Boston Scientific Inc. (NYSE: BSX) is set to sell all its holdings in start-ups, including Israeli start-ups, in which it has minority stakes. Sources inform "Globes" that the sell-off is part of the company's plan to refocus on its core business in order to emerge from the financial distress caused by its acquisition of cardiology equipment giant Guidant for $27.7 billion.
Officially, Boston Scientific has said it was switching to a policy of "living below its means". The company doubled its net profit for the fourth quarter of 2007 to $300 million after slashing costs, but it still is burdened by heavy debt, forcing it to concentrate on its core business.
Boston Scientific has made no official announcement to date that it wants to sell its start-ups, apparently to avoid harming the sale negotiations, but the measure fits in well with the company's recent streamlining. The company will apparently not record any substantial cash flow from the sales, but since it had no plans to make follow-on investments in them, which would anchor its stakes, it prefers to sell the stakes and use the proceeds to support its core business.
According to IVC Online, Boston Scientific has invested in seven Israeli start-ups: superDimension Ltd, MEL Medical Enterprises Ltd., MediGuide Ltd., E-Pill Pharma Ltd., Beta O2 Technologies Ltd., Brainsgate Ltd., and VisionCare Ophthalmic Technologies Inc.. However, the company has apparently made at least ten other investments as well.
Boston Scientific has also invested in Israeli venture capital funds, including Ascend, Medica Venture Partner, and Vitalife Life Sciences Venture.
The pending sell-off is bad news for the companies in question. Boston Scientific is a strategic investor in the healthcare start-ups and venture capital funds. The sell-off will enable large medical device companies to acquire Israeli technology at bargain prices in a way that will inject no capital into the start-ups. The acquisitions may come at the expense of alternative investments under consideration in other start-ups.
Investment agreements like the ones that Boston Scientific made in Israeli and other start-ups usually include veto clauses that enable the start-up to prevent its sale to particular investors, as well as tag-along clauses that allow current investors to sell their shares together with Boston Scientific and at the same terms. These clauses are liable to complicate the sales, and could drag down the value of the companies.
A more optimistic scenario could have a long term, deep-pocketed investor buy several of the holdings from Boston Scientific, which in recent years has been hard-pressed to make further investments or to deepen its strategic involvement with the firms.
In 2002, Boston Scientific announced that it would invest $100 million in Israeli start-ups, and its executives called Israel a fertile ground for innovation. The subsequent change in Boston Scientific's fortunes has also changed its relations with Israel. The company's bitter legal dispute with Medinol Ltd. over rights to jointly developed stents ended in victory for Medinol, to which Boston Scientific was ordered to pay $750 million. Boston Scientific's marketing activity in Israel also ran into trouble and the company repeatedly replaced the manager of its Israel branch before closing it down and switching to a distributor.
If Boston Scientific sells all its holdings in Israel, this could also severely affect the image of Israel's biomedical industry, even if it is clear that the sell-off has nothing to do with the companies or the industry, but are solely derived from problems at Boston Scientific.
Published by Globes [online], Israel business news - www.globes-online.com - on April 24, 2008
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