Boston Scientific gets approvalfrom FTC for IVUS acquisitions

March 15, 1995

Settlement hinges on HP licensing dealBoston Scientific appears to have broken through the red tapedispensed by the Federal Trade Commission. The Watertown, MA,company has received provisional approval from the FTC to buyboth Cardiovascular

Settlement hinges on HP licensing deal

Boston Scientific appears to have broken through the red tapedispensed by the Federal Trade Commission. The Watertown, MA,company has received provisional approval from the FTC to buyboth Cardiovascular Imaging Systems (CVIS) of Sunnyvale, CA, andScimed Life Systems of Maple Grove, MN. Boston Scientific mustwait 30 days for public comment before the commission votes onwhether to finalize the deal, but it is unlikely that any problemswill arise during that time.

"We were impressed by the diligence that the FTC investedin this," said Larry Best, CFO of Boston Scientific. "Theydid a very careful review and took many, many, depositions ofcustomers, of competitors, even of organizations that don't competewith us. They have a pretty full book of comments and views. Ican't imagine any new comments or views surfacing in the next30 days that would require us to undo the transaction."

One of the companies interviewed by the FTC was Endosonicsof Pleasanton, CA. Reinhard Warnking, the company's presidentand CEO, expects the merger with CVIS to have a positive effecton the intravascular ultrasound market.

"As the larger players get involved, there will be moreinvestment to further develop this technology," Warnkingsaid. "(As a result of the merger), there is a nice valuationof what this technology is worth."

Warnking noted that the CVIS acquisition is valued at $100million.

Endosonics makes intravascular systems that directly competewith those of Boston Scientific and CVIS. But the companies differin their technological approaches. Boston Scientific and CVISboth rely on mechanical transducers; Endosonics uses phased-arraydevices.

"We have seen in radiology and echocardiography that lateron, the more sophisticated electronic approach clearly takes over,"Warnking said. "Therefore, long-term, we are not concernedabout this consolidation of the mechanical players into one camp.Short-term, there might be additional pressure."

Boston Scientific is enthused about getting back on track withits plans to develop not only diagnostic but therapeutic minimallyinvasive products. The company also plans to invest heavily inthe development of nonvascular applications. Although the currentproducts rely on mechanical transducers, future products mightnot.

"We're not going to be that restrictive," Best said."We will also be working on phased-array technology."

Boston Scientific has been waiting months to complete the proposedacquisitions. Although the Scimed purchase is valued at more thaneight times the worth of the CVIS deal, the FTC apparently wasmost concerned by the proposed CVIS acquisition. The concern wasthat combining the two companies might be anticompetitive. BostonScientific and CVIS hold commanding shares in the worldwide intravascularultrasound (IVUS) market. Together CVIS and Boston Scientificare believed to have about 75% of the world market for IVUS products.Endosonics controls the remaining quarter of the market. Mostof Endosonics' holdings are in Europe, however, Warnking said.

A primary requirement in the provisional agreement with theFTC is that Boston Scientific license IVUS technology to a thirdparty approved by the commission. Boston Scientific already hasin place the means to meet that requirement, namely an agreementwith Hewlett-Packard, granting the required license effectiveupon the FTC's final approval.

"There was no way to complete the CVIS transaction withoutagreeing to set up a second competitor in this particular technology,"Best said. "So, via the licensing agreement with HP, we fullyexpect that there will be vigorous competition in (the mechanicallybased) market."

That competition will be decidedly nonadversarial. Under theagreement, Boston Scientific will also supply IVUS catheters toHewlett-Packard for resale. The two companies have also agreedto establish and maintain an open interface between the cathetersand consoles of both companies.