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Tickers in this Article: BSX, BDX, ABT, TRPH, RHHBY
Medical technology is progressing so we can all live longer and healthier lives. However, the companies involved in medical technology don't always have the healthiest balance sheets and share prices. We're going to take a look at two companies that make important products for 78 million, aging baby boomers in the United States alone and 450 million worldwide. Most of these products are of the "must have" variety, so the question is, why aren't the shares healthier?

Stented Growth
Boston Scientific
(NYSE: BSX) manufactures implantable stents (tubes inserted into the body to allow for the normal passage of fluids). The good news is that the company has a ready-made market of millions of people, and it has a minimally invasive product that is far less expensive than traditional surgery. The bad news is that, because of the massive product recall of Taxus stents in 2004, the stock has lost roughly 60% in the past three years.

To further complicate matters, because of the company's expensive acquisition of Guidant, it inherited another product recall along with Guidant's cardiac technology. In the past, Boston Scientific has always had a strong pipeline of new products and a devotion to research and development (R&D). BSX has such an affinity for R&D that it often makes equity investments in small firms with exclusive technology, in return for an option to acquire the entire company.

The big question for BSX is, can it recover or is life support failing? For example, the cardiac technology acquired via Guidant could be used in 350,000 cardiac emergencies per year in the United States alone in what is an underserved market. BSX also has drug-coated stents scheduled for release in 2008. Risking money is one thing - would you be willing to bet your life on its products?

A Sharp Strategy

Becton, Dickinson and Company (NYSE: BDX) has one of the sharpest management teams in the medical supply business. More to the point, BDX has built its reputation and business on the needle, syringe and scalpels used by the medical profession. The company is now using the cash flow from this mature business to fund its foray into the rapidly expanding bioscience and diagnostic segments. Some of the firm's safety equipment that proved so successful, it is now required in most hospitals across America.

BDX has a talent for being on the cutting edge as evidenced by its rapid-detection technology - one of a very few options available to respond to the Center for Disease Control and Prevention's directives to reduce the number of infections in the United States. The firm's recent acquisition of GeneOhm and pending acquisition of TriPath (OTC: TRPH) are examples of BDX's commitment to the diagnostics business. The flip side is, by doing this, the company is butting heads with the likes of Abbott Labs (NYSE: ABT) and Roche (OTC: RHHBY), companies with considerable R&D budgets.

BDX does an outstanding job in rooting out pockets of opportunity, such as its HIV testing in developing nations. About 52% of BDX's revenue comes from outside the United States. This kind of exposure also makes it a target for class-action lawsuits. It is currently defending itself against several of them.

The company has increased its R&D budget from about 5% to nearly 8% of revenue. BDX has a good history of returning wealth to shareholders via dividend increases and share repurchases. This is probably why BDX's value has appreciated 50% during the past three years.

With Becton, Dickinson and Company's P/E multiple of almost twice that of the S&P 500, the market seems to be expecting something better than the status quo. Boston Scientific is another matter, and it may take some time for that situation to work itself out. In any event, we're not getting any younger, so there will always be demand for the services of companies such as these.

For further insight into the world of medicine, read Measuring The Medicine Makers.

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