Dollars and Stents

After the market close yesterday Pfizer , in an SEC filing, revealed that ousted Chairman and CEO Hank McKinnell will walk away with nearly $200 million in pension benefits, deferred compensation and other cash and stock including more than $300,000 in unused vacation time. This is well above the pension benefits that had been reported earlier this year and includes money that had not previously been disclosed. A Pfizer spokesman says the company is honoring its legal obligation to meet the terms of McKinnell's employment contract which was signed in 2001--"a different time in the company's history," he said.

The new Chairman and CEO Jeff Kindler does not have a contract. Pfizer's paying him $1.35 million in his first year on the job and he's entitled to 150% of his salary as a bonus if he and the company (and the stock) perform well. The healthcare analyst at Miller Tabak & Co. writes in a research note to clients this morning that McKinnell's exit package works out to a little over $2 million for every billion dollars in Pfizer market cap lost during McKinnell's tenure. The stock fell about 40% while McKinnell was running the place.

Earlier yesterday we broke the story about The Cleveland Clinic--arguably the nation's most prestigious cardiac care center--striking an "exclusive" deal with Boston Scientific for stents--the little wire mesh tubes that prop open clogged arteries. A Clinic spokesperson says Boston Scientific has "preferred vendor status" and that the deal is not exclusive. But a source who was very close to the contract negotiations tells me, "They're (the hospital system) just playing games." This is a major turnaround for The Cleveland Clinic which two years ago banned Boston Scientific stents in the wake of a product recall.

Sources tell me that until this 18-month deal was signed on September 1st that the interventional cardiologists at The Cleveland Clinic were using Johnson & Johnson stents 80%-90% of the time because they deemed them to be the safest, especially for their high-risk patients. A hospital spokesperson first told us that it was 50-50, but later when we told her what our source had told us, she said it was "approximately 60-40" in favor of Johnson & Johnson prior to the Boston Scientific contract being signed. Analysts say the data show the competing stents to be comparable. As Cowen & Co. medical device analyst Dhulsini deZoysa told me, "This is a terrific feather in Boston Scientific's cap."

Analysts say drug-coated stents are selling for around $2,200-$2,300 each, but that The Cleveland Clinic probably negotiated the price to below $2,000 apiece because it buys so many of them. A source close to the negotiations says the deal "was financially driven, not based on the science." A hospital spokesperson estimates the Clinic buys around $20 million worth of stents a year. A big account, but a drop in the bucket in the more than $3 billion U.S. drug-coated stent market. Nonetheless, analysts say the fact that the influential The Cleveland Clinic is going with Boston Scientific is a significant endorsement of the product even if the agreement was motivated by price.

Sources say doctors there are not happy with the decision. They like to be able to choose their preferred stent. A hospital spokesperson says the docs can still use Johnson & Johnson stents if they want to. But a source says if the doctors want to use a Johnson & Johnson stent they have to fill out a bunch of paperwork and are then subject to a phone call reminding them to stick with Boston Scientific's stents. Analysts expect similar deals are being struck and will be struck with other hospitals as Johnson & Johnson and Boston Scientific try to lock out each other and looming competitors like Medtronic and Abbott which hope to bring drug-coated stents to the U.S. market in the near future.

Questions? Comments?