C.R. Bard (BCR)

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C.R. Bard (NYSE: BCR) manufactures medical devices such as stents and catheters. The company leads in market share in nearly all its markets - products for which the company was either the largest or the second largest by market share made up 80% of the company’s net sales in 2006.^[1]

Oncology was one of Bard's fastest growing therapeutic areas, with over 19% sales growth over the previous year. Cancer is the second leading cause of death in developed countries and the third worldwide, and people spend billions of dollars annually on cancer research and treatment.

[edit] Business Overview

Bard’s four main business lines are Vascular, Urology, Oncology, and Surgical Specialty.

• Urology Products: Bard’s leading urology product is the foley catheter, which Bard introduced in 1934. Other urology products include urine monitoring and collection systems, surgical slings (used to treat urinary incontinence), and other devices. ^[2]

• Vascular Products: Bard makes a wide range of products for the vascular market, including catheters, stents, accessories, and others. ^[3]

• Oncology Products: Bard’s oncology products cover a wide range of devices used in the treatment and management of various cancers, including specialty catheters, ultrasound devices, and feeding devices. ^[4]

• Surgical Specialty Products: Bard’s surgical specialty products such as meshes and irrigation devices are primarily used for groin hernia repairs - Bard is the leader in this market segment. ^[5]

BCR’s revenues are diversified across four operating divisions. BCR doesn’t have huge blockbuster products which contribute a significant amount of revenue, but rather a big diversified portfolio of products. ^[6]

BCR 2006 Annual Report^[7]

In 2006, BCR has consolidated revenue of $1,985.5 million, an increase of 12% over 2005 consolidated revenue of $1,771.3 million. ^[8] This increase was led by 19% growth in the Oncology division sales, 12% in Urology, 10% in Vascular, and 7% in Surgical Specialties. However, pre-tax operating income decreased due to legal settlements of $69M, asset impairments of $46M, and a ramping up of R&D spending (increased from 6.5% of revenue to 7.3%). ^[9] The legal settlements are related to two cases:

• Sakharam D. Mahurkar v. C. R. Bard,Inc. - patent infringement claim on dialysis catheters^[10]
• Rochester Medical Corporation, Inc. v. C. R. Bard, Inc., et al. - alleged anti-competitive conduct for standard and anti-infection Foley catheters as well as urethral catheters. ^[11]

An asset impairment charge was taken when BCR's synthetic bulking product was discontinued. It was withdrawn because of the product’s limited commercial success, anticipated future clinical costs and uncertain growth potential.^[12]

BCR 2006 Annual Report^[13]

BCR's revenue is concentrated in the United States, with only 30% of sales coming from abroad.

BCR 2006 Annual Report^[14]

[edit] Key Trends and Forces

[edit] Medicare coverage patterns impacts reimbursement

Health coverage is an important determining factor when patients and doctors choose among various treatment options. Medicare coverage is particularly significant in that it directly affects over forty million Americans, how much patients have to pay for Bard products, and how much Bard will receive in payments from Medicare. Currently, Medicare and other third party payors are emphasizing more cost-effective products and services, by limiting the reimbursement they will cover. Furthermore, even if a new medical or surgical device is cleared by the FDA, Bard faces limited demand for the device until Medicare and other payors approves it for reimbursement. Both of these factors can affect Bard's sales. Bard's products tend to be less controversial and significantly less expensive than some of its competitors, Medtronic's pace makers for instance, and therefore may be less affected by continuing governmental pressure to cut Medicare costs.

[edit] Increasing incidence of cancer drives double digit growth in Bard's oncology division

In the U.S. and other developed countries, cancer is responsible for around 25% of all deaths, second only to cardiovascular disease. The most common methods of treatment of Cancer are surgery, radiation therapy, and chemotherapy (drug therapy), which are often used in conjunction with one another to treat various aspects of cancer. Bard has a wide range of products which are used to treat and manage various aspects of cancer. In 2006, this was the fastest growing division of BCR, at a 19% rate. If the incidence of cancer continues, this could continue to drive sales for the company's Oncology division.

[edit] Government regulation affects product launches

Bard and its competitors are all heavily affected by government regulation, especially by the FDA, which is responsible for regulating food, dietary supplements, drugs, medical devices, and other products in the United States. Without FDA approval, Bard cannot sell any of its medical products to the public. If any of Bard's products fail FDA approval, it can adversely affect the company's sales.

[edit] Competition

Although approximately 80% of the company’s net sales in 2006 were derived from products in which the company has a number one or number two market share position, the company still faces formidable competition in all of its business divisions^[15]:

• Urology: primary competitor in Urology is Covidien.
• Vascular: JOHNSON & JOHNSON (JNJ), Boston Scientific (BSX), and St. Jude Medical (STJ).
• Oncology: Boston Scientific (BSX), Arrow International (ARRO), and AngioDynamics (ANGO).
• Surgical Specialties: Covidien (COV), JOHNSON & JOHNSON (JNJ), and Boston Scientific (BSX).

[edit] References

1. ↑ BCR 2006 10k, II-3
2. ↑ BCR 2006 10k, I-2
3. ↑ BCR 2006 10k, I-2
4. ↑ BCR 2006 10k, I-3
5. ↑ BCR 2006 10k, I-3
6. ↑ BCR 2006 10k, I-2
7. ↑ BCR 2006 10k, I-2
8. ↑ BCR 2006 10k, II-5
9. ↑ BCR 2006 10k, II-9
10. ↑ EdgarOnline
11. ↑ EdgarOnline
12. ↑ BCR 2006 10k, II-10
13. ↑ BCR 2006 10k, II-5
14. ↑ BCR 2006 10k, I-1
15. ↑ BCR 2006 10k, II-3
16. ↑ BCR 2006 10k, II-29
17. ↑ BCR 2006 10k, II-29
18. ↑ STJ 2006 10k, Exhibit 13
19. ↑ STJ 2006 10k, Exhibit 13
20. ↑ BSX 2006 10k
21. ↑ BSX 2006 10k
22. ↑ JNJ 2006 10k
23. ↑ JNJ 2006 10k
24. ↑ COV 2007 10k
25. ↑ COV 2007 10k