Judge blocks Cook merger

INDIANAPOLIS -- A judge's ruling in a licensing dispute could knock Guidant Corp. out of the race to introduce new heart-disease technology expected to create a $4 billion market opportunity by 2004.\nThe ruling also jeopardizes Guidant's pending acquisition of Bloomington-based Cook Group Inc., a deal the Indiana companies hope will improve their position against rivals including Johnson & Johnson and Boston Scientific Corp.\nShares of Guidant, an Indianapolis-based medical device maker, tumbled nearly 16 percent Wednesday.\n"The evidence tells you that Guidant took a big step back today, and J and J and Boston Scientific took a big step forward," said industry analyst Thomas Gunderson of U.S. Bancorp Piper Jaffray.\nGunderson forecasts sales of drug-coated stents to reach more than $4 billion in 2004.\n"Yesterday morning, three companies were going to split that market, and today, two companies are going to split that market," he said.\nGuidant is the market leader for bare-metal stents inserted to prop open coronary arteries after artery-clearing surgery. The next-generation stents are coated with drugs to prevent scar tissue from forming and causing new artery blockages -- a complication occurring in about one-quarter of angioplasties.\nNew Brunswick, N.J.-based Johnson & Johnson is expected to be the first to reach the U.S. market with a drug-coated stent early next year, followed by Boston Scientific.\nGuidant hopes to reach the market next September. But that expectation is clouded by a ruling late Tuesday by U.S. District Judge Charles Kocoras of Chicago.\nGuidant and Cook both said they both would file an appeal and seek a stay to block an injunction from Kocoras that bars Guidant from selling a Cook-developed stent.\nRonald W. Dollens, Guidant's president and chief executive, said the company "will pursue alternative pathways to bringing drug-eluting stent technology to the market," and might renegotiate its pending acquisition of Cook in light of the ruling.\nNatick, Mass.-based Boston Scientific argued that last year's sales deal violated a 1997 licensing agreement involving Cook, Boston Scientific and Vancouver, British Columbia-based Angiotech Pharmaceuticals.\nKocoras agreed with Boston Scientific that the 1997 agreement bars Guidant from distributing stents coated with the anticancer agent paclitaxel.\nThe judge also ruled that Guidant and Cook could not commercially use data from a patient trial of Cook's Achieve stent.\nIf Guidant fails to block or overturn Tuesday's ruling, the company expects its 2003 revenue forecast to drop from more than $4 billion to as low as $3 billion.\nIn trading Wednesday on the New York Stock Exchange, shares of Guidant closed down $5.10 to $27.73. Boston Scientific shares closed up $3.32 to $35.60 and Johnson & Johnson shares climbed $2 to $58.30.\nOn July 30, Guidant announced plans to acquire privately held Cook in a stock deal worth up to $3 billion. Gunderson, of U.S. Bancorp Piper Jaffray, said Tuesday's ruling could cause Guidant to lower its offering price for Cook.\nDollens said Wednesday that Guidant continued to believe the deal should clear up any legal obstacles preventing it from selling the Achieve stent and sharing clinical data.\nGuidant will explore possible alternative agreements with Cook that could pass legal muster, Dollens said.\n"We think the acquisition is going forward, but the time frame may be different," he said.\nThe agreement is scheduled to close Jan. 3, but allows for a delay, Dollens said.\nIn March, Guidant halted one of the drug-coated stents that it developed, citing ineffective clinical trial results.\nCook last month won regulatory approval in Europe to sell a drug stent it developed without Guidant's involvement.\nGuidant, spun off from Indianapolis-based drug maker Eli Lilly and Co. in 1994, has more than 10,000 employees. U.S. operations include plants in St. Paul, Minn. and the California cities of Santa Clara, Temecula and Menlo Park.