Boston Scientific

1
Boston Scientific

• Guidant Acquisition Strategy

Aaron Black Adam Okurowski Peter Serra Ian
Seely Anatoliy Chistov
February 13, 2006
2
Recent Acquisitions

• Precision Vascular Systems, Inc. April 4,
  2004
• Advanced Bionics Corporation June 1, 2004
• Advanced Stent Technologies, Inc. March 4,
  2005
• Trivascular, Inc. April
  18, 2005
• Rubicon Medical Corporation June 14, 2005

Data provided by Thomson Financial/First Call
3
Health Care Supplies Sector Peers
    Market Cap Price P/E EPS
Johnson Johnson JNJ 169.1 56.80 16.24 3.5
Medtronic MDT 66.2 54.70 26.97 1.86
Guidant GDT 24.4 75.04 39.94 1.85
Boston Scientific BSX 17.7 22.26 11.88 1.63
St. Jude Medical STJ 17.5 48.16 31.34 1.54
Data provided by Thomson Financial/First Call
4
BSX and GDT
5
SWOT Analysis

• Strengths
• Global leader
• R D
• Abbot Labs
• Tracking System

• Weaknesses
• Product Recall
• J J Deal Break Fee
• Debt Load

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SWOT Analysis (cont)

• Opportunities
• Patent Protection
• Heart Device Market
• Demographics

• Threats
• New drugs
• J J acquisition

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BSX GDT - Shapiro

1. The availability of economies of scale in
   production - questionable
2. The possibility of product differentiation
3. Cost advantages - Combined RD efforts, patent
   cross sharing
4. Monopolistic access to distribution channels
   -relationship marketing
5. Protective government regulation - strong
   regulation of medical products

8
Porters Five Forces of Competitive Position
Healthcare Medical Instruments Supplies

• New Market Entrants
• VERY high cost of entry
• Size scale
• Learning/ Experience Curve
• Strong Govt Regulation
• High Specialization / Differentiation
• Access to distribution channels
• High RD Costs
• Patent Protection

• Competitive Rivalry
• High concentration of wealth
• Large industry / high innovation
• High fixed variable costs
• Highly Specialized Products
• Substitute devices
• Low cost foreign imports

• Buyer Power
• High large players
• Value conscious customers
• Low frequency of change
• Specialized purchases
• Volumes / Quality
• Lower Budgets / Less Vendors

• Supplier Power
• Powerful brand reputation
• Global coverage
• Level of quality
• Customer relationships fragmented
• Possibility of forward integration

• Threat of Substitutes
• Alternatives price/quality
• Market distribution changes
• Proven technology addresses problem
• Substitution of need obsolescence
• New technology

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Formulation of Competitive Strategy Porter
ViewA Focus on the External Factors
What economic opportunities are there? (need for
medical supplies as population ages)
What do we do well?
Internal Factors
External Factors
Competitive Strategy
What do our customers / regulators expect? (high
quality effective devices and supplies)
What is the goal of our management?
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Barriers and ProfitabilityA Closer Look at One
of Porters Five Forces
Exit Barriers
Low
High
Low, Stable Returns
Low, Risky Returns
Low
Entry Barriers
High, Risky Returns
High, Stable Returns
High

• As is the case with both Boston Scientific and
  Guidant, substantial economies of scale in
  production are usually associated with
  specialized assets the presence of proprietary
  technology and patents.

11
BSX GDT - Kauppi Model

• Combined Revenues of BSX GDT gt BSX
  Revenues GDT Revenues
• Achieved by focus on integration and
  implementation of Kauppis acquisition strategies

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BSX Strategies Kauppi Model

• Improve or Complete a Product Line
• Technology Build or Buy?
• Capitalize on a Company Strength
• Past Acquisition Success
• Focus on Integration