenges facing the company’s comeback.

And many of those challenges will increase in 2008 and 2009 when upwards of five companies could have their drug-coated stent products on the U.S. market.

U.S.

“They are still facing a tough period in front of them independent of the Guidant business,” Mr. Weinstein said.

But Mr. Best and company show no signs of backing down. And at least with the Guidant business, he maintains it was the best move Boston Scientific ever made. “You will see that,” he promised.